[BUIDL Asia 2023] Future of Protocol Reporting: Solving the Challenges of Financial Transparency

Transcript

hey GM everyone um I'm going to be talking to you about the future of financial reporting uh so financial reporting uh John uh has perhaps something boring to it uh I can tell you it's not boring uh in the context of crypto it's actually a very uh exciting and evolving area and um so what what do we really mean by financial reporting right so in traditional with traditional companies financial reporting usually refers to management of these companies preparing financial statements uh financial

statements being balance sheet income statements and a cash flow statement now what these uh what what these statements do is provide information around the Financial Health and performance of these companies and this information is useful to a variety of stakeholders but in particular to the likes of investors and and lenders for example and um the financial statements help these stakeholders make decisions around engaging with these companies or continuing to stay engaged another thing that's a financial statements do is provide information to

the management of these companies around planning for the future and the financial Financial Regulators worldwide mandate that public companies periodically file financial statements so in in the U.S for example you have to file as a public company a form 10q which is a quarterly Report with the SEC every quarter now as decentralized entities crypto projects typically don't have a c as a CFO or a investor relations department however crypto communities also need information for financial decision

making so what masaria has been doing over the last year and a half or so is financial reporting for uh crypto projects so in the form of quarterly reports that we published at the beginning of every quarter for a range of quiet clients so coming to second quarter we would be we will be doing around 40 of those now the reason why these Regulators like the SEC ask or mandate that companies filed these quarterly reports is to promote transparency and that is actually that that's really

great in theory but there's a conflict of interest uh when you have these centralized companies between the management of these companies and the shareholders and these these ledgers they they are closed right they sit behind closed doors so uh what what that means is that there's usually a lot of Creative Accounting going on and if you're a financial analyst if you if you work for Goldman and you you have to analyze these companies that usually involves a lot of decoding and simplification of these financial statements to get to really understand it and be able to compare apples to

apples between different companies now as open source ledgers public blockchain reduced that agency problem and um they they are so they provide transparency they're also immutable and you know theoretically you can also provide these in in real time and that is actually the the Holy Grail of of financial reporting and you know there's a lot of investors out there that are very excited about the potential that open ledgers provide from that perspective um well so in theory you know it's it's it's very uh transparent and accessible

but it's actually hard right no one goes to a blockchain and reads the tvl of uniswap version three like right off the chain right it actually involves um quite a lot of work and uh and I like to think of the the process as a as a pyramid right so at the bottom of the pyramid sits the raw data um that you pull off uh the blockchain and that you store into tables but that data is still pretty hard to work with right it's it's hex data so in order to make that data into information that we can actually do

something with and that humans can actually read it needs to be it needs to be decoded it needs to be normalized and simplified and what what can be done with it next is aggregations so you can then put this data together to turn it into actual metrics like tvl or like trading volume or more complicated uh aggregations for example look at the tvl of all dexas on ethereum right and and once you have these metrics you can create tables and and charts and that can be analyzed by analysts that can

then draw insights from it and and the Holy Grail there is actionable inside so for example Alpha in the case of of investors now you guys notice because your developers or or most of you I think but uh yeah so this is what what's what it what it looks like the raw transaction data very different from uh the relatively polished picture that you get served up uh in in etherscan now or is so crypto data right so the in the black screen that that is that is the the real crypto data what we want is

actually an interpretation of that data so these metrics are interpretations right so for example here this is a chart from our one of our quarterly reports uh filecoin produced 18.9 million in supply side Revenue over q1 2023 now why I call that an interpretation when it comes down to these kind of numbers and and even more complicated aggregations I may get a get a very different number than you right so um it's it's probably really relatively easily easy to you know for example calculate a trading volume for like a

single protocol you may get relative consensus if you have a number of different people calculating that but when you get into more complicated things like my previous example calculated TPL the aggregate TPL for all dexas on ethereum you probably get different numbers so hence we call that interpretations of data and there's nothing right or wrong with that just difference you know views different opinions of of different people how to calculate these things now doing this like the the financial reporting so to say for for crypto protocols um also in in actually involves like quite a number of different people it

involves like skill people with different skill sets um and uh one thing that's actually not uh shown here but that that I wanted to highlight as well is is another party and that's the the source of your data um so we we use data from a number of different sources depending on you know what the protocol is um but one source that we use and that we're very proud of to be using uh that I want to highlight here is the graph protocol so for those of you not familiar the graph is a decentralized indexing protocol for blockchain data and they have a concept called subgraphs and the graph allows anyone to build a

subgraph which is effectively an open API and then Masari is a core subgraph developer and so we're very proud that our the code that we developed for these subgraphs is out there and that everyone can see our interpretation of the various metrics and one thing that we also do for the graph is standardize these metrics for sub-sectors so when we so that so that when you look at uniswap and at Sushi swab for example that we calculate all the metrics that we report on for those in the same way and never showing the same metrics for them

um now going back to uh to this actual picture so the the research analysts our research analysts are sector Specialists and they cover a number of protocols in their sector so for example layer once and uh what what they do whenever we start covering a new protocol or new network they will think about what the most important metrics for that Network are you know that most accurately reflect how that protocol is doing in terms of Financial Health and and performance and unarmed with that they go to the data science team so the data engineer and the analytics engineer uh and who then go out and collect the

various data points that the analyst needs to calculate all these metrics so data and the data engineer finds the sources you know ingest them into our data warehouse and does the decoding of the smart contracts and then after that the analytics Engineers go to work and a transformed and decoded data into actually an into actual metrics that the analysts can work with then the analyst creates tables and charts and analyzes that data and produces context and insights uh on that and then finally uh we also work closely together with the protocol in case we have any questions about the data making

sure for example that we have all the smart contracts uh addresses that we need and when we do these reports for the first time we typically also ask them to sanity check the data because they know their protocol or Network best so it's probably easy to see if if something looks horribly off and if because for example we're missing a a smart contract address um and this is what the the results look like so for example for for polycon uh the the financial statements and one thing that we look to do as I alluded to before is uh in in the context of the graph is make these relatively standard

across similar protocols so that you you know can compare apples to apples if you want to and um and you know it's not completely uh all the same because every protocol has their nuances because of their specific technology or business model or whatever the secret sauce is um and um yeah but that's what it looks like and then as I said there's also a lot of charting going on in these reports because it's interesting for the consumers of these reports to also see the actual Trends uh and and this is also how analysts really dive into

details and figure out what is going on and are able to provide further insight and another thing that we do there we don't just study the quantitative data but also qualitative data around it so we look at you know what events happen during the quarter that were important um what uh what governance discussions that are important are going on what proposals passed uh what big grants have been awarded um Etc what does the roadmap look like and all to uh because it helps us uh analyze you know why certain things happened the way they were and it also allows us to give some insight into what may be happening in the coming quarter

um yeah and so that that's standardization I talked about it in the context of the graph we think that's quite important so that you can actually compare apples to apples and that sound like something very logical logic and sensible and it is but it's it's definitely not the case in a lot of situations because people interpret things in different ways like we discussed before so that's where our breadth of coverage so we almost cover like 40 protocols right now and and that standardization is is allows us to actually do that and we've started also

to produce some of this at a sector level so uh like with the case of the state of of L1 so these are all the l1s that we currently cover and the various metrics I actually pasted the link of the report like underneath it so you it's like these these reports are all openly accessible to to anyone so if you're interested to look at further metrics across layer ones uh the link is uh is is down there now these are the the quarterly reports but our research team also does other stuff with the with data and um and what is unique about crypto is that you can really drill down further into the details right when Coca-Cola publishes

their uh annual reports you don't have that ability right and a lot of business intelligence sits behind closed doors in particular the further you dive down into the details the more private that information usually is but for crypto as we discussed you know you it provides that transparency it doesn't mean that it's easy to do but it is possible and that can get you to really interesting insights and that this is a from a report on Solana that we produced uh I I believe it was last week and um when you when you look at the the on-chain liquidity of these ecosystems as you know because it's a metric that

people are obviously interested in it shows that you know the the tvls of all these ecosystems has have obviously fallen in light of the Black Swan events like last year but Solana has fallen more than everyone else and it hadn't recovered as well so if you take that at face value you know that may not give you a fuzzy feeling around that however when we started drilling down into user level data what we actually saw that there was actually a lot of positive stuff happening on Solana so user activity last month for example in May doubled

but it did not show up in that tvl data and so be Doc furter and well what we noted is that there's there had been a lot of developer activity going on uh on Solana but in the consumer sector so there were a lot of like new consumer applications that had been launched so hence that didn't show up in that tvl the data which is obviously very defy Centric um anyway Justin uh just an example um now so what right so who is great I'm sorry that you guys are publishing all these

reports but who's like using this actually right um and uh or who is this useful to and I let me give you one other user level example also a report that we did uh probably about a month ago about uh decentralized social and and the social graph but you can equally apply apply it elsewhere um and that is uh these this user data so user engagement and and and user Behavior data can be quite useful for Builders right so because you can effectively see uh what dog food the docs are eating and and what crypto

native features are really um um attracting uh users so to say so that gives you like important intelligence area where we've where we've seen our quarterly reporting being used is on some of these forums so Gauntlet uh they've been building on some of the analysis that we've been doing and some of the insights that we've provided for uh in our Venus quarterly uh report of q1 proposal discussion uh regarding deploying uni swap version three on the filecorn virtual machine I've been using various charts of us and

then but it's a it we also get obviously user data from who accesses these reports and uh be distribute them typically in a number of different ways so it goes out through our newsletter which goes to a couple of hundred thousand uh users every day we tweet about them uh we have them we host them in our research portal but we also have partnership with some tradify institutions so with Bloomberg uh refinitive and SMP and um we get some user data from that and they're actually being used consistently by very high profile investors now why why is this useful to investors right

these investors have like really small teams right and they they don't have the resources to do all of this stuff like get this data for like 100 you know protocols that they may look at right so that's why this is useful and it's obviously uh unlike in in Trad fi that isn't been done by decentralized entities so hence this is like a a go-to for them to get that type of information um finally as I mentioned before the the Holy Grail is uh is real time uh financial reporting

and you know there is obviously real-time metrics out there right I mean we host some of them right you can also go to D phylama or token terminal right for like TDL or trading volumes or whatever it is that you're going after but what what I say with real-time financial reporting is the Holy Grail is is having uh these actual reports having actual Insight the overall picture so to say having that in real time uh and um if you think about traditional financial reporting what is so interesting about it is that you have an overarching

framework of balance sheet income statements and cash flow statement that everyone uses right now the devil is then in the details because it looks very different for a bank than it looks for a software firm but they still use the same framework and we've been thinking about okay so how how can we build a similar framework for crypto and too much detail to go uh in for the purpose of this discussion uh it's it's traditional balance sheet and income statement and cash flow statement don't really work uh you can maybe see that for a D5 protocol

how it could potentially work but definitely not for for layer one so what we came up with we we basically think that crypto communities need info that we can group basically in three different areas or three different statements so product usage in the usage statements who value or cruise to in a valuable cruel statement and who controls the protocol and can make changes represented in a uh in a governance statement so this is just a little preview of what we're hoping to bring uh later this year it isn't there yet uh but uh wanted to uh wanted to share our views on that now finally

um ultimately all of this uh financial reporting is about unlocking the potential of these open source ledgers and it's something that is very close to our mission at massari so our mission is to provide transparency to the crypto economy and to help stakeholders make better decisions so that's what we do with these reports and yeah if if you want to learn more hit me up and uh definitely check out the reports if those are of interest on you they're all openly accessible on massari.io thank you very much

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