73 - Building a $500M DeFi Fund | Arthur0x

Transcript

[Music] welcome to bankless where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity i'm ryan sean adams i'm here with david hoffman and we're here to help you become more bankless david what an episode arthur zero x what did we cover today we covered a little bit of everything and and we started off with the story of how arthur 0x and defiance capital came to be and it's already one of my favorite stories in d5 favorite stories in ethereum and it's something that i feel really really passionate about is that if you are coming into the space and you see things and you notice things and you start to execute on the things

that you noticed you too just like arthur xerx might be able to turn a hundred thousand dollars into a hundred million dollar plus fund like that option and that choice is available to you if you have the the grit and the patience and the foresight to be able to see the things that arthur xerox saw and why he was able to turn defiance capital into the gargantuan that it is in this space we covered much more than that and so i'll leave that to you ryan to explain to the listeners but that was my favorite part give that back to me yeah look man it's my favorite part too this story is amazing six figures to nine figures right and the the thing i would add to that is you also have the grit to stick with this during a bear market i think

that's key if you're if you're looking for that like 50x 100x type of return you have to believe in something when no one else does right right now we're in a you know we're in a hot ish warmish bull market it was not that way in 2018 when arthur was was uh growing up in d5 and when he was investing in things no one else was touching these tokens were like everyone hated tokens and the tokens were out tokens were totally out anyway we covered that that that uh story is amazing we talk about defiance capital as focused on fundamentals which is really cool to hear not just not narratives not sentiment but actual fundamentals of tokens and ignore the

rest listener that is an option for you you don't have to go chase all of the narratives that you hear and see in crypto you can just focus on fundamentals refreshing here that we did an automated market maker comparison why are sushi and uniswap value differently how about curve how about bancor how about balancer will one automated market maker win the network effect will there be many we also talked about eth killers um i will not give away arthur's conclusion there because i think he had some great conclusions i even asked him if he had to pick one non-ethereum layer one which would he be and why he answered that question then we talked about and concluded this with uh d5 from a an asian perspective so

from the perspective of asia i should say and arthur had a great kind of um i guess categorization of different areas in asia that aren't like jurisdiction based but are more kind of cultural alignment that i think was super useful and will be listener useful to listeners as well of course we concluded with price predictions because you know we just had to because it's bankless it's fun well we also concluded with what arthur is really excited about towards the end of 2021 and he actually he actually gave a really interesting answer uh and well i'll tease it real quick here because it was actually the elaboration i think was the cool part he thinks he's really excited for scale as we all are we've been beating the layer

two summer drum here on bank list but arthur thinks that once we have scale the floodgates for users just absolutely open and so we dive into that a little bit as well towards the end of the conversation but uh as a recap that was a whole episode really cool story guys you are going to enjoy this so before we get into the episode we want to thank the sponsors that made this possible bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an autonomous piece of software on ethereum which is what ryan and i call a money robot no human counterparties or

centralized intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to buy something brand new in the uni-swap ecosystem is the uniswap grants program is now accepting applications for grants we have been saying this for a while and we'll say it again dows have money and they are in need of labor if you think that you have something to contribute to the uni-swap dow apply for a grant to uni-swap just look at the size of the uni-swap treasury it's almost three billion dollars this mountain of capital is looking for labor do you have something of value to contribute to the uniswap dow no matter how big or small your idea is you can apply for a uni grant at unigrants.org and help steer

unit swap in the direction that you think it should go that's exactly what we did to get uniswop to be a sponsor for bankless and you can do the same for your project thank you uniswap for sponsoring bankless balancer is a powerful platform for flexible automated market makers typical amms just have two tokens inside of one liquidity pool which can lead to fractured liquidity across the many pairs in d5 with balancer you can access the full power of multiple tokens inside of one single amm which unlocks an entirely new playing field of possibility this makes balancer an awesome building block for so many different use cases balancer pools can make asset indices but instead of paying fees to portfolio managers balancer lets you collect the fees from traders who

use your portfolio for liquidity additionally balancer smart pools can be programmed to have properties that change according to pre-determined rules such as changing the swap fee based on market conditions or even liquidity bootstrapping pools which can help you launch and distribute your token with day one liquidity at banklist we use a liquidity bootstrapping pool to sell our bap t-shirts too much success balancer v2 brings powerful new features that makes your money work even harder for you in v2 idle tokens are capable of generating yield in defy without sacrificing liquidity in the pool using balancers asset managers balancers of vault architecture lets you trade between balancer pools at a fraction of the cost for trading on other platforms

balancers mission is to become the primary source of liquidity in d5 by providing the most flexible and powerful platform for asset management and decentralized exchange dive into the balancer pools at app.balancer.fi bankless nation we are super excited about our next guest arthur zero x is one of the most successful defy investors in the entire crypto space he runs defiance capital which is the largest d5 focused fund in asia he's based in singapore funded by tons of investors maybe most notably by the heroes three arrows capital folks suzu and kyle davies arthur we have so much to talk about man i'm glad you joined us today how are you doing

doing well um been a listener of bangla since day one and it's my pleasure to be here that's awesome uh well very cool well we we have been a follower of yours for a long time as well and i want to kind of start with this uh this story which is kind of your story of getting into d5 and getting into crypto um i understand that you went full time into crypto in um 2018 so lots of folks managing funds have been in crypto for longer you tweeted this out and i think this is uh incredible 500 million and 50k followers what comes next 5k eth i hope so maybe 10ke um but 500 million 50k followers you started in crypto full time in 2018

that is incredible man that's an incredible story how did that happen tell us yeah so uh it's a long story um but uh i think it's a there's some useful take away so i'll share a bit more i started in space in 2018 um initially i want to run a crypto research startup because i think initially when i came into the space i realized that there's a lot of focus on the high and the promises but there is lack of focus on what's really happening and how to value this thing properly so i initially want to run a crypto research startup but i didn't find product market fit so

what happened is i decided to focus on investing instead but that was the bear market so 2018 you know bitcoin went to 3000 if whether the lowest point was 80 plus dollars but i think uh during that period of time i was always asking myself so besides just trading and speculation what other use case can we get from crypto and coming from someone who went through the ico bubble um i think that's very important because during that period everyone who have experienced it must have realized that we can literally see all the different use cases being experimented um travel and a b and b on blockchain uh spotify and blockchain

etcetera etcetera uber on the block yeah yeah exactly but i think none of them are really uh being realized or achieved in a major way um except for financial use cases i think at the end of 2018 um i think the first time i heard about d5 was in i think january 2019 but i know the term was coined in late 2018 by a group of early d5 teams such as uh i think the set protocol uh dharma and a few others they just join together and say why don't we create a term for this new movement and then the term d5 was born um yeah so um i think and this is also part of the extension of my stable coin

thesis because um [Music] when when i was uh helping some of the new crypto startup initially a lot of them want to introduce their own token as a payment mechanism but uh it has shown not to be working well in fact it just doesn't work at all because nobody wants to use a new token to pay for any services people want to use a common currency uh in crypto world that will most likely be if or bitcoin but uh right now i would say that uh stable coin is actually the most suitable payment just the people want a stable unit of account and i think that time stable coin just started to took off because bear market people want to find a safe haven and stable coil become natural selection and

i think that being bullish on a stable also lead me to bullish on d5 as well because uh defy uh allow this uh whole uh exchange of uh crypto assets uh between stable coin and the volatile one and this is a very obvious use cases and after that the extension of landing and borrowing um after being a user of this i can just see how important is uh to the entire space so that's why i started to dig more research into d5 start being a power user an early early supporter and obviously being a very early use of synthetics community helps a lot as well and that kind of lasts me through most of 2019

being an early d5 user and community member especially in the synthetics and i think uh what really changed is um i think so i think the d5 synthetic start to did quite well around there and i think around 2020 um the whole space before d by summer uh start to grow pretty well on the organic level but then after d5 summer it just was just like a explosive moment that everyone realized that d5 is not a fad that a lot people start to really recognize that there's a lot of potential in this and yeah and i think at that moment i'd raise defiance capital

and we have grown very fast since then so with the support of three arrows capital we have raised around um around mid eight figures of capital uh but treyarch and myself are the largest investor and throughout the office from 2020 second half of 2020 until now we've grown tremendously to around around low to mid 9 figures of capital right now obviously like the the va the figures change a lot depending on the market condition but yeah that's where we are right now um yeah i think that that's uh yeah we can go deeper into any part we would like to that's that's a pretty incredible story and bankless listeners um i i want you to to draw out a few things that arthur said

there is as he started with kind of a thesis uh but then he also became a defy super user which is interesting there and then uh turned kind of investor turned fund manager um but but the amounts that you're managing are are pretty incredible arthur and i'm just like curious because i think a lot of people listening are d5 super users also um d5 investors uh and they're pretty excited about your trajectory because they you know want a similar trajectory they're interested in the path that that you've taken um so like what is it was was it just this combination of right place right

time you being a d5 super user you applying a thesis at a time when the market was was bearish and then it flipped flipped bullish what's kind of the the secret ingredient for your success here because i think a lot of listeners want to emulate this i think there's a um i would say that uh i think that there's no secret uh it's more like um after doing your research or called homework uh a really strong belief in your research uh in your understanding and obviously that is based on the uh that you your research is the right research

um and i think that uh a lot of time people are very affected by what is happening now but not not on what has happened over the last uh what was the previous trend and what is ongoing trend so if you always focus focus on the current point of the market um you're always going to draw a very different conclusion because crypto can be a bull market in two months in the bear market in two months which is what we have experienced recently but if you look at the crypto and 2018 yes there was a the bubble and yeah a lot of the misallocation of capital but the usage of crypto actually has been increasing and even that time we see a very small glimpse into the potential nft i was also the very early uh player of cryptokitty as well so i

think yeah obviously the nft whole thing really come off right around early this year right but the whole the first gleam into the potential already happened two years ago and for d5 it's actually you can also argue that uh yeah you see the potential dexes when ether delta came on the scene but it just also was two years too early until uni sword really changed the game so i think that uh by looking into the previous usage and the early sign of parallel market v and you look at where the world want to go next i think you can you can really the so-called cliches zoom out uh that gives you a lot more confidence on where the world is going so i think that uh the the biggest factor for me is really the persistent because i think a lot of people drop out

to their brain market but i believe that what we are doing is just not all hype and just there's actually something bigger that we are building and obviously i think being early helps a lot but i think the entire space is still incredibly early um there are some d5 projects where investors when i invested is around less than 100 million market cap and right now i think there's still quite a lot of promising d5 protocol they're trading at below 100 million market cap as well and i have no doubt some of them will become a billion dollar d5 protocol in the future and these are most of their switch ones i mean i don't want to i don't want to be this like a top my back section but i think um most of them that which i

mentioned that they're actually publicly listed already like you can buy them from unisop from some of the centralized exchanges so yeah you don't even need to like get into private sale to get in yep here's the other thing that you were doing at a time when it wasn't popular because in in 2017 it was there of util futility tokens like pointless tokens that were injected in protocols right in 2018 it was not popular to make a bet on a token like tokens were out they were dead i mean they were useless right that this is what the market sentiment held and that's why we saw even while there was early traction in d5 protocols um tokens just weren't being valued probably the way they they should uh be

valued was that a core part of your thesis at the time that hey these tokens are actually worth something even though the market is is highly discounting them yes um so i think that's a that's where i was quite different with most the consensus back then because uh i think first of all my i used to be very adamant and i think as right now i'm still have a very strong focus efficient token value accrual i think especially in a bear market um there's really uh during the 2018 there was really no bottom especially especially for the so-called altcoins after they dropped ninety percent they can still drop another eighty percent so i think at that point of time valuable crew will become extreme because there should be some base flaw

in the value if the token is uh if the if the product is being used and people are using it so if the product is there should be some value being captured and this value should provide like a flaw to the value in the token so you know that you will not go to zero and that gives the token holder a lot more confidence in holding during the bad time so that was the way i approach it during the bear market and and i think that this actually extends to most of the token i think that some form of value accurate has to be because else what are we really investing i mean the so-called futility token um yeah is it the investor doesn't need to hold them we only need to purchase them when we need to pay for

certain token services which is why that the demand factor would be so weak um yeah so i think that that's a very major difference and i think that uh the unique thing about token is uh because i personally did a lot of research so what is the best way to design a good token and how do we make it like integrated into the platform um i think that there's two main purposes a token should serve first it has to have some strong value accrual the second thing is uh it should serve as a growth catalyst for the protocol and the community because i think this is the advantage of token competitor traditional equity because you can't really freely give out the equity to your user and community member due to like very various regulatory restrictions for token you have a lot of

leeway to innovate with this and this is actually a very strong advantage that the crypto community should not give up on yeah arthur one thing i think is really cool about your story and i want to go more into fundamentals and we're about to get into that intersect but i want to still talk about the story of defiance capital and you arthur uh you you you go through you came into this role in 2017 you go through the bear market with us in 2018 2019 with me we're we're both uh uh students of the 2017 era uh and i i want to impress a pardon upon the listeners that you came out of just your first cycle starting to manage a fund but i also i also arthur i want to ask how old are

you uh how old are you and and in yeah how old are you i'm currently 29 years old and you're managing a fund that's fun where somewhere between 200 and 500 million dollars depending on the emotions of the crypto markets does that ever scare you does that is that a scary thing because that's a lot of money and you're and you're you're 29 years old that's that's a crazy thing that i think we could only find in crypto do you ever reflect on just the the magnitude of the discrepancy between the the size of the fund and how young you are um yeah actually um yes um but i think there's actually another factor i i'm most impressed and surprised by

actually i think even in traditional finance you do have some of the like a successful trader managing a few hundred million dollar of capital um but i think most of these are not their capital but i think for crypto i'll say uh it's not just for our fund but a lot of other fund as well like the principal capital is probably a majority of the investment fund uh same for defiance so i think in that sense yeah it's quite amazing that how how people at our age can accumulate such an amount of capital and just managing such an amount swing i think this is really uh brings to the fact that crypto is a major level playing field uh and for everyone from different background

because i didn't come from like a very uh wealthy family and i was like actually i came to singapore only 10 years ago so i think that's a and crypto just really give everyone the opportunity who willing to put in the effort and the and meaning willing to make it happen so i think that that's the effect i'm definitely impressed by i i think that's what listeners should really walk away with right now is is uh you know when arthur is telling his story about just the formulation of his thoughts in 2017 2018 as somebody that also came into the world of crypto around that same time i very much resonate it resonated with these these thought structures or thought patterns that arthur was having about what he

thought about the market at the time and you know so i i think listeners should understand that like it's possible to come into the world of crypto and look around and formulate an opinion as to what's going on and then turn that into a fund or turn that into something arthur here turned it into a fund other people can turn it into something else but the the how far you have to go into this industry to start really making a difference and doing something cool is not as deep as what people thought uh and and that's the opportunity that i think a lot of listeners should come to or conclusion that they should come to is that you can come in and figure out what's going on in the world of crypto you've got to do your

homework for a year or two but then you look around and start formulating an opinion and start to test that and turn that into something viable uh and so arthur maybe you could just go in a little bit more into just the details of to how you established your own confidence in your ability to call the shots or your own confidence in your that your your thesis and your beliefs about the crypto world were the right world would did you ever have like doubts or did you ever have like concerns or just tell us the story of just like coming into uh the the shoes of a 500 million dollar fund sure i think uh i used to say that uh in know it's a few days ago

confidence is the memory of winning and i believe that uh it should be the same for everyone like when you're doing something and you keep getting certain form validation from your action and then your confidence will just increase and i think that uh in the initial phase um i think it took a while uh because i think the microphone was synthetics and uh it took a while for the thesis to be realized but i think that it's also a come from the fact that sometimes you have to do it yourself writing the early stage where people wasn't recognizing the potential synthetics i actually um and it was doing a bear market i took upon myself and spent i think close to one and a half months to write like a very comprehensive report um and

actually that report was not perfect and uh i think even if you look at it right now it's already outdated um so i don't suggest people to go and search it but i think you have to um do something to believe in yourself and make it happen uh to just really uh put it out there and see what kind of result you get and i think the result was actually overwhelmingly positive and i think after a few months uh the market started reacting to that and then i just keep applying the same approach to the different device protocol which i invested in you know spend time in the community help out and you know help to popularize them and also just communicate the team and see if any value we can add as much as possible and i think this approach is a it's actually quite universal it's just

that not many people are doing in a crypto that time i think when you look at a like a traditional venture capital they also like lend a lot of support to their community and i think this probably also brings my experience from uh like stock investing because i think in a stock investing world there's something called the activist investing actually not just stock i mean there's something uh there's this in the bond market as well like the investor will really uh try to effect some changes in the companies or like the stuff they are invested in and to get value out of it i think that um in crypto similarly you can actually apply this concept and actually to a bigger extent because um most of the crypto on d5 protocol very early stage and the team will very happily interact

with most of the community members so you can really uh make your uh have a lot of influence on the future on how the protocol is being run yeah so i think just just keep doing this and the feedback you get will just help you to build a lot of confidence and this is how you get to that level arthur was there a moment where it just became obvious that the next step for you needed to be starting a fund was there was there ever or did you always want to start a fund um what was the inflection point where it defines capital became a thing what what was the signal that you got from the market that you needed to start a fund i think the signal was uh the success we have been getting uh the growth we've been

getting even before the fund was formed um it was a very strong validation of our investment thesis and approach um yeah so all of it started from very low base but our return was pretty insane uh for most of 2019 and 2020 because no i mean when you look at it most fun even even a small one they don't really outperform bitcoin uh for until 2020. uh i think i think the outperformed bitcoin part only started this year where you see stuff like pokhardo and all the stuff start going like crazy like 20x or 15x um but i think 2020 um 2019 2018 was quite hard to outperform bitcoin um

because uh just bitcoin dominance was so strong during that period but we have managed to did that um and then i just keep doing that uh for most of the for most of the time and we have been seeing our investment thesis being validated like some of our call it was actually quite public because i was a you know i was quite active on twitter very early on and most of our call was validated in a very convincing way so let's uh talk a little bit about that investment thesis arthur i i think we want to spend some time here um so defiance capital you guys say we invest in defy eating traditional finance that is something definitely bankless listeners are quite familiar with we talk about it all the time defy

is going to eat traditional finance but i find it strictly striking as is you as kind of a crypto super user a crypto native have sort of started um defiance as a crypto native fund so um you you're able to do things like invest directly in dalls there's an interesting post by uh kane warwick who is the one of the founders of synthetics uh he wrote a post on dow first capital formation i thought it was really interesting because he he makes the point and this was i believe addressed to founders where he says hey founders like why go their traditional vc route and legal structure route when you're going to decentralize all of those things anyway why not just start with a

dow first and start with that structure you know you're going to end up in in that structure to begin with so why not save some time what's interesting about i believe the way defines is structured is you can more easily invest and are more comfortable maybe prefer to invest in crypto native dow type vehicles like that can you talk about the edge that that gives defiance and how important it is for investors to look at crypto native capital coordination vehicles like dallas yeah yeah i think that um yeah i think we are one of the one of the crypto native funds they are able to invest in dial directly because

um yeah we just because we have been in the space for a very long time so we are comfortable comfortable with this kind of structure and now also um in a way that there is some protection to the investor as well because most are structured by uh the way that the you need some majority to make some major decision and sometimes most of the time the investor will also have some some decision making responsibility as well and i think the importance is especially uh crucial for d5 protocol because i think that there's a reason it's called decentralized finance and i think um with the recent regulatory action uh especially the latest uh

i call it fatf uh guidance it was recently been delayed to october but um it's still not 100 sure that how how is it going to be and there's a potential to be a very strict interpretation of that which gonna regulate d5 protocol the same way as a centralized crypto company or you know but the d5 industry is obviously trying to um lobby for uh like a much more sensible uh guidance but regardless i think that it's important to for the d5 protocol to find a way to gradually decentralize and i think dao is one of the best structure to do that so yeah this is why we we really support this uh this dao

capital structure formation arthur um something else you guys have emphasized and we even started talking about it when we you talked about um token value accrual is this focus on fundamentals and we we've talked to a ton of different um crypto native funds and and traditional kind of crypto funds on bankless uh and i i haven't quite heard the emphasis on fundamentals from the others as as you seem to have a lot of them talk about sentiment a lot of them talk about narratives a lot of them talk about um community can can you tell us what you mean when you talk about um fundamentals what are fundamentals in crypto

and why are they important in this industry that seems like it's sometimes just based on memes yeah that's that's a great questions um so there's i think every fund actually do look at fundamentals but they will probably define fundamentals in a different way so uh for us fundamentals uh means that the team quality the valuation of the protocol and to extension to the team qualities like the execution track record have they built something valuable what's their previous history the technical architecture because sometimes we find that the whole thing the design to be unfit or sometimes the design is superior the community involvement and the token value accrual and the last

but not least the near-term catalyst so these are most of the fundamental factors we look at and to us uh fundamental matters a lot because uh i think even when in crypto right um the correlation very often go to one when the market is dropping so actually in a sense um if you are talking about downside protection uh there is not not that much reason to be very diversified like you want to avoid the risk where one of the protocol got hacked and then you lose 100 of your investment but um if you want to diversify just to prevent like the the correlation risk um there's not much reason in that because

everything go down at the same time but when in the bull market when the token is rallying you can see a lot more dispersion like some will do a lot better like some did around 500 percent in the q1 this year but some only they did like 100 so i think that uh by focusing on the fundamental you can capture this kind of a positive divergence when the market is rallying and i think that market do pay attention to the fundamentals um but often it can get crowded out by the the very noisy stuff like um like and i think this is part of the extension of the current world we're being in like uh there's a meme coin investing in the stock market as well and to a certain extent there's like a meme so meme stock investing in stock market and meme coin

investing in the crypto were like the dodge coin and the shiba and all the stuff but i think that ultimately there's a very different kind of audience looking at this stuff like the the smart money will always look at the fundamentals it's just how they interpret it is everyone have a slightly different way of interpreting it arthur i just looked at uh coinmarketcap like sometime earlier today um there's some sort of a coin dashboard and shebo was at over four billion dollars in fully diluted valuation and that just blew my mind first and second it made me a little bit sad right just a little bit sad because um like there are so many interesting assets in crypto so many capital assets with cash flows so many

defy assets um with protocols behind them that are going to change the world and eat the rest of finance but invest people out there are out chasing like meme coins uh and that that just kind of makes me sad i guess for for crypto but but you're saying you have hope you're saying that in the longer term uh that um crypto markets are going to value fundamentals so highly i guess my question is how do you explain explain things like litecoin or xrp or or the sheba's of the world in that context are they going to ultimately just diminish while the fundamental assets are going to increase or are we just in a world like of of

funhouse mirrors and and narratives and maybe like fundamentals are kind of pushed aside in this in this new market that we live in like give me some more hope here on the on why fundamentals matter more than narratives yeah i i think that um it's a it's a gradually changing process um i want to draw an analogy from the stock market so before benjamin graham uh published the book called security analysis uh the market uh for the larger period of time uh doesn't know how to value a stock properly so i think the stock like 70 80 years ago was actually quite similar to crypto now like there was a lot of hype

and speculation and people don't really know how to value it uh properly and the discounted cash flow model uh will only popularize i think around like i think 19 sorry i probably get a years around like 50 or 60s and then graduate in the process are being refined and people start to talk about the discount rate and what is the equity risk premium so all this thing take time to develop i think we're in a similar phase in crypto where there was there's no consensus on how to value crypto asset yet and as a result and people also have a very uh like a very surface view like normal people have a surface view on what is crypto because when they come into crypto they always talk about bitcoin first and this is called cryptocurrency

right and then to extend they think all most of it are like currency currency-ish crypto but like i mean you guys have talked about it like a lot of the crypto especially in the d5 space are capital asset they produce cash flow they're what we call the productive assets so the way you look at them is very different from the way you look at the currency i think that unfortunately that there's still a lot of education we need to do i think that the d5 community over the last few years is really a lot more focused on building the right product and because the scalability is not software so we don't want to on board the mainstream user too early but unfortunately that the bull market came and then the the retail was always on board to the exciting stuff and where the opportunist

actor was always trying to capture their attention like i look at shiva swap right i mean i think this is my view and my research but i think that there are some good people behind that and they are not doing it for altruistic reason i think they are you know they probably have some game plan behind it and then these people are always at the market here right they always know how to capture the retail's attention and a lot of d5 people uh really want to build a good product and they want to make sure their product is good enough before they really start to market it out to the wider audience so i don't think this is gonna change immediately but it's a gradual process where market is just slowly getting smarter and smarter um through various cycle it might not happen as fast as

we hope to be but i think it's definitely changing because um this is how like the fundamental investment approach uh we are able to use to generate so much return for us and our investor right let me we went from like a low six figures of uh capital to around like nine figures of capital and all these are done through fundamental investment processes a frequent metaphor we use on the bank list program is that we are speed running the history of money and finance and i i guess when you arthur you say that uh previous markets had equal amounts of trouble valuing fundamentals i guess we should incorporate that and as knowledge when we when we say that crypto speed running the history of money and finance well

it's not doing it in one year like it's not going to happen that fast it's going to happen in you know 10 20 30 years and so we are still likely going to go through a phase where the market is having trouble understanding what the hell it is what what what is the assets that are inside of these things and arthur one of the fundamental metrics or fundamental drivers that you say that you pay attention to over at defiance is a token value capture and does the token actually capture value now there's a wide range of token models that exist out there that we could and we don't have the time to go through every single one but i want to i want to ask you to pull apart two examples that you have seen in the d5 space of one token

that has a really strong token value capture mechanism that you just really really like or or a handful and then some other tokens that while you like the project and maybe the project ads adds value to the world the token just doesn't capture any value can you kind of explain compare and contrast some winners and some losers in this category just for example for our listeners yeah sure um i think i was a very big proponent of the synthetics token economics from the beginning because i think they are the one that pioneered using like a token inflation to incentivize the community and also incentivize the early adopter

because the inflation starts from a pretty high level but it's gradually tapered down so it reward the early user who really believe in the protocol and take took the initial risk so i think this is very a very good design and also there's a very obvious value capture where by taking the risk of sticking in the synthetics protocol the token holder are rewarded by the fee generated by the protocol at the same time both in the native token and also in the extra fee income that was generated by people trading on a synthetic protocol so i think that by taking some of our risks they're also rewarded in some sort of income so i think this is usually like a pretty universal principle and i still think

that it's a pretty good design obviously that when it comes to hedging the debt exposure it was always quite problematic other design i think it was very well designed but uh until right now i think not enough people have understand it which is a bank call so actually bangkok um they went through a lot of iteration i think right now they finally arrive at the token economic model that make a lot of sense so oh so many uh taxes protocol actually bangkok captured the most value uh for the token holder i think 40 to 60 percent of the fee actually go to the bank called token holder but it doesn't come in the form of uh of income it actually comes in the form of the burning

and there's also consistent of the so-called inflation or to support a new liquidity pool as well but actually it was quite complicated i think most people don't really realize that so as a result they are still not free uh value highly but actually we our team wrote a blog post on that one uh explaining how the mechanism was so i think for the more detailed minded people they're happy to take a look yeah so i think both these have a very uh good design and i think for landing and boring protocol rv and compound the value of crew is quite similar um they both take a a small percentage from the interest owned that accrue to the depositor and go to the treasury i think in the future the token

holder can vote on how the treasury uh is uh the accumulated reserve is going to be used uh it can be returned to the token holder or other investment into the protocol um and i think for ave uh the token holder is it is quite similar for makers well the token holder is also acting as a backstop to the solvency of the protocol as well so i think this is a very uh sound economic design so yeah it took them a while to actually come to this design as well so i think that um in terms of the and then you have a lot of the d5 protocol that just doesn't capture value at all right and they also have no very con they don't have a very concrete plan

how to get there as well um i think yeah so i think those are just the team and community need to figure it out so i think another more controversial point i have is i think i think at this stage uh buy back and burn is probably not the most optimal solution because uh in a way i think that the placeholder have published a blog post called by ibm and they actually argue that uh buyback and burn when the protocol still have a lot of growth potential is actually destroying capital and i really agree with this because when you look at early stage startup in the traditional world uh nobody is just uh like doing share buyback or like giving out

dividend that early actually i mean giving dividends sometimes but usually it's one off it's not a consistent dividend policy like you when when you have a lot of growth potential you always want to reinvest in that growth and that's actually fine so yeah i think the buy-back and burn for most of the d5 protocol right now it's a bit too early they should actually find a way to reinvest this protocol or even just give back to the token holder right it's i think he's still better than like burning the capital directly i although i understand there's some uh tax implications for the returning the the dividend so-called dividend token order but i think that a better way can still be designed so arthur so you don't love the the buy back in burn or probably the um distributing cash flow

to too early back to token holders because your argument is like should reinvest back into you into the protocol i i'm curious about this because we have uh some protocols sitting on now billions of dollars worth in treasury right so like one that comes to mind is uh the uniswap team we talk about it often um billions in their treasury and they've got like 15 20 people on their team and so like what could they possibly invest back into like those billions of dollars they're not like a large bank where they have office floors and physical infrastructure and tons of employees and you know in

suits and ties and you know travel expenses and all of these things uh it's just like 20 people in a protocol so what about that argument that hey if the protocols don't have anything to do with the money uh and what what should protocols spend on maybe they should um push some of those funds back to the token holders any thoughts there um yeah i think that is a very sensible point um i think that but i don't think that most d5 protocol would not find a way to utilize uh their capital um effectively i think union stock is outlier just because of how highly

valued they are and as a result that treasury is massive because the token is worth a lot but i think most d5 protocols do not have that huge amount of capital and i mean setting aside some for as a reserve for future usages i think that most of them can find a good way to uh invest those capital like you can invest in more education um i think this is always like you're always fighting attention um against the meme coin right so why don't the d5 protocol invest in more educational channel more outreach effort more translation more in the local community so that not just the english speaking community understand what d5 is about but the community from all the other words as well i think that

i think some some particularly better but i think generally most of the default protocol we are speaking to are because they are early stages a lot more focused on improving their product instead of like reaching out to the new community because yeah i i think that you guys actually the bangladesh did a very good job like by translating your content to multiple languages to reach out to more community i think this is what that a lot of the protocol can could have done better and actually these uh it just takes a lot of effort and yeah you might just need to hire a lot more people arthur we want to keep on going down the fundamentals rabbit hole and i ultimately want to get to kind of an amm comparison because i think there's a lot to be learned a lot to be gleaned from

talking about all the different indexes and how we see the market valuing these things but before we get there we need to talk about all the different metrics that one could use to evaluate a protocol so so arthur say you are coming up upon this new up and coming you know d5 protocol that you want to evaluate what are the metrics that you really look to first is it you know market cap fully diluted cap you know capital efficiency ratios like what are they what are the basic metrics that you look at first and then maybe some of the more advanced ones as well i think i think the basic one uh okay so i think it depends on whether the protocol already have a working product

so i think if you do not have a working product yet it's really similar to how most vc look at it the theme the track record uh the concept um the the vertical they are building like this are there any precedent and can can you value them so i think these are pretty standard i probably would not go too much into it because this is really on like how the traditional vc that i think about investment and instead in crypto you have a token part you want to think about how the how the team is planning to distribute a token and what do they plan to do with the token so i think for those with already a working product um there's a few metrics i think matters a lot uh it's actually there's also very good posts on the message recently talking about which

d500 which fundamentals of d5 protocol matter the most um i think that what we look at uh we look at the first of all uh if it's the taxes we look at the volume uh i think that's very universal how much volume are they generated and then after that we look at the fee uh value capture if there's a few value captures so i think right now it's pretty standard like most protocol kept like um for the non-stable coin protocol they take a 0.05 percent of the of the trading volume as a fee and for the stable coin they take slightly lower i think curve took like a 0.04 percent of the trading volume or actually the fee as a as an income

and then you look at the total value log um and this actually represents like how how much capital this protocol is securing and this is a very popular ratio in the d5 space right now and i think capital efficiency is on a case by case basis where i think some protocol is just optimized for more capital efficiency uh i think that matters but we still look at the fee generated uh i think that matters the most against the market cap of the protocol so i think this is ultimately how like a capital asset is being valued in the traditional finance like a price to earning ratio and to this like and to the extent the discounted cash flow how much cash flow you're generating should uh dictate how highly valued you are and after factoring the

the growth rate and the discount rate of the protocol so so these are the universal factor but i think one factor that really drive a lot of the price action uh is the user and the user growth because i think that at this stage the people understand the cash flow might not come immediately because for example uni swap have no cash flow because they just don't have any value capture at the moment but their value the most among the default protocol because they have a tremendous user base and their user growth is also one of the best in the industry so i think this is a metric that uh all of that there's no direct correlation with the value accrual but it's something that the market is placing a lot of emphasis on so what are some of the assets that you

see out there the protocols or projects that you see out there that would you say are undervalued based on the metrics that you look at are is are there any things that really just stand out as a complete outlier between their valuation and the actual fundamentals that the project holds yeah i mean disclaimer i think this asset might be something that defines whole position in um i think that um if you look at the pure metrics level uh you can actually just go to token terminal and then you can just sort the asset by price to sale ratio and then you can just see our price to earning ratio i think they're coming out with that as well then you can just see what is the most undervalued i think we have always maintained that sushi saw is very

undervalued because that i mean the given the volume they are doing they should not uh deserve such a huge dispatch um i know a lot of people argue that you know uh unison v3 is going to kill sushi sword because it was just like an older version like v2 design but the fact that that hasn't happened um because i think that uh what we have seen over the last one to two months is unison v3 is really optimized for the active liquidity provider which right now means like the professional market makers i think it's very hard for retail to be a passive liquidity provider on v3 and i think there are some backtests being run out of the sample size not big enough that they actually did not perform better than the b2

so um i think there's passive lp still have his place and as a result i think that at this ratio that sushi starts trading at this market is basically pricing like zero growth you know the market that sushi sauce is just not gonna grow further which i think that's not the case and i think from a growth stage level uh not looking beyond just the ratio i think both rv and compound is uh undervalued by the market because i think among all the different d5 verticals landing and boring are the segment that with the most defensible mode so in a sense that i don't think there is any new landing and boring protocol using

the similar design building on ethereum can come in and disrupt them uh even a year i think it's just not possible because it takes a long time to build the trust uh and build the the the safety because both of them have operated for more than one year and there was no security incident as well so i think these take time to build and yeah and uh the it's also the vertical with the most obvious liquidity and network effect because uh it's like if you do not have sufficient deposits in the platform people can't borrow a huge forum and vice versa so it takes a long time to build out the network effect and also because the token is worth a lot more the the liquidity incentive they give out is more effective as well so

it's just very hard for the early stage protocol to compute rv and compound in this regard arthur let's go into a little bit of a case study with all of the amms that are out there because there's a lot there's there's uniswap curve sushi swap bancore we've already talked a little bit about some of these but i want to go into more detail about specifically the the sector of amms because i think that can really be an illustrative example um you you and a swap you talked about how it has really high growth um sushi swap you said how it is being uh valued as if it's not going to grow uh then you also earlier talked about bancor and how it has a really capture has captured a lot of value for its token holders how do you see the market

valuing these things differently it seems to be that each one of them has their own like fundamentals right each one of them is capturing some sort of fees but it seems to be that the market is telling different stories based off of each of these different amms could you do you have a rationale or an explanation of why the why the market values these things so differently i think that um it's just like right now market is in a way of uh like the most of the investors when they look at d5 they want to invest in a growth um and i think that in and as a result that a uni swap would just capture the lion's share of the attention in the market and and they are the pioneer of that model

as well so market have a lot of confidence on unisop being able to maintain that dominance and being like the most cutting-edge team as well so i think as a result their model is always being placed a lot of premium and i think for other ama model um the the more unique one it would be balancer and bangkok because sushi shop is just like the same design as a unison v2 i think the market is uh it's um i want to see like the what whether the differences can make up can compete with the with the v3 design i think so we are invested in both bangko and balancer uh because we think that uh there is a value to their design and the way they present to the to the user but

i think it takes time for the market to learn about it and to be convinced right because balance was actually i think the second major d5 protocol to kick off the liquidity mining but after that the the traction got taken away by unison instead and then it always take time for the market to spend time to understand a specific protocol so and you need some catalyst as well so i it can become in the form of fundamental let's say like i think xc infinity but it's not a default protocol but recently like the price have done very well outperformed most of the default protocol is just that because the revenue they're generating is just way too big to be so this can be a catalyst event that your fundamental is so superior that the the market just can't ignore it or

you have some uh catalyst where people are really um uh amazed by the design so i think both bangkok and balancer uh we they need this kind of event for people to really spend time understanding and design this their design and to come to a conclusion that this design actually uh is really a very good design and the market should value them in a different way so i think it yeah you usually need some event um to capture the market attention and then for market to value you in a different way i'd also throw maybe curve into the mix here and i'm curious arthur just uh one other follow-up on the amm portion of this conversation is um the market also seems to be somewhat

divided and some some folks believe that the amm exchange world will be dominated by sort of a power law winner one automated market maker will dominate say 80 percent of of the exchange market um others believe that there will be many different automated market maker designs and you with an investment in bank or and also balance are kind of more the long tail automated market makers at this point maybe that's more indicative of of your belief how do you think this shakes out will there be one power law winner or will we live in a world where with many different automated market makers i think that there's no power law um

because uh liquidity is very fungible in this space and we have to see the scene have changed over the last um last one to two years as well i think idacs used to be the largest decentralized exchange until they decided to i think make some changes i think i think implementing kyc probably affected their fortune quite a fair bit um and then yeah uni stock came to the same and then uh may have maintained their dominance uh since then but it's just that when you look at the centralized exchange the fate has always changed right i mean uh binance wasn't that dominant until 2018. um and then you have bitfenix was used to

be dominant and poor onyx and the older time the chinese exchanges was the most dominant as well so liquidity is very fungible and any in that sense that it's always possible for some am to come with a new design and improve it and then just be more dominant for a certain period of time so i think it's a it's actually good for the end user because everyone is just trying to come at a better design and compete over time and i think that you will see a power law for a certain period of time but not forever so i think that the situation can always change and you might end up in an equilibrium where just that there is no dominant m m that everyone just have like a certain market share that's not changing too much um and i think that if you subscribe to

the aggregation theory uh what matters is the aggregator anyway because they are gonna for any order they are more than a certain size you will always use aggregator to get the best pricing rather than just go to one uh one amm to to get the to trade there so i think in that sense i believe that um yeah the power law is less likely to apply in the amm because liquidity is very fungible they will always move to the to the amm that give them the most uh like the best trade off for them like for anything right now for passive lp uh bangkok is probably on the best place because there's impermanence protection if you can stick for 100 days uh you're you are not going to get any impermanent

loss and you get some extra reward as well from the fee so i think that uh for passive lp these actually are in most cases not all cases a better decision than providing in a v3 because v3 you need to actively manage it and you need to change the range depending on market condition yeah yeah this is this is interesting so arthur you're saying liquidity it doesn't necessarily have a loyalty we could live in a world with many different automated market makers and if people believe in sort of aggregation theory then maybe some of these aggregators are more important the matches of the world the one inches of the world i want to ask you another question with respect to network effects and power laws and this is the question about ethereum

and eth killers or some people call them attempted murderers what's your take on eth killers um my take on eve killer is most of them are not going to be able to chip away at ethereum's dominance except for various selected field protocols i think my view if i were to put a number i would say there's probably less than five that will be able to chip away ethereum's dominance but they will not be able to kill ethereum so i think i i've say in a to a few a lot of different people so i think that

ethereum's dominance uh will probably come down a little bit like i think let's talk about d5 dominance right or nft dominance like 95 percent of the d5 and nft are built on ethereum right now i think in the next two years we might see that coming down to 80 just because that other protocols start from ground zero so their growth rate will always be faster than ethereum because ethereum is already the majority of the economic activity so our growth rate percentage is always going to be slightly lower because you're already bigger bigger stuff always grows slower right so but i think ethereum's dominance is still going to stay at probably around 80 percent um just because the network effect is so entrenched and ethereum itself is also constantly improving as well like we

have the uh optimism and uh later in the year like the zk rob deploying as well and then we have eve 2.0 likely gonna happen within the next three year as well so i think that the dominance is gonna maintain but i do i i will not write off the fate of all the so-called if killer completely because i think some of them they are trying to carve like what we call the blue ocean strategy they are trying to target the new user they are not on board into eq right now and i think the world is big enough for some of them to do well but i don't think any of them will overtake ethereum so i'm curious about this just digging into this because

you don't believe in a single dominant automated market maker right because you think liquidity is doesn't have loyalty and is somewhat fleeting but you seem to believe that a smart contract platform a open financial platform like ethereum has uh more ability to maintain dominance why is that does aetherium have like deeper no uh moats than a uniswap and like why do you think that ethereum can achieve its dominance and retain its dominance whereas an automated market maker can't yeah i think yeah that's a very good question i think that

it's just a horror when you look at the multiple factors um i wish i were going to go through uh the network effect of a base layer is just a lot stronger because um i think you when you look at the most successful uh uh so-called scaling solution or or other chain to gain a lot of user recently it was a binance smart chain so what did binance much and did well that allowed them to gain so much use in a short amount of time is using the same block explorer which is metamask and uh using the same sorry same block as one which is ether scan they use the the same team builder for them called bsc

scan and they use the same wallet which is uh the metamask and use the evm so that they can park in with a eater scan and a metamask so this is the network effect of ethereum right now and why then did finance previously tried to build their own decks before but it felt like which is called the binance chain and they have their own dexterity because they did not inherit that network effect and binance right now is likely the largest uh crypto com with the crypto company with the largest user base even with that they cannot bootstrap their own chain successfully without relying on ethereum's network effects so i think that's that's a very good case study on how strong the network effect of

ethereum is and i think the infrastructure that on a base layer it's just a lot harder to migrate on because when you talk to the technical guy you have the sub graph you need to build you have the dev toolings all this thing it's not like you built the d5 app on an if layer one like that the user can easily migrate because it's just like the front end they just have the metamask but using a new layer one it's like a totally new user experience and the infrastructure that you need to use is also very different it's like using to um i think the best analogy will be like a app store analogy like right now the two most dominant uh app store is like a google and apple so a very big

microsoft tried to compete in this they try to have their own app store as well but even a company of this size couldn't do it and they uh they just retreat in the end like they just no longer doing this right now the market is just between apple and google so i think this is probably the best energy to understand the the network effect of a base layer like ethereum and while the app like it's a lot easier to like you know to migrate between different layer one platform right yeah i think perhaps to expand upon the answer we could also include ethereum layer twos where once you have your protocol built as you said like once you have ave builds once you have unit swap builds it's easy for you to just deploy that on binance

smartchain or any evm compatible app and it's also easy for you to build that on ethereum's own layer two right and so ethereum as a base protocol can have ethereum flavor derivatives one of which could be binance smart chain another one could be polygon another one could be optimism or arbitrary and these are all these are all different you know chains that could be that you're app to be deployed upon but you're stuck inside of the evm ecosystem while building the actual ave the application or unit swap the application or you know any of the other default apps that we know and love building that from scratch is actually the hard part and once you do that hard part and you do it

on an evm compatible chain then you're kind of stuck inside the evm compatible world no matter no matter what chain you're on and you know usually ethereum and itself obviously benefits from evm compatible stuff but also most importantly ethereum l2s also benefit from evm compatible stuff arthur how do you how do you uh view ethereum l2s as playing into ethereum the ethereum moat conversation i think that um it's just very obvious that they are major um major help to the ethereum honor especially on the scaling roadmap i

think this is also come from a community wanting to find a way to solve the scaling issue before eve 2.0 is live and i think all these are actually just a very entrenched further entrenched ethereal network effect because all this layer two solutions will need to adopt ethereum's base infrastructure evm compatible will make their adoption happen much faster and also having a very supporting similar infrastructure and depth tooling will just help them go a long way so this definitely helped to entrench the network effect of ethereum so actually i also want to come back a bit on something that i didn't mention

on why do i think the network if your ethereum is so entrenched i think there's also two uh another two thing we're trying uh it's very specific to layer one one is the distribution of the ownership i think uh right now most of the new smart contract platform is uh proof of stake base and i think that uh i i think most people agree that a proof of stake there's a lot of advantage over proof of work which i'm not going to go in to repeat that but i think one thing uh there is one slight disadvantage which i think is it's harder to decentralize the ownership of the proof-of-stake blockchain over time compared to provo because provo the miner will always need

to sell that coin to to cover the operating expenses but for proof of stake um the selling pressure is a little bit lesser they the the holder will still sell that i think everyone have a take profit point i think like for people like us like we say that when ethereum is at 20 000 20k or 50k or 100k then we will start to sell a little bit more of our ethereum um i think it's the same for pros if they will gradually decentralize over time but the selling pressure would not be as strong as the proof of work base so any new proof of stake blockchain will take a much longer time to decentralize and distribute their ownership compared to ethereum and i think that is a part of the the advantage of ethereum compared to

other proof of state blockchain because when ownership is very concentrated it's always lead to a slightly less censorship resistance right like because then you know a few token holders have most of the stake and it also takes a time for a lot of the proof-of-stake platform to achieve a meet what i call the minimum viable censorship resistance level um because i think that um i think decentralization is a spectrum but uh what really but you can't have to be like the extreme end of the spectrum like we only have 10 notes and half of the notes are run by the same parties um so i think that is definitely you do not even cross a minimum threshold but i think for when you cross

a certain threshold then i think people can start to trust that yeah there's some form of sensor resistance built in and people can really start to see where is it going to on the decentralization room map and i think both on both this factor it's very hard to compete ethereum because ethereum has a very clear roadmap on how they plan to decentralize further and yeah this whole ownership distribution is just a very strong mode that's very hard to overtake so you think ethereum will continue to be dominant but other layer ones will still have some role to play i i'm curious about this if you had to pick one non-ethereum layer one to bet on what would it be and why

yeah i i think i'm gonna get a lot of hate for this but uh as an investor i have to say after doing our research i believe that um solana right now has uh has has some potential um because i think that if you want to compute ethereum you can't compete on uh on factor where ethereum is the strongest at i think that you can't compute ethereum on being the most decentralized and you can't compute ethereum on the same design and architecture so i think if i really want to bet on the eve competitor i want to bet on a protocol that is taking a completely different approach and i think a lot of the other if killer they actually are just making some minor tweaks to the

ethereum and have some marginal improvement i think that alone is not sufficient so i think what i think solana has why i think solana has the potential is because they are taking a very different approach they will not be as decentralized as ethereum and they actually accept that trade-off but i do they they do have a roadmap on how do they decentralize it but they actually accepted the fact that they would not have like no few hundred thousand notes running their uh 500 000 notes in the future because they require a certain level of hardware requirement um but they want to find that like the the more enthusiasts hobbies they're willing to spend a few thousand dollars to run their notes when they accept that as a fine uh trade-off and their scaling is really

a lot rely on the hardware and resharing is a very different approach compared to ethereum so which i if i want to bet on something i want to bet on something that's totally different not fair you are making a marginal improvement to ethereum yeah hey guys i hope you are enjoying the conversation with arthur 0x thus far in the second half of the show we ask arthur's opinion about ethereum killers eat killers and where whether he thinks that there is room in the market or not for them i thoroughly enjoyed his take there he's got a very specific opinion about this and then we also ask arthur about the different ways that the east approaches ethereum bitcoin d5 versus the west and how different areas inside of the east

the chinese speaking languages the english-speaking asian countries or japan and korea how they all approach ethereum and defy separately and a little hint there is that they each kind of approach this industry as a reflection of the of the culture that they have at home you know shocker the culture just dictates the way that we approach things and arthur goes in and talks about the way that different areas of asia look and and and have a stance towards defy and ethereum really enjoyed the second half of this conversation so don't go anywhere but first we have to take a moment to talk about some of these fantastic sponsors that make this show possible gemiini is the world's most trusted cryptocurrency exchange i've been a customer of gemiini since i first got into crypto in 2017 and it's been my

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seamless transaction saving you time and gas costs check out the power of ave ave.com that's aave.com arthur i want to turn the conversation to a more global uh perspective about crypto and defy and ethereum and while we are this global internet based industry we all come from our specific parts of the globe and we come into d5 we come into crypto with our pers specific backgrounds and specific like ways of viewing things and one thing i've always been curious about and never really been able to get my finger on the pulse of is how uh the east generally at large views crypto and ethereum differently than the

west and i'm assuming the east is a very large place there's subdivisions inside of the east how how is overall how is the east viewing this industry perhaps differently or just prioritizes things in this different industry differently than the west and again and how are the how is the east also subdivided into different sectors that view this industry differently that's a great question so yeah i always categorize the the asia or the east community into different parts first of all you have the english speaking region uh which basically uh counts india and most of the south east asia so i think these are actually um i think

due to the language the lack of language barrier so the adoption of d5 actually has been i think fairly fairly com i wouldn't say common but among the crypto community i think they are one of the fastest to understand d5 and actually use it in a pretty uh significant way so actually from our understanding a lot of the southeast asia country have a pretty decent d5 community uh they might be a bit localized but yeah they are using d5 application in a pretty major manner and then you have the chinese speaking region which is basically china hong kong and taiwan and this country uh i think initially uh they were a bit skeptical because i

think china back then in 2018 have a big uh like a transaction mining uh trend uh among the central exchanges which is quite similar to liquidity mining currently um and as a result they were quite skeptical for most period of time but in 2020 after the d5 summer a lot of them have actually started to use divi app in a major manner and i think there's a lot more um user up as a result of that and then you also have the i think the two other major crypto user which is japan and korea but i think i think largely due to language language barrier and a cultural factor these two regions have not really been using

defined that much compared to the other places so so this is how i would categorize them and yeah i think when you come to china i think um the chinese speaking region um what we have seen is they are usually a lot more practical and i think like a slightly less focus on the ethos i think what they really cherish about the the the d5 is the self-custody of the asset because i think that they've seen uh the trouble with okay x uh recently which they nobody can withdraw any balances for like i think two months and i think that by using d5 they this

really uh prevent this issue from happening again but i think on the decentralization aspect on like how decentralized this protocol is i think they assess a lot more trust in the [Music] in in the team and to the player itself but for i think for the english speaking community we just want to have a lot more built-in check and balances um so i think this is probably some of the more obvious difference we can see yeah but i think most of them have accepted the the benefit of using d5 apps compared to um like a central exchange and i think everyone just like the fact that they are they're being rewarded by being an early adopter and user of d5 protocols

i i think that's really interesting there's there is a common ethos of crypto that you're going to find no matter what culture or background that that you come from but i i think in your answer i think it's uh and maybe i'm um hopefully not trying to just create something out of nothing but i i think what i'm seeing is that everyone is coming to crypto for the reasons of the merits of crypto they're the same universally but different regions of the world or different regions of asia emphasize something that their legacy financial system that they're coming from is really lacking for example you talked about how in china people really really value that bearer asset nature of being able to hold your own keys well china is a a top-down authoritarian

region like you would want that power to be able to control your own keys especially coming from that with that region and you talked about how japan and korea don't really go into the protocols as deep as maybe what we might do in the west and they kind of stay on focusing on exchanges and that also makes sense from countries that don't have that deep of a history of financial markets or financialization they don't they aren't too comfortable going that deep into the world of crypto because that's just not where they came from from their legacy markets am i reading too far into this or do you agree with that take as well i think i largely agree with that take

i think the historical and cultural factors likely will dictate the pace of adoption um yeah i think that's definitely definitely true how much of this is just like language um translation stuff though to arthur do you think like i don't know um not not i don't know what d5 actually looks like in say mandarin for instance are there defy interfaces that are uh that are created in native chinese or is that something that defy community can work on more is internationalization and non-english speaking education communication interfaces

i think that um it has to be taken as a holistic approach i think by just doing a translation that's a very good start um but i think ultimately um it makes sense to have some people in the community to speak to them and just gradually build that so i think i want to bring an example um i think maker dao is probably one of the most successful d5 protocol when it comes to adoption in the chinese speaking region so i think one of the results because they hire a very strong chinese community lead that really know the market there very well and as a result are able to communicate with a lot of the crypto user in in china um but actually most of the other d5

program do not have such a person to honor to sit on the ground and able to do that to their community so i think that um that is probably a more important factor you have someone in that area to like promote and evangelize the the stuff i think this also happened ethereum right i mean vitalik at the very early days uh goldu went to china a lot to evangelize ethereum and as a result uh eq still have a very big community in china but a lot of the other protocols just did not do that as a result they just do not get the same mindshare yeah so i think that you always need a few uh evangelists to help the protocol um so i think and yeah i

think language translation is a good start um having a good interface is a good start but you always need some local evangelists it's funny it always comes back to people as the layer zero in crypto that's what this entire industry is uh is based on um yeah fascinating so really quick before we leave sort of the the asia perspective here i'm curious your thoughts arthur on um all of the the uh the bitcoin mining stories that we've heard uh from china of um you know legislation regulation the chinese government coming down hard on bitcoin mining um how should we interpret that and what does that mean for crypto in china and defy

great question i think that uh the interpretation should be fairly straightforward um i think right now china they just want to have a lot more control over the financial market uh and in their view crypto is part of the financial market and actually it might affect their ability to further regulate or control the financial market as well so as a result they want to prevent this activity from happening so the exodus of chinese minor is real so we know a few major chinese miners and a mining pool they are all

going overseas to find a they can look for a new home so yeah i think that you can also see from the hash rate as well i don't think these are coming back because it took a long time to build all this infrastructure so i think the exodus will will just continue and they're going to find a new home elsewhere and you're going to see the concentration of hash rate in china becoming a history that's my prediction because i think even if let's say this is relaxing the further um the uncertainty will just prevent all this big miner from reinvesting back in the region that's my view and i think that another big factor is the fiat on ram in china it's being curtailed further so it will become harder and harder to

convert uh the local currency which is the remaining b into crypto uh vice versa uh going forward because they just want to clamp down on all the otc trading activities in fact one of the biggest otc trader was actually put into jail i think um yeah yeah he was i think a guy called zaldon so sorry i might get effect wrong but that's why i heard and so yeah but i think so we can expect i think it's reasonable to expect the growth from the chinese side to slow down a little bit um because they just have a harder time to fail on-ramp but i think that the community that those that are initiated will continue to stay like the some of them do just

always keep some of their balances in the crypto space like some of their net worth uh in this in the stable coin in some bitcoin ethereum um and some of them they probably just they know that it would be hard to like convert this money into fiat but they were okay with it and i think this is what gonna happen going forward i will say arthur it seems like your jurisdiction uh singapore is absolutely crushing it when it comes to uh response to to crypto um like the singapore government seems to be handling crypto with a very open mind uh and also very uh soberly is is that what it's like on the ground are you impressed with what singapore is doing or are there more subtleties there

uh i'm i have to say i'm definitely impressed um so but there's certain ways of stability yes there as well uh so i think that first of all the regulator um even up to the top one really try to understand what is it about and they did uh and i think right now their understanding is uh probably one of the top uh when it comes to from a global regulated point of view so they understand what d5 is they understand the advertised benefit of d5 uh they also understand the problem right now but whether they fully buy into the the so-called the benefit of d5 uh we are 100 sure yeah say they do know the benefit that we've been talking about but whether they believe it or not

uh i think that remains to be seen so i think they are waiting to see more evidence because i think the key thing to convince them right now is that most of the traction in d5 is just restricted to the crypto space it doesn't touch the mainstream user yet so i think in that regard they are still skeptical that whether the benefit of d5 can translate to the real world activities which i think all of us believe will be about adding just the the road map towards that happening but i think when it comes to regulation um singapore ultimately is not a very big country so it will follow the fatf guidance and the major key uh law being drafted by the major like the bigger country like us and eu

so in that sense um yeah it's definitely a lot friendlier and they are understanding but uh yeah the subtlety is like that doesn't mean that they're gonna regulate this thing in a completely opposite manner compared to the guidance issue by the global financial policy setting body yeah so i think that's a subtlety there but i think the entire approach is also a lot less prosecutorial and less aggressive in the sense that when you're doing something that's not 100 compliant and in gray area the first action is not to you know going after you but it's instead you're trying to understand what you're doing and make you compliant so yeah so it's yeah so i think that's the difference in the approach there

arthur as we come down to the close in this conversation and thank you so much for giving us some of your time this has been i've already learned so much i want to ask you what you are looking for out of the crypto industry in the second half of 2021 what is really missing that would that you really think needs to be here as a part of this industry what are the what are the next innovations that you see coming that you are really looking forward to i think it's it's really about scaling um i think we have seen the success of polygon and also binary smart chain i think more scaling solution will just help ethereum to scale and more d5m uh to it be able to onboard more users as well i think vf i think the d5 protocol

on ethereum just crossed i think uh i think two million also i think definitely have crossed one million users over time i'm looking forward to this uh crossing uh 5 million and 10 million probably by end of the year i think it's possible if we have a very successful scaling solution and just more and more users starting to use a d5 application yeah so i think we went beyond the zero to one phase uh in d5 i think next step is really about growing the user phase growing the user base and just getting more and more product to the hand of the uh the normal crypto user and just the mainstream user all right did you say that you think that we can 5 to 10x the users of this industry by

the end of this year yes i think it's possible uh if the skilling solution is a is uh yeah is is good enough yeah i think it's definitely possible why is scale such a such a crux why is that why is everything hinged on scale because i think that uh you can look at this from like a traditional tech company right i think the user experience on the initial user experience matters a lot so i think if you do not have a good scaling solution the initial like where if users are being turned off by the first impression they're just not going to come back so i think it's important that we are able to onboard them with very good first impression and then they continue to stay

that that that is a pretty bold prediction uh and i also love it so five to ten million defy users by the end of the year is possible um just let's end with a couple more predictions arthur if you're willing to indulge us sir we love predictions so please indulge us what do you think the total locked value in defy is going to be and then how about the price of eth at the end of 2021 again fun predictions maybe right maybe wrong just fine um okay so okay do you count bsc tvr as part of the tvl do we want to count that do do we count it david i i i kind of count d5 whatever is on d5 pulse

is close to being countered okay counted okay let's usually not binary smart chain okay let's use d5 pulses all right unless they added that oh they added it then we'll count it um i think we will hit i think we'll hit 80 billion yeah 80 billion by the end of the year 80 billion so just okay that's a bit less that's not very bullish okay let's let's do 100 100 billion double okay that would be a bullish prediction give us price to v price of eve um i think it's very possible we will hit um can i give a range yeah i give it

absolutely please yeah i i think five to ten thousand oh wow all right retaking new highs do you guys do you guys hold eth is that part of the d5 portfolio or is that yes we hope if because if it's a if it's money and if it's a major asset within the d5 space we hold it a lot of time to provide liquidity to the protocol that we are supporting because most of the pair even with the dominance of stablecoin are still against if like um yeah like for let's say for balancer is against if and for a lot of the other liquidity provision we do is all against if so we always hold if in our fund um to for various reasons and also from uh investment reason as well

here first ethan's money not the first time you've heard it here you definitely heard it here first well arthur it has been an absolute pleasure to chat with you uh you're just full of insights man i um wish you best of luck getting to a billion dollar mark with uh defiance capital that that seems like the next milestone congrats on all six on all your success and thanks for joining us on bankless thank you for having me guys um really appreciate it and yeah i hope you guys have a probably one million subscriber and listener soon as well there you go guys that's what's in store in order to make that happen let's get to action items uh give us that five star review david how are we doing on

five star reviews on itunes we could always use more we don't have a million yet so we definitely need a few more five star reviews wherever you listen to podcasts if you could go into that podcast player and give us those five star reviews that is how bankless climbs up the charts in the worlds of of finance and investing on itunes and spotify and how the bankless journey reaches as many years as possible so if you have enjoyed your journey westward on the bankless journey help share it with more people by giving us those five-star reviews the other action item i have for you today is go follow arthur 0x on twitter arthur could you give us your twitter handle make sure we get that correct sure my twitter ender is arthur underscore 0x all right guys give that twitter handle

a follow arthur is always tweeting out insightful defy intelligence of course risks and disclaimers guys defy is risky eath is risky all of crypto is risky you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bankless experience you'll get access to our market analysis our alpha leaks and exclusive content

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