A Crypto Native Financial System | Felipe Montealegre

Transcript

the US can essentially vampire attack the rest of the world with low property rights for the benefit of these Savers because now you're again Nigeria Brazil Argentina pick pick a country and instead of saving in Fiat and local equities you just go on chain and you save in USD usdc or usdt and you save in AppLock or or Nvidia or the S&P or the NASDAQ and and that just means you go from losing 65% relative to the dollar 15 years to gaining you know in the stock market case 8 to 12% a year it's a massive difference in the ability of these people to save hey everyone this episode is brought to you by Unis swap Labs who is launching the largest bug Bounty program in the entire history of

crypto it's a $15.5 million program this is aiming to be the most rigorously reviewed codebase ever deployed to ethereum so if you want more eligibility on the scope rewards payouts Etc just click the link in the bottom of the show notes to tell them that I sent you you'll be hearing all about Unis swap Labs later the program hey everyone this episode is brought to you by Moro the sleeping giant of defi is what some people are calling them that is me I am some people I am a huge fan of Moro the protocol and the team you've heard Paul frambo one of the founders of Moro on the program before Moro lets you earn borrow and build on your terms with better rates for lenders and borrowers and an immutable design free from upgrades or parameter changes you're going to be hearing all about Moro later

in the program but for now let's get on to the show hey everyone quick disclaimer before we get into today's episode nothing said on bell curve is a recommendation to buy or sell Securities or tokens this podcast is for informational purposes only and the views expressed by anyone on the show are solely our opinions not Financial advice our guest and I may hold positions in the companies funds or projects discussed all right everyone welcome back to another episode of bell curve today I'm joined by Felipe of Thea research Felipe welcome to the program good to be here I'm a big fan of the Pod thanks man first episode of the Year say the best for first you know as they say that's right that's how that say goes yeah dad jokes too dad jokes too um but

uh Jokes Aside I'm actually really excited to talk to you today so uh you dropped something in the left curvers chat which that's a plug by the way if there's a bell curve telegram chat we'll link it in the show notes so you definitely go hop in there but um you posted one of the first things of the year so this new piece that you wrote called internet Finance um and the reason I like this is because you know most of us are probably coming back from the holidays we spend some time with family probably ate too much food and if you've been working in crypto for a while people ask you so what is this crypto thing again and I have always struggled with this question and I used to just rely on the Bitcoin explanation because it's the monetary one it's the most well trodden everyone kind of gets

the gist of it in general but to me crypto is much more than just a monetary aspect there's a financial system aspect as well and I think this piece did enormously well outlining um some of the core components of how you think about a Crypton native Financial system might work versus what the trafi financial system uh looks like today and so maybe you could just talk a little bit about the motivations of of writing this piece and then we can get into some of the nitty-gritty about um what's actually included here it's exactly what you said I mean we've been at this for three years now um I've been obsessed with the kind of financial thesis within crypto for for for that period I talked to my friends and family about it endlessly and I get the nagging sense that they don't really understand what I'm talking

about still uh and it's hard it's been hard to express it honestly for me so I said you know this December we'll put pen of paper really try to um really try to make it make it clear what what we're building and um and write a piece that hopefully you know my mother and my wife can understand and and uh and kind of come into the shared Vision that we're all trying to build here that we all kind of understand but but you know maybe haven't had enough resources to to kind of communicate yeah all right I want to get into the meat of the piece here and the foundation of the piece for me relies on a little bit of a technical distinction but I think it's an important one um so you know what you

describe as unified servers and smart contract code so unified servers versus um more disperate heterogeneous groups of servers and then that leads into five benefits right so the five benefits are free flow of capital um stronger property rights uh more innovation in terms of financial services uh more efficiency in terms of financial services and we can talk a little bit about stable coins and US based assets there Etc um and also net interest margins business and compress compressing net interest margins and then uh faster GDP growth so those are just to like uh you know sign post for the audience a little bit those are some of the benefits but first um explain this idea of unified servers and why that's so important within a crypto context yeah that that's the most

technical part of the piece but it's also the most important I think people don't almost nobody thinks about what it means to hold an asset in a in a financial system or in the Current financial system you kind of have your Apple stock and Robin Hood that that's enough for you uh if you really boil down to what it means to own something it means that you have your name and the asset and quantity in a ledger and these ledgers or these dat these servers is what we call them in article are really fragmented disperate and permissioned across the um across the financial sector so if you going back to the kind of Robin Hood example if you and your nine best friends each own 10 shares of on Robin Hood that means that Robin Hood the company has an internal server it

says you know mik 10 shares of Apple your nine best friends 10 shares of Apple then Robin Hood itself has 100 shares at a custodian Apple itself has you know 100 shares that are consing like B melon so B melon has a server that says Robin Hood 100 shares of apple and B melon itself has its shares at a DTC company and that DTC company is the official Ledger that interacts with Apple's Treasury department and CFO so it's kind of these like just something as simple as holding Apple share you kind of have these three or four disparate servers and transferring from Robin Hood to Fidelity is painful because all those servers in the back end need to talk and agree with each other it's the same across all assets so two quick examples if you have $10 in

Bank of America Bank of America has a server that says mike $10 and the FED has a server that says Bank of America $2.4 trillion right um and that's that that's the way that that works the Fred can't peer into your Bank of America account unless they ask for that information from a fragmented District server and the problem gets a lot worse once you kind of go around the world you know final example if you own land in Brazil in a municipality outside of sou Pablo there'll be a physical office that has paper records with kind of latitude and longitude and that'll say you know Mike owns this piece of land and whoever has that name in that server is the controller of the asset so what I'm trying to paint is this picture of like

there are 90,000 approximately Financial servers around the world some of them are paper some of them are databases and they need to speak to each other and it's kind of this cumbersome morass of difficulty to communicate and what we're building in crypto is this idea of a unified server that's Al and a unified permissionless server because instead of having the Robin Hood B melon Bank of America administrators change the transactions anybody can send a transaction and change the state of The Ledger and that makes that that's makes a whole difference and that's the fun the foundation of how these kind of five uh benefits are possible I want to set up this the way that I sort of look at this which is I think from a high level what a financial

system is supposed to do is to facilitate Commerce right and there are different components of that um you know parts of that is making sure that Capital flows where it's supposed to go right to where the highest returns are um and so obviously there's a part of crypto which is very Global um so you open it up to a much larger base of investors right so it does that part um a lot better the other thing that I think a financial system is supposed to do is to make it it fair right and have there be strong property rights right so that you know if you're you know building a business or investing in land or whatever it is that's not going to get ripped away from you and so you know part of the fragmentation of these different servers is it affords you know

people that have big servers in local jurisdictions the ability to actually cheat um and so kind of the architecture of crypto incrementally is beneficial for facilitating Commerce a by opening it up to this larger Global base of investors and having more free flowing Capital but also it makes it harder to cheat is that roughly a good way of describing things that's right and those are the two major benefits for emerging markets you know where I think a lot of the technology is really helpful but Emerging Markets you know isn't sosu it's kind of five billion plus people around the world who have who struggle with both of these issues so the first one that you mentioned is is what we call the net interest margin problem so because you have these permission saded

servers if if you want to lend or a Dubai fund that that has an 8% cost of capital wants to lend to Colombian mortgage at a 20% yield they can't just go and do that there's no way for the Dubai fund to access the permission server and pay out that loan right the the the the fragmented web is just too it's just too botchy uh so what ends up happening is that you know there are local banking oligopolies and they tend to be oligopolies in most countries where five banks basically control the permission servers within a geographic region and they act as Gatekeepers within that region for opportunities I think yeah you're putting this chart on the screen it says market share for five

largest banks these are the most populous countries on Earth and it's basically above 50% market share in in all these in all these jurisdictions right so these five institutions that you know they get to decide what what capital comes in what capital stays out and they do whatever which are heavily connected to governments right I mean essentially JP Morgan and Bank of America are extensions of the US government they're so heavily regulated well that's right um you know part of my experience with this is I I I used to do my side trading in in EM Banks when I was kind when I was in in my prior job uh and I had a a family member who did that fulltime and was very good at it the first thing he would look at when he was looking at a new bank is the cap

table to see what the overlap was with the local government because that was the best predictor of returns for a bank so there's you know there's always that kind of government Bank intertwined element interesting yeah so you know these these banking sectors they have gatekeeper access to them to to the banking system right and what they do is what every kind of monopolis or oligopolist does which is underprovision and overprice you don't you don't give about as many loans as you should and you raise the price on the loans that that that that you that you do that you do give out and that's that's the revenue maximizing position for for this Market structure so that leads to the Nim problem which is the

regression that you had below where if you do um if you look at how developed a financial system is you know how linked it is to the the rest of the global economy and the net interest margin which is the difference between what a bank borrows at and what it lends at it's kind of a pure metric for Bank pricing power less developed countries can have up to five to 10 points higher n that's actually the average they can be much higher than that five to 10 points of higher Nim is is really a disaster for an economy because capital is the basic input to everything that goes on in the economy if mortgage rates are five to 10 points higher because of the banking structure that means housing prices are

lower less less houses are sold housing prices are lower less houses are built that means a business you know a small a small or medium business loan is five to 10 points more expensive fewer businesses are started the economy grows less quickly few people are employed and you can run that Playbook across the entire economy so this only exists because of the permission to Ser the permission silad server problem once you have a unified server where anybody can compete for Capital you have that Colombian mortgage go to the internet go on chain for for financing you have the DU buy fund that's 8% given financing you collapse the n and and you basically solve this problem by truly making

capital a globally competitive market instead of a sabit market so you know what one thing that I'm curious about and I want to get into the segment here where you talk about the benefits of basically US dollar denominated assets stable coins for the most part and where that fits into this internet Finance world because um you know one one of the uh I wonder what the business opportunity is right it sounds it sounds good and I think that we all want to live in a world right where if there's uh capital in Colombia and there's a lower cost of capital in some other country you know like you can lend to basically like basically do more peer-to-peer kind of small business type lending I guess I do wonder how big is the market for that really and how much more is the market

opportunity here for like if you're living in Venezuela or turkey or a country which is hyperin their currency away can you very easily hold money in something which is a USD denominated asset and not just get uh devalued um increasingly so how do you kind of divide up the opportunity in terms of what this open internet Financial system enables yeah and and and this is the point that that we like to make which is you know let's start with underserved markets it's kind of this clay Christenson point of don't go for the over served markets first don't go for the US Financial system go for underserved markets and there's nobody who's more underserved than like the Venezuelan sa right or like the Nigerian Turkish you know there's a lot of countries that can go on this list

Savers you they have the problem where one local Fiat is being devalued quickly we all know this in the space the average the average currency for the 15 most populous countries in the world is being devalued at 65% relative to the dollar over 15 years so this isn't even Bitcoin it's not even hard money it's just relative to good old USD you're losing 65% of your purchasing power over 15 years so you can say why don't they save in another asset and that's that goes back to the property rights question that you had brought up I think there's a there's a chart in here that shows property rights around the world again just Emerging Market sorted by population and what it shows right there and what it shows is

you have the us at 95 most of Europe and Australia are close to 95 on the property right score that means you know your assets are safe if you own something that me you you truly own it that that can't be taken from you or or or expropriated if you go to court uh the court will be relatively fair or judge a court a case by its merits if you're minority shareholder the majority shareholders can't just wipe you out you have some minority shareholder protections that's what 95 means that's what we're all kind of used to in anyone who lives in the US or Europe or Australia the rest of this chart is kind of Emerging Markets by population it's it covers five billion people and they're at a score of 49 49 means kind of the opposite in all Dimensions if you

have property you have property for now until somebody decides you know somebody with political power decides to expropriate it or you know you have land in this kind of in in in Brazil that's in that's saved in the local in the local municipal office and the land goes up in value dramatically and you find out that the governor's brother found his way into owning your asset without you even looking the name was just changed right that happens or you are a minority shareholder in a big business the majority shareholder is a well-connected politician or well-connected businessman he does some move that that wipes out your value or at least really impairs your value nothing you can do about it right courts are ruled Often by bribes or favoritism

that's what 49 means and it's it's kind of it makes it really hard to own assets you don't you don't want to own Assets in a 49 country in terms of property right score so coming back to your question what does this mean I think the there have been kind of three property rights steps for for internet Finance the first was Bitcoin you know Cloud asset that you can't tamper with people can own that you you know if you own your Bitcoin you own your Bitcoin that's that's a property right then we get into kind of the real world because most of the economy needs to be in the real world it looks like we're starting you know a decade here I hope I hope where the US is Embraces internet finance and puts assets on chain we already have 200 billion of stable coins on chain the

stable coin Bill looks like the pass I think that in this Administration we the government will let Larry Fink put Apple stock on chain that's for me the most important single most important step in the development of this whole ecosystem is you know Larry Frink or someone like Larry f put putting Apple stock on chain and then what you have is you can the US can essentially vampire attack the rest of the world with low property rights for the benefit of these Sabers because now you're again Nigeria Brazil Argentina pick pick a country and instead of saving Fiat and local equity you just go on chain and you save in USD usdc or usdt and you save in AppLock or or Nvidia or the S&P or the NASDAQ and

and that just means you go from losing 65% relative to the dollar every 15 years to gaining you know in the stock market case 8 to 12% a year it's a massive difference in the ability of these people to save yeah it's very interesting outcome because on the one hand I could see lowering friction enabling more um more investment into to Emerging Markets on the other hand I could also see it almost working the other way where you know there are lots of Emerging Markets which are effectively shutting their citizens access off to us Capital markets and US currencies Etc and so it could actually there could almost be like a barbell sort of effect uh as well and yeah I think you know just to um maybe kind of tie a bow on this uh you know I think for me just the the simplest way to

think about this is like the unified versus um you know distributed servers is it's just um it eliminates inefficiencies right so you can compress those net interest margins and that leads to more credit being extended to people and it actually raises GDP Etc U and then it also because everything is connected everything is just much more transparent so it's harder to cheat so you get stronger property rights you get more investment and you get both of these positive reflex reflexive sort of Loops like that's sort of my takeaway listening to your um you know listening to your explanation and piece but you know I want to give you a chance here to tie a bow on it for the for the listeners like what are you know when when you're going back you know Christmas or Hanukkah or Thanksgiving or whatever uh you know next year what

should people be uh taking away on the property rights I think you know we just kind of going into I cut into phases you know next phase is places of property rights get get all the capital then there's a reaction function right then these countries with scores of 49 can decide whether they use the tools of Internet Finance to raise those scores because right now it's a little bit like the newspaper the newspaper uh local Monopoly situation where if you were in Buffalo in 1970 you read the buffalo Buffalo News and that was it Buffalo News did not compete with the New York Times now every paper competes with every paper around the world right and some papers kind of just went out of business and and weren't able to compete but some papers decided to up their game and and decide to compete in a global

scale I think that's what we're going to see here where some countries will say Hey you know internet Finance really gives us good tools to improve property rights and the returns to having good property rights have never been higher because now we can get capital from around the world and really gr grow quickly as an economy so just to to make that concrete you know the land registry example you can put the land registry on chain this is an idea that people have had for a few years in the space but it really does matter if you if your land is no longer a piece of paper in an office that you can't access but it's an nft that you can look at every day and transfer at will that's a decision that's hard to reverse and that's a decision that one reform government can make to strengthen

property rights in their country if a company in Mexico decides to hold stables in a smart contract that has minority shareholder protections baked in that's hard to reverse and that strengthens property rights for those for minority shareholders in that company so there's all these ways we can use the tools that we have to strengthen property rights and I think that that will be the natural reaction function of these countries once they see the returns you know one the negative returns to low property rights because Capital will flow out and two the the positive returns to high property rights because you know Emerging Markets all equl have higher yields so if you can strengthen your property rights using these tools you will get a lot of capital in and grow at a faster Pace all

right everyone listen up like I said at the top of the episode Unis swap Labs is rolling out the red carpet and launching a 15.5 million bug Bounty this is the largest bug bounty in the entire history of crypto to anyone that can find a critical bug with the Unis swap B4 protocol this bug bount aims to make it the most rigorously reviewed code base ever deployed to ethereum now the Unis swap name is basically synonymous with security 2.4 trillion dollars in cumulative volume has passed through Unis swap V2 and V3 without a single hack so Unis swap V4 is dedicated to bringing that same level of security and transparency to the V4 protocol so if you want more information or eligibility

or scope or Rewards or payout or any of that good stuff there is a link in the bottom of the show notes I highly recommend that you stop listening right now go to the show notes click the link head over and tell them that I sent you start earing money today hey everyone this episode is brought to you by Moro the sleeping giant within defi as I like to call them I am a huge fan of both the team behind Morpho as well as the protocol had the CEO on Paul frambo earlier this year to talk about moro's architecture and the part that I really love about it is the modular design that gives you the user either the lender or the borrower much much more flexibility so I'm actually going to share my screen what it looks like to go on to Moro but

as as opposed to other Bor lend protocols where you basically just have one option you get multiple different vaults which are curated by the industry's leading uh risk assessor so that could be a vault created by spark me Capital Gauntlet Steakhouse Financial Etc you have all of these different options depending on what risk return you want to use anywhere from 9% apy all the way up to uh 16 or 17% so you've got a whole bunch of different options there the other thing about Morpho is that they've got the simplest code base in the entire industry very very few lines of code which means it's a very very secure protocol so again I am a huge fan of this team if you are a lender and want to earn interest or you want to borrow in a capital efficient way I highly recommend that you click the link

at the bottom of the show notes head over and tell them that I sent you all right cheers so we just talked a little bit about at a at a high level of what um you know sort of what the point of what we're doing is here but I would love to get your thoughts on sort of State of the Union when it comes to defi um and specifically now you know I guess if I had to draw a contrast in between you know 2025 where we are today versus 22 we've got multiple different ecosystems today so everything used to be just completely on ethereum and you had a couple of upstarts now you've got ethereum but you've also got salana um you know which is like arguably kind of the winner of this past cycle and it's becoming Lindy Etc but you also have

some new uparts like the sees and the ap toses of the world with move um and you know you guys have a very uh specific Focus you kind of underwrite Investments on a longer term time Horizon more like a private Equity Fund sort of would and I know you're very focused on defi so maybe just give us a little bit of a like sort of the investment thesis of the fund and and how you guys think about your investable world and then we can talk about kind of the differences of defi today versus 2021 versus 2022 time Horizon and what seems interesting to you guys yeah so we you know me and and John and no are all kind of long-term investors our backgrounds are in private Equity I did that for seven years before starting and it really informs kind of mid-market

private Equity where you buy you know you kind of buy a company hold it for five plus years work with the management team to pull off a thesis and your entire return comes from kpi growth during that period and that's really the thesis that we apply to the it's the fundamentals thesis you know we buy liquid tokens with the idea of holding for two to four years um slightly shorter than private Equity just because the industry moves faster but the idea is that we shouldn't do better than our than the kpis of our companies so we're not never trying to trade narratives we're never trying to um market time is trying to buy good companies with good teams you know build a model of of what they can do over the next two to four years and try and work with teams to help them achieve that

outcome uh it's you know it's my preferred way of investing it's it's it's it started out as a very contran way to invest in crypto I think it's gaining some at least lip service adoption uh there are some people some people doing it out there as well but it's it's it's an I think it's an easier way to invest to be honest you get a lot of false negatives like there's a lot of stuff that you don't buy if you build a model that trades well in a narrative but you don't get a lot of false positives most of the stuff that you buy if you if you're good at predicting at all um works out at least decently well or at least the hit rate is is much higher so you know investing is not like Pokemon you don't have to catch them all

in a sense you just have to get get get good Returns on what you have um so that's that's that's the I think the last thing I say about investment philosophy is we we really view ourselves as capital allocators like the idea of investing is to give funds projects that deserve funds in in your view of the world so if a Project's like well valued or kind of properly understood there's not really a point in investing because it's the the team has all the resources they need right and if a team's not going to build something good regardless of narrative you don't want to give them resources either right because because the limited amount of resources that we have here it's all about picking people who are kind of undervalued um don't have enough resources in support but can really

build something good here like going forward this is a this is something that I know uh you know we have talked about a little bit offline and it's it's a always a fun subject of debate do you think this Market trades on fundamentals or how would you balance the more fundamental oriented investor segment of this Market versus the more irrational segment of this Mark just walk me through your thought process it it doesn't train fundamentals at all right most Traders are not fundamental Traders um there are markets that do trade in fundamentals like there are certain segments of and what where I used to work in like mid Market private equity people are all applying the same multiples to the same earnings and and they all think the same so if your business does you know if EB do goes up 20% you know valuation is going up 20%

that's it right maybe there's some kind of macro wiggle rumor on that that's not how this Market trades at all but that's why I make the point always about the false positives and the false negatives if you buy a good business on fundamentals and it grows through a thesis that investment will do well right if you buy something thing earning 10 million of Revenue at eight times earnings 80 million and it goes on to generate 100 million of Revenue 5 years later you're you're you're going to you're going to do well on that investment right um one because if you're buying cheap narrative usually has the only place narrative can go is up right uh two because you know worst case you just hold it right that that's

kind of the the the foundation of fundamental investing is like are you trying to sell this to somebody or you trying to hold asset and fundamental investing is the kind of leap of faith of saying I think this asset by holding I think if I hold this asset I will make enough money to justify my cost of capital from the cash flows and if it trades up and I sell it you know in four or five years that's fine too but I can always I can always just hold it through a market shutdown 10 year Market shutdown that's take Warren Buffett's question right would you hold this if the market shut down for 10 years and that question makes you kind of realize how few people are thinking truly in terms of fundamentals right everyone's kind of thinking about selling the asset to somebody else um but you know just to

give you a concrete example that like uh banana gun we bought that you know I guess almost a year ago now we fully paid off our purchase price with dividends on that investment and that's like that's one of five Investments where we fully paid off purchase price purely with dividends so that's that's the kind of thing that we're talking about here and you can get that through either buying cheap at the moment or buying cheap looking forward right because even if you buy something that's you know maybe it looks expensive today but you think revenue is going to 10x and dividends are going to 10x and you'll pay pay off your you'll pay off your entire investment in year three that's fundamentals as well right it's it's a go it's a go forward basis but it's it's about holding the asset not selling the

asset okay I've got a question for you on that so this is also one of the age-old debates that people love to H and Hall over but there's this idea of dividend out Capital to either token holders or shareholders or whatever and what life cycle or what stage of the life cycle of a protocol or company is it appropriate to do that and yeah this this debate comes up all the time in crypto um usually it's over Dow treasury spending or something like that and you know something to the effect of hey uh there's a lot of silly spending going on and if we're going to spend money in a silly way we might as well give that Capital back to token holders and then there's a I would say a smaller group of people which say hey hold on a second you know the whole point of uh you know

being an early stage product is that you should have a lot of organic growth opportunities to allocate that capital to and if you can't get a higher Roi return than giving returning Capital to token holders why would you do it uh so where do you fall on that spectrum and debate and then I'd be very curious to get your opinion on you know obviously you guys underwrote an investment or or went into banana gun with the idea that you were going to get dividend it out Capital so walk me through your thought process there yeah so I'm closer to the latter group than the former but there's actually a great book which I don't know if you've read The Outsiders by Thorn I haven't no it's it's a really good book I think you would really like it it's a book on location that kind of goes

through it's like a in the buffet School Capital allocation goes through 10 examples again I think you'd really like it um but but basically it's a matter of capital allocation both answers could be right what you need to do is kind of greedy sort the the best use of capital so if you are you know if you are uh if you sweet green and every new store you build gives you 45% cash on cash returns you know your investors can't earn 45% return on the stock market so you're going to keep that cash and invest it yourself right same thing has been true for the expansion of most Compounders in business like Google Apple Amazon they're all earning well over 40% Returns on on expansion dollars so they kept those

dollars inside if you are you know a tobacco company or paper company and you're not really growing your capital is not helpful for you and you know that the the the marginal project that you can invest in gets you 8% return then you say well look that's that's not a good return I rather give this Capital back to my shareholders and let them allocate it so it's like giving sending the dollar to the person who can allocate it at the highest rate of return on just a basic gedy sort so the reason most most SAS businesses and early stage startups have always found it better to keep money in in in in house because they're earning these kind of high Returns on customer acquisition spend or an

expansion crypto protocols have this kind of magical ability to scale almost where you know if you're making $100 million a year you might not need all that Capital right you might you might if you have a good road map and you can really spend that Capital like if atha put a new road map I'm sure they believe that's going to be a higher than 40% return use of capital like they should go keep every dollar and and and pursue that road map right but if you're if you're maker 2023 and you don't need you're making above $100 million a year and you don't need all that money for your expansion plans buy back shares or pay out dividends it's the same thing right so that that that's all it is it's just a greedy

sword of who can spend the capital at the best rate of return and get the capital into that person's ad yeah it's an interesting you know we've taken for granted that VC is the right funding model for every startup and I wonder if it is I the the small bit of experience that I have with this is that blockworks is a you know we started as a media business primarily and we bootstrapped it and I will go to my grav saying that VC is the in is the wrong funding model for uh media because you're the uh time scale that you that you need to operate on are fundamentally uh incompatible like you as a media company You're Building trust and it's kind of that expression nine women can't make a baby in one month you have to do it over time it just takes a little bit of time and

VC demands that you grow at an extremely at an extremely fast rate and so you saw sort of the early to mid-s all of these uh you know new digital media Darlings The Vices of the world the buzz feeds Etc just fail for other reasons as well but but largely for that reason too and you know if you think about what some of these Protocols are especially in the defi world they're they kind of look like banking protocols um you know not exactly obviously there big differences there but they look semi like Financial Services banking type entities and kind of interesting question to ask yourself is a VC funding model the right if you were starting a bank today would you go to a VC to fund it I don't think so um no funny thing is one of one of um you

know the best bank investor in over the past 100 years has been kind of Warren Buffett Charlie Monger Brar hathway and they said that their number one red flag is a bank that's growing too fast if a bank grows too fast they just they they know it's bad loans right so I think that goes directly to your point of saying like it's not the same with protocols but that goes directly to your point of saying VC is not the right funding model for everything I mean also in the fund space like most funds are bootstrapped we're bootstrapped as well um you know VC tells you to to be a lottery ticket in like the Peter theal sense where they're okay if you fail but they want you to get a you know they want to get VC return outcomes 20 plus returns uh 20x 40x plus returns that's the if I

knew a fund was VC backed I would never put a dollar of capital with them right because what are you what are you saying you're saying take Max risk lose in 90 lose all of it in 90% of the outcomes in 10% you're the best raining fund of the year and then you get to double next year and do it again so I think there's just so many cases where BC is not the right the right um the right model but that's the that then that comes back to internet Finance right let's let's let's let's really open up the bizaar here and let everybody find the right um the right funding model for their business yeah you know one of the other things too that I've thought about in when it comes to crypto is highly cyclical and um you know tech for the last 20 years

has not been cyclical people push back on me whenever I say this but okay I mean just look at the the chart for you know B2B SAS over the last 20 years a straight line up and you know with 2022 being an exception and um there there are Industries actually that are bit like uh you know there's whole sector of the economy like cyclicals right um sorry constructions semi Etc and I've I've wondered for a little while if the it's kind of like the VC funding model of just apply a whole bunch of um you know capital and grow as fast as you can but also you know basically take a lot of risk and lever up both you know kind of operationally put a bunch of headcount in there those lessons

sometimes come back to bite you when it comes to crypto in general and actually the teams that make it are the ones that survive and they have some amount of discipline when it comes to growth and there's kind of mismatch in terms of mental models for you know people that try to Port over the lessons that they directly learn from Tech into an industry which is highly cyclical in general as well yeah yeah I agree with that I uh I I Harbor an optimistic hope that one day it won't be a cyclical we we'll see if that if that ever plays out um you know I think it's it's about the number of users like if you have the same 100,000 active users uh you know the number is debatable it's going to be cycal because it's of like they get uh wealth effect you know they get a wealth

effect in injection they all speculate all the entire system is reflexive and like right now we're in reflexive up where like just token prices going up make kpis go up and kpis go going up make token prices going up go up but that doesn't have to be that way if we get real real adoption and real customers right if we're going to like you know if we're going from 100,000 to a million to 5 million to 10 million users uh like in the article that we talked about at the beginning we're talking about 8 billion users if you actually get on that curve of expansion then it's not going to feel as cyclical right it's gonna feel it's gonna it's gonna be straight up for revenue for the industry as a whole that doesn't mean

it'll be straight up for revenue for every company because there's still competition but uh that's my secret optimistic hope that I Harbor that we can get on that on that Trend at some point it's not super cycle for like l1s it's super cycle for Revenue super cycle applications and revenue generating yeah um I've got a question for you on the the fundamentals piece so how would you distinguish in between you know from an investing standpoint in between a protocol that has a good business but a bad token so yeah you know you you see this very often right where actually there are protocols which are cash flowing and making a lot of money and it could be now you know some of these Protocols are doing well but like the AES of the world uh the makers of the

world Etc but you know sometimes you see these these charts of you know revenue and fees that are being generated going up only but the token is doing poorly uh for one reason or another so you I know I know in in the past you've worked pretty Hands-On with teams uh in terms of building out their tokenomics model so you how do you distinguish between you know good project cash flowing but bad token I mean that's like the ideal situation for us if someone has a really good business it's trading cheap and the token doesn't work because the token can be it's easier to fix a a good business bad token than it is to fix a Bad Business good token from a from a long-term perspective um you know if the business is doing well and the token's not going up there's kind of two two

buckets I put that in one it was overvalued to begin with so like if you're trading at a thousand times earnings and then earnings 10x and you're trading at 100 there's no reason the token needs to move right it can just stay flat because people paid people paid too much for the token people pay too much for the earnings right that's just that's just part of what happens in every Market but I think the the more common cases where there's no value acel um there's no value acrel there's not the right cap table and there's not the right communication with shareholders around around like token versus Equity because liquid funds for the most part do not invest in tokens that have an equity structure that acrs cap acrs acrise earnings right because you're you're kind of in the

backseat there with no legal protections so you know one good example of this is actually metaplex they had an incredible token transition over the past cycle you know they they kind of raised from a lot of you know a lot of VCS a lot some good VCS but also like FTX ft FTX Michael Jordan all the celebrities and the token was down like 90% a few months after and they just had they were like in in shambles there was no value Quil to the Token there was no you know no kind of there was a few good holders but for the most part it was kind of bad holders on on the token side bad holders just means like people who don't really like to hold tokens for more than a few months

um and there is no there's no story for what NX would do right but the team the team that they're now is fantastic team they kind of realized that um and a few funds including a shout out to modler who who first discovered this realized that this was like uh one of the highest quality businesses in the industry right they have 99% share of all nfts mitted on and all tokens salana so every time you trade a token on radium you pay or you you me a token on radium you pay a fee to metaplex every time you me an nft you pay for the metlex that's true across all svm chains not only not only Salon main net so it's basically like a Pure Play Pure Play bet on SPM kpis which is

like everyone that's everyone's looking for that right and it was trading it was trading at like three times cash flow at the time so what that process looked like was one you know uncovering the token talking to the team saying like hey are you willing to say no cash goes to equity like definitively you know and legally and then also Implement a buyback why a buyback not because of capital allocation and this goes back to other conversation but but to signal to people that the token is the holder of the DCF right just just as purely on Signal value um so they started doing that imp menting it eventually more and more like good liquid funds came in and this kind

of peaked earlier this year when FTX um FTX estate sold sold a huge portion of Supply to 10 good funds I just took it off the market immediately they didn't even have to hit the market like hit the charts with it and that kind of now the metlex team is in a situation where the token clearly Acres value you know they've been buying back token for well over a year and the team also gets to communicate with like long-term oriented holders about his plans so we all talk to the team they kind of tell us what the plans are they get pretty good feedback good BD like good help on BD good support and that's where I think every token wants to get to but where

most tokens are today is kind of like you launch some gamified gamified models I hate gamified token models uh your VC is sold you know because it's one or two years later uh like post unlock the people who hold your token are in in the Discord you know nothing against people in the Discord but not often not the best token holders um and you have no support on liquid markets you have no support and you're still like on the second ending of your business creation or business building yeah one thing that I've always thought is a little bit silly about how crypto treats holders is there's this idea of community good VCF funds bad and whoever is a good holder is just someone that has long-term

conviction in your project and is going to hold it for a while and not be you know a mercenary and cell and there you know just because you're you know in the trenches and in the in the Discord does not mean that you're necessarily a good holder for that that project right because you're not associated with a VC if you're gonna dump you're gonna dump so yeah if you're in if you're in the trench if you're in the Discord for a month you're a bad holder no matter no matter who you are VC or or Community walk me through from the persp perspective of a liquid token investor you know how you think about the um you know the projects where there's an equity component and a token component so you described that below so you you said you mentioned you don't even touch those sorts of like Unis swap would kind

of be the the canonical example of this right where there's a there's the wallend yeah I would love to hold equity in unof Labs I think it's a fantastic business you know I think we can talk about Moes later it's it has some of the strongest Moes in the industry uh I love what they're building new x with hooks like it's a business that I look at it's right in the middle of our thesis and I say I would love to hold the right component that can benefit from this growth you know great team but that component is is equity and unisoft Labs the token has been treated as a back you know as a second class Citizen and and it will be right because what's happened is the token holders are people around

the world um and people around the world who have bought over multiple years there's been a lot of turnover and and the labs component is the team and the VCS that backed it so there's this kind of what we call the backyard test if you if you have an equity compon if you have Equity that's held by the team and you're your you're close to feces and you have a token that's held by people around the world and you find $100 million in the backyard or a billion dollars in backyard which is more like what the fee switch was on Unis swap um who does it go to right just natural incentives it goes to kind of you and and your backers not random people on the internet so whenever we see that there's a risk of an equity an equity an equity component that can acur value we

just stay away because we know that it's it's at some point you know a lot of the best Returns come from be things you don't expect right a new product line some you know Amazon business is buil on AWS right if Amazon had equity and a token Equity would have gotten AWS and a token would have gotten like the book business how do you think about on a long-term time Horizon felipo you know one thing that I've started one way that I've started to just conceptualize tokens in general and it kind of goes to your piece about internet Finance is just being the capital markets for the internet and the thing about the internet is that it's Global and that it's got massive scale and one advantage that I could see for launching a token versus something like the equity and

something like Unis swap Labs is you know Unis swap Labs has access to you know private us private Capital markets you know which is still a very large Market but over time I could see the Internet Capital Market dwarfing that in terms of its size you know there's another component too that I think tokens get um you know this is a another old subject of debate here bringing up all the old blockworks classics for you here to get your to get your opinions on but I think all else being equal you know Equity versus a token right if you have a company that's worth a hundred million doar and one of it's you know got a a token that's trading at 100 million um market cap or fdv and then there's million Equity valuation the the token almost should be

worth more because it's liquid today right there's got to be some sort of premium for there's got to be some sort of premium for that and so yeah you know I hear you that there's almost like you're kind of making like a capital stack question right like it's who gets the money if uh you know who gets paid out first but also I do wonder if over time even if you don't get additional investor protections for token holders just the liquidity sort of idea and being uh yeah the liquidity premium ends up eclipsing that I don't what do what do you think about that yeah it's I mean it's two opposing forces right because liquidity is incredible um like I liquidity is incredible you know we're a fund that hold for two to four years we we're not we don't really sell companies unless our thesis it's wrong or we

realize the team isn't who we thought who we thought it was um but even even now we benefit from liquidity in incredible wayte right like you can buy more of a token if it's if it's below a certain threshold you can receive capital and size into your positions and keep your same kind of portfolio weights and you can make these little adjustments around your portfolio that I think that really add up over time so like if you make a few small 1% changes over you know a couple times a month over two years your portfolio looks completely different at the end of that those two years I did at the beginning and that really impacts returns like think about how narrative shift and how much you would have in different

ecosystems based on when you started as a pure as an illiquid fund right um that's all long way of saying liquidity really matters it's it's worth a premium definitely um but the shareholder protections matter more to us as long-term holders I think once you have shareholder protections which we think will come again in this in this decade for for tokens then then they they're worth more because then you have the same protections and you have liquidity but right now it's a matter of trading the those two off from each other with each other and I just think the trade-off favors the the kind of legal legal Protections in the case where there's two I think in the case where

there's only one let's go back to banigan for a second um there's only one token there right there's no equity there's no equity component same with metaplex one token no equity component in both of those cases the team owns a ton of token and you know the case of bananagun they're locked up for eight years uh metaplex also the long lock up so if you have like a long lockup the team owns a ton of token and the VCS that backed own token not Equity shares and Equity shares have been like professed to be worthless or just like a lab Li that funds operations many times then I think you prefer the token right then the token's good but it's it's all about like you have to rely on you have to rely on

incentives when as long as you don't have legal protections and hopefully soon we have both on that point just like one quick the point is tokens definitely have a higher cost of capital than than VC Equity yeah like if you go to if we went to LPS and we were like we're g to make two to three times over seven years they' like get the hell out you know I can make that on PC and and that that that just shows you that just shows you kind of what what the markets decided on that on that question at least under the current regime but if you don't mind Mike there's one thing that you mentioned that we want to hit on which is internet Finance and and encompassing all all assets you know there's one question

that I get a lot from people when I kind of describe this system or or did in the past which is why would that happen like why would a hotel owner in Indonesia raise money on the internet as opposed to going to her local banking system or why would a mid-market private Equity Fund in the U or or mid-market company in the US go to the internet instead of instead of you know using private Equity Funds that are great and like established and I think that's like one of the most um un like underappreciated points about this idea of a global internet Financial system is that you have Auction Network effects right auctions have this win or take win or take win or take all Dynamic where if you're going to go sell a Sega

like you're GNA go to eBay because you know that that that's where the most that's where most Sega buyers live and that's where Mo and the buyers are there because they know that's where most Sega sellers live as well right and like one incremental bidder is worth is worth a lot to both sides so over time if we can really accomplish this like dream of getting a lot a lot of the world's Financial activity on chain it will become the lowest cost of capital place for people to go and raise funds just by the the nature of Auction Network effects right the in the Indonesian Hotel owner is most likely to find the Dubai fund that has a 6% cost of capital on the internet than it is through through its kind of local banking system yeah it just makes funds

compete more right like it just makes everyone compete on their cost of capital more and yeah the the cost of capital point is also really interesting it's why the first season of bell curve ever was actually on um fixed rate borrow lend and bringing some form of debt on chain which still makes sense to me I think there are a lot of reasons why we're way too early um in discussing that but it's still a very interesting concept to me in general yeah and you know one one concept that I wanted to poke at you at uh because I think you've done a really good job of flushing this out with some very specific examples the concepts of Moes within crypto and yeah I'm very interested in this because you know people talk crypto is open source right

it's like open source software it's very cool there's this idea of forking and I think people have this embedded idea that you can never really charge fees because someone's just going to Fork your code base and charge a lower fee but we haven't really seen an enormous amount of that and know you've taken this almost kind of Porters 5 forces framework and applied it to you know kind of taking some of the classical ideas of how you build a moe um and applied it to some crypto examples so can you just talk about how you think about Moes in general especially around D5 Protocols of course yeah um yeah I think this is by the way the the most valuable Alpha that people are not thinking about right now like Moes are the bread and butter of long-term investing if you're a long-term investor you're thinking about Moes all day and I

don't see much discourse around that in in kind of CT so I'm happy you brought it up uh yeah we're we're taking kind of the traditional porty for forces helmer's seven Powers View and applying it to crypto opens you know IP is has been a moe for people in the past but it's it's not one of the primary Moes that that businesses have used right like IP even though you can't always copy it directly you can hire someone's engineer and figure it out in house and like I mean you've seen that since chat PT came out how many new gpts there are like discoveries had a way of getting replicated across across Industries quickly even even if they're if if it is an open source um you know the the Moes end up being more around economies of

scale and network effects and coordinate resources and and we put out a piece on that but I think the the just to keep it piffy the the the most common Moes in crypto are you know kind of like four buckets economies of scale Network effects coordinate resources and and branding on branding people like to say like oh not going to go trade on X and Y because I like the brand and pay more you know I'm not going to go trade on usoft and pay more because they like the brand that was a big argument two years ago well turns out people are willing to do that and pay a lot right like unisoft tra charges 25 basis points that's a big number on front end fees and coinbase charges above a percent on on its on its

UI but the more important branding mode is on cost of capital for TBL products if you um if you're fund and you're going to lend to a borrow lend product to get leverage and Ava is offering you seven and some you know some startup is offering you nine there's no chance on Earth that you're going to take the startup risk on nine because it's it's two points on your Capital it might be for three or six months so you know cut that in half or by a quarter um and if you lose the money you're fired right like you're the biggest idiot in the world for trying out out some new protocol to save 2% over six months and losing your Capital so branding that's

how Camino really built its its its product on salana Marius is like well known in the community to be a super paranoid risk manager and people started trusting Cino and depositing there and and and simply because it had this brand of risk management and that's true for all TV products nobody wants to lose their money on an exploit uh especially not fun to have to go and and and report that to external parties and I think over time funs will be more and more of this ecosystem yeah the brand one is so interesting to me because it's this really funny dichotomy in crypto where every everyone loves yield right everyone loves yield and because it's is a retail driven Market you see these

crazy yields that you would never see in trafi and the reason you'd never see them is because trafi is probably a little bit smarter than crypto or institutional and there's an understanding that you know the the risk reward understanding is baked in so if you're a yield that 150% you know you're taking an enormous amount of risk you're not necessarily going to do that and so it's very it's very difficult in crypto there's this kind of you know if you are established in an incumbent you want to compete on brand and security which I think is probably the right way to do it in the long run but if you're an upstart you don't have that lendin or that security or that that brand and so the only lever you really have to pull in many cases is yield and so you know I would love to just get a sense for how

you think about almost if you were in the driver seat of you know newer protocols that are competing with the AES of the world right on that something has like the just use a kind of liness um because if you offer more yield you might inherently be seen as risky but that's actually what the market might want right now like how do you think about like the yield versus brand competition when it comes to D so I think people who have tried to compete Pure Line yield have not done that well like fork and just increase the yield I I can't think of a single example that's like dominated um that that now dominates market share like sushi Swap all the AL Forks like they you know they did they have their moment but they don't none of them have replaced kind of replaced the king in

the sector uh I think the way to compete is really on design space so right now on the a example I think that Moro and Oiler are going to give AA a run for their money over the next five years here or two years here if you want to make a shorter prediction because they're competing on design space and actually doing something you know accounter positioning right accounter positioning is something that you do in business that your competitor cannot do without destroying its business the classic example is like Netflix sending out DVDs um is a counterposing to to to to um uh remind me the name of the video

rental store Blockbuster uh because they have you know physical stores they can't send all DVDs without destroying their business business Moro and and Oiler are kind of doing that to AV Ava has this monolithic pool they're known as good Risk Managers the whole point is all the liquidi is in this one pool and that's kind of the moat and we can you know that's kind of the the the network effect Moe for them and moral and a are starting a modular lending that's saying hey we're infrastructure we're going to allow much riskier vaults to be created by Risk Managers so now you're not trusting you know aa's governance uh which has been quite good but you're trusting each individual risk manager you're trusting Gauntlet you're trusting re7 you're trusting

Steakhouse and by moving the trust one level higher on the on the stack we allow for experimentation and we allow for you know La lending on longtail assets creation of Structured Products that might be too risky for for a um and all this kind of interesting Financial Innovation that that will result in some of these pools really taking a lot of CBL and taking share from AA the reason AA can't do that is because they have this kind of oneof end failure mode right if a puts on a a a collateral type that fails the whole pool failed the whole business is over like they had us luckily they had like 10 million of us and and the business survived and they

had the the insurance protocol but like if they you know add Athena and Athena I don't think it's going to happen but if Athena were to go to zero for whatever reason like AA is over as a business right whereas Oiler and Moro can add any collateral they want any any you know not within reason right now but they can add any longtale asset and if it fails if the VA fails then that risk manager lost his reputation and they won't get Capital anymore but the underlying infrastructure can survive past that because it was unopinionated to begin with so I think that's like they're competing on design space they're not competing on yield and that's where we've seen things do well in the space yeah it's uh actually coinbase is

another interesting example of this you had a couple of you listed coinbase in their in the economies of scale being able to advertise their costs across a larger base but the other thing that they have is brand as well and coinbase has been able to charge pretty high fees for an extremely long period of time this has been the knock that those High fees that coinbase has been able to charge the retail customer base are going to go away we are 12 years in to coinbase as at a company and there no I don't think it's going away I think it's gonna go I think it's gonna get get worse I think that what they're gonna do is become an aggregator where you know this like aggregation theory is um like the idea that a business owns the customer to

such an extent where they can make everybody else just a backend provider so like Spotify owns a customer good I love this I love this I've talked about aggregation Theory I went back and looked this there's a there's an old uh episode that we did probably a year and a half ago where we talked about um ation Theory and smiling curves and yeah there there's you know there's so maybe maybe it's because of our Bitcoin roots that there are so many supply oriented demand thesis or uh sorry investment thesis when it comes to crypto and people talk about the scarce supplies if that means something has to go up um and you're focus on the the tail end of the value chain as opposed to the relationship with the customer and it feels like to me that's a really sticky and important component and there just

aren't that many businesses that have a lot of customers in crypto yet and I actually think those customers are more sticky than we might give them credit for In traditional Financial Services brokerage customers famously never move once you sign up with a brokerage or a bank account you just never move that's why banks are willing to uh you know pay such high customer acquisition costs and I wonder if it's the same in crypto a little bit too so I agree with you I think Co STI yeah they're sticky and they're priced and elastic you can charge some fees that's why all these junk fees they just they just can't they keep adding fees and people leave so over time they accumulate that's why coin Bas can keep charging 1% why I mean why I would do the same thing if I were them and on the

aggregator side you know just to for the audience like Spotify is an aggregator they get to treat musicians basically however they want right only someone like Taylor Swift can can debate uh Spotify everybody else like your favorite band Audio Slave they're they have no negotiating leverage at all with um with Spotify right and coin base I think is entering that position especially if regulations open up and they can expand further where they can create every defy app the way that Spotify treats artists and say Hey you know xor lend protocol Cino like you want to be on coinbase we'll we'll rope you in but we're keeping 80% of the yield what are

you gonna say it's like 10 million new customers or 50 million new customers maybe down the line you're going to say yes every time and they're going to keep the line share of profits and there's a case where they keep the lon share profits from defi in general because they have the you know there's multiple players in the back end and they have the kind of holy customer uh and can Di and can dictate terms so there's two aggregators in crypto right now coinbase and binance and they're making more money than everybody else combined by order magnitude so I I think that's where the that's definitely the most profitable spot to be in um I might be going way out on a limb here so if you have no opinions that's totally fine but what do you think about Robin Hood as a potential compe there so you know

if you look up something like Robin Hood they have this Mass it just feels to me like they should have an interesting wedge into this Market because you know like all right A couple of years ago there's there's a big push for a bunch of D5 protocols to launch uh stable coins yeah some of which were successful some of which were much much less successful um and I think if you look at the ones that have been successful usually you have to have some form of distribution and I think part of the reason why you usdc ended up taking off was the coinbase distribution angle and part of the reason why Bas is I think you could just say the most successful L2 at this point it's got the most tvl probably the most activity at this point is just because it's got this massive uh

user base and like when you look at other companies that are poised to potentially do the same thing Robin Hood looks pretty similar uh if you look at the amount of u daily active users Robin actually Robin Hood actually has more than coinbase um it's extremely retail oriented they I could imagine them spinning up in L2 and you know potentially partnering someone with like a stable coin issuer and running basically the same Playbook that coinbase has and they're being it's it would be wildly underpriced you know so what are your thoughts on Robin Hood as a competitor here so no no opinion until you ask the question right now but like in the vein of what we're thinking uh you know if I were Robin Hood and I was given a blank check on regulations I would just go to Jupiter and pump and

say hey you guys are going to build a build a you know I'm going to build you guys in you're going to do all the work and you're get you're GNA give me a rebate for 80% of the profits and they'll say yes right yeah because they don't the other thing about I mean Robin Hood has actually built out a pretty impressive crypto team um it's something that I didn't really understand until recently but it's not the same level of nativity that coinbase or binance would be for sure yeah but the customers are I mean it's probably it's already selected for the most aggressive retail customers um who are most likely to want to trade mean coins so I mean they have they have all the leverage there if they decided to come into the space just based on the same kind of ve of thinking um the other the

other kind of moat that's I mean one just really interesting Mo that I haven't seen much outside of crypto is um there's this idea of a cornered resource mode and like the classic examples are like Saudi aramco has the cheapest oil in the world right so they can compete they can always compete better they can always underprice everybody because it takes $20 to get their oil out of the ground sorry like $4 to get your oil out of the ground and everybody else is way above 20 right or like the beers had the best diamond repositories in the world it's not a very common mode to see but in crypto you see it a lot with trapped Capital which is actually kind of funny so like maker has over a billion dollars of trap die which is die that's never moved you know hasn't moved over the past five

years for different reasons and it doesn't come into the staking module so they can offer they they can offer um higher rates to die holders because there is a whole portion of the die pool that isn't getting paid out because it doesn't move and you have the same thing you know the famous um the famous like Unis swap eth pool why don't they move if they have such drastic lever a lot of those accounts haven't moved in years right so a lot of it's just dead Capital providing liquidity at you know slightly suboptimal rates but it's not moving and a competitor can't get that debt Capital right it takes years to accumulate uh

like third example is like on radium you launch a mem coin you burn the lp so with popat all these memes if they if they endure for any period of time like you're trading them on radium because they don't need to pay a cost of capital there they have trapped Capital that does that that's completely inent insensitive to um to what they're paying and it's just a really good Mo because an upstart cannot replicate that right no matter how much VC funding you get you replicate that super interesting um do you think that there is so the dot my understanding of the uh you know the dead Capital behind dies that's a bunch of retail depositors who've just lost access to their wallets or forgotten about it or you know died or whatever the Unis swap one is interesting I've

talked about it many times on the show it's my favorite conspiracy theory about who that actually is but my understanding there is that it's actually small amount of wallets very well funded very professional Etc so um I don't I mean I guess I put myself in the position of the founders of these protocols as well and you know how how safe do I feel resting on that assumption that that capital is never going to move uh because one day it just could and if my economic if that's my moat um that could go away almost overnight but yeah it's super interesting concept I think they have like 10 notes by the way on Unis side yeah they do there's just like one one interesting one Unis swap is one of the more interesting businesses in all of crypto in my opinion I mean I know they've got

that the labs Equity versus the token Etc but man when you just think about what they've done and now a lot of the stuff that they a lot of the moves and and what they've shipped makes a lot of sense to me so there's the wallet which is actually a little bit of a sleeper hit like they've got a lot of people that are using that wallet the ux if if you haven't messed around with it lately is is quite good they've still got the front end that many retail uh people trade through and they're taking a I forget it's like 15 basis points or something like that or 25 basis point on I that was 25 25 yeah that go that goes through that and then with V4 they're just going to have an unit chain they're just going to have a bunch of different

amm designers competing for you know to build the most you know lever optimized or you know whatever it is uh hooks on their own uh sort of L2 layer right where they can extract another layer of fees I mean it's just genius it's great geni and and the um the hooks it's the hooks are my favorite one because they're kind of secretly building in these massive switching costs which is one of the classic modes into their business right if you build your business on a hook you're not moving like unless Unis swap takes all of your profit you're staying put because You' like a move would be a huge amount of effort and risk and um like disruption for your customers and it might not even go well so like if unof decides to

charge you like raise the price of charging you as a as a builder you know for whatever reason like indirectly directly through rebates whatever you're kind of stuck there right so they have they're building this little feudal Kingdom where they're they're at the top of the hook stack and I'm seeing that as a positive like there it's a I think I see there a brilliant kind of Mo SL business move on their part you know what else is another interesting Moe is brand for UNIS swap actually because yeah you know part of the part of the uh reason to build a hook as opposed to designing your own amm it's a couple things it's one in theory I think you might be looking for some of that order flow um I I'm not sure what the routing is going to look like in between the uh

Unis swaps front ends and whatever the amm that end up getting built are but another one is security right so they've got a very clever sort of model where you can inherit a lot of the security and not and they're running a you know a $15 million do bug Bounty right on V4 it's going to be the most tested you know Ison codebase in in all of crypto and yeah and yeah that's part of the reason why if like why I design your own amm if you can kind of have the uh you know this very tested nice code base that you're building on top of so yeah you know what have you ever listened to the you stri as a guy who might have listened to acquired the podcast yeah yeah I have few a few times Unis swap might be only one of the one of the uh

protocols in crypto that you could do a full acquired episode on and like break down all of the different components of the business and how they all fit together and yeah yeah that a great idea you should you should do it you yeah maybe we'll uh plan to build up to towards the end of the year but um the other sleeper is um unisoft X you know I don't know if we mentioned we're we're a we're a fully onchain fund we have been since day one and like part of that was just kind of skin the game and dog fooding the industry as we're kind of building in it um but the some one thing that we realized kind of being a nonchain fun like fully onchain fund is how much easier the Ops are like operations for a fund are hard and Ops

require multiple people but when you're doing them on chain all you need to do is send your nav like your your your nav administrator or like your sorry your administrator um your wallets and they'll ask a few questions and it's done because they have a full record that's verified of all your transactions which is usually the hard part like that's usually the bottleneck is getting everything you've done all the contracts you signed and like talking about each one here it's like here you go dude don't ask me any questions right again they do but it's a so like all else equal if I can trade with win mute on unof X or trade with them directly and it's the same price I'll pick Unos swap X or comminos swap same product any any the other week basically yeah Filipe we uh we in our

final couple minutes here and unfortunately have to wind down I'm sure we could go for a couple other hours maybe we'll do our Unis swap uh acquired episode the two of us at some point but um yeah any closing thought anything that we haven't um you know fully addressed yet or closing thoughts on open internet defi Moes Etc that you want to leave listeners with maybe I'll just I just I'll just like do a little pitch to to Founders on this last graph that shows kind of the disruptable market on the piece um you know the the idea is like people I think in general we think people are playing too many short-term games in the industry and like the real strategy is is survive survive for for the big pricee um you know we run our favorite thing or my

favorite thing now with jpt is to use Canada to run like Monte Carlos as a joke we run them all the time showing like if you have this industry that's growing with massive volatility and a lot of failure modes what's the optimal strategy and it's always just get a little bit better each year and survive yeah right and I think I think it that that plays into our like eye eye on the prize idea if you look at financial services and the amount of Revenue in the industry it's a 5,000x revenue opportunity for for for crypto right now just on Financial Services only assuming that the market stays put where we think it's probably going to grow right so that's like there's a Massy here you know I think we we we like to invest people who build

for the long term we're building for the long term um and it's it sounds obvious but I think there's a lot of kind of distraction and Sound and Fury in the space that that that trying to like pulls you gravitationally towards thinking short short term or or taking undue risk I think we'd say you know I on the prize agreed agreed all right well said well uh really appreciate it man thank you for coming on the Pod if folks want to find out more about the work that you do with Thea or follow you on Twitter or or whatever it is what's the best way for them to uh learn more best way would be at the research I publish everything there and everything we do as a firm I also publish there cool all my friend well appreciate the time uh this is a fascinating

conversation we'll have to do it again sometime soon all right thanks Mike appreciate it take care [Music]