Ethereum’s “Too Big To Fail” Time Bomb | Roundup

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode [Music] all right everyone welcome back to another episode of bell curve if you're joined by Michael's one and two and Miles we got both Vance and Yano out and uh I think we're also going to be joined by Ron DeSantis yeah he's announcing his candidacy on Belcher velcro pie man's everywhere these days

I actually tuned into the spaces I thought it wasn't I didn't think it was bad but the the media didn't have kind things to say about it but I don't know that is definitely true yeah that is a joke Rhonda Sanders will not be good because he will not be going on this project no he will not um well guys it's been a bit of a slow week in in crypto because kind of our our leading story here is actually AI related so um Nvidia had maybe one of the largest you know relative and absolute percent moves in a stock I've I've ever seen um so they announced earnings yesterday and the stock was up almost 30 percent

overnight um basically an enormous Revenue be kind of on the back of anticipated demand from AI so I don't know I mean Michael I feel like this is a little bit more of your wheelhouse here but I'd be I'd be like very curious what your sort of takeaways were I I really think it's as simple as you can kind of assume they had a revenue beat they had a guidance beat a lot of the conversation that they had after on the earnings call was really around artificial intelligence and where they see these changes stemming from which is AI and so frankly I I think you know the the basic understanding here is NVIDIA the stock itself is broadly looked at

now as a way to invest in AI where you have the downside protection of a core business being able to subsidize downside risk with the upside potential of AI really kind of taking off and you know historically we've looked at Nvidia in particular and Nvidia actually is featured in a number of different blockchain ETFs because of the gpus that they create which are the core components of any sort of mining operation um and so Nvidia has been looked at historically as a way to get exposure to Industries where you can't direct invest or you can directly invest through a stock or you don't want to have the specific risk of a stock that is only focused on that space and you know web3

crypto in the 2017-2018-2019 era was that opportunity for NVIDIA and it looks like you know people are taking that same Playbook and potentially running it back here with AI um so it'll be interesting to see and you know one thing that we were talking about before we started recording is are they taking the exact same components that they've been selling you know the gpus that would go into gaming ribs or be used on kind of very high speed computers uh and leveraging those for AI or are they going to start building their own AI specific components um you know if they're able to move in the direction they never built specific components for crypto mining but if they move in the direction of having uh specific components that are that are dedicated for AI you know this this

could be you know a great opportunity for people to you know potentially use exposure to it but we'll be interesting to see how that plays out so I'm just reading uh you know sort of a couple of the highlights from their notes from from their earnings release and you know they they really leaned into the whole adoption of AI right they they're really positioning themselves to Wall Street as being in the center of that adoption of AI based tools um these are you know I'm just reading directly from the Wall Street Journal article here but the adoption of chat gbt is already translating into a surge in orders of chips that is quote you know almost unimaginable uh that's coming from Susquehanna and uh basically you know people are saying that this is a new Gold Rush and this is a picks and shovels business and investors love

picks and shovels for sure um I would say like Nvidia is a great company for sure um I think probably some mini AI bubble post chat gbt was always um always inevitable I think there was always going to be a lot of uh in the strong investor sentiment here I I you know obviously I'm not an analyst and I haven't you know deeply studied nvidia's business but I do think I've been thinking for some time there was going to be a little bit of an overreaction to AI in general so this is kind of the inverse of Chegg which you saw a couple of weeks ago but Chegg they mentioned AI in their earnings call in a negative way and stock fell 30 and this is NVIDIA you know wrapping their positive earnings

around Ai and surprise surprise it's up 30 and you know we were talking about before on this call Nvidia is not a small company NVIDIA now their market cap sits just under a trillion dollars um you know I don't know how much more room they really have to run here they've already doubled so far this year so they're on they're on a tear and they've got a 215 priced earnings ratio so I think this is you know people are extremely bullish and they might be a great company but I would also say you know you're in a rarefied air at over a trillion dollar market cap so that's that's the only thing that I might put out there two two things to add there just to piggyback and you know at 25 I think it's 25 up today uh but a

25 increase on that size of an asset they literally added an entire ethereum in 24 hours and you know that that size of movement is not you know uncommon for obviously a crypto asset or a smaller medium-sized Equity company but adding that amount of size see this large of a corporation um is a is a real noticeable move um and and yeah I think broadly um it'll be interesting to see what happens with AI kind of where it where it Trends over the next six months a lot of the people that are very closely you know entrenched in the industry like the Adam D'Angelos of or uh uh obviously the the Sam altmans of the world you know a

lot of what they talk about is that this isn't going to be sort of a flash in the pan type effect in that every single week every month recorder there should be new improvements new advancements new features new products that come out if that Trend can continue I think you know you're going to see a sustained you know cycle here um but I agree there is a lot of potential here that this is something that slows down at least an intermediate and isn't something where you know it meets up to expectations or demand as fast as everybody especially and it's also just the you know it's the easiest most accessible way to bet on AI right now right that does not require you to be you know a participant of private markets and even if you were it doesn't require you to pick you know the winners

higher up in the stack right um so when you combine you know those Dynamics with extremely like hot investment area anyways plus a fundamental story behind you know the investment I think you get a move of this size um and it'll be interesting to see if some of you know this Capital eventually does trickle into more of like the application winners um at some point like you know similar in the crypto markets where you bet on you know the laziest possible version of the thesis and then eventually we'll take those profits and then find you know all the coins or smaller projects and that's right uh you can see a parallel situation playing out here

yeah just just because we occasionally discuss crypto on this macaron AI podcast there is I was I was listening to the all-in podcast one of their guys at Friedberg talking about the the trouble of regulating something like AI because um you know Sam Altman already got hauled up in front of Congress and had to answer a bunch of questions and you know testimony that he gave was pretty interesting it I think there were a couple of different and possible interpretations he very much so was on the pro regulatory camp and maybe you could interpret that as being an incumbent pulling up the ladder behind you the slightly more charitable interpretation of that is hey this is a really hard thing to regulate and I do

think one of the there's a there's a comparison between regulating crypto and regulating something like AI these these models are actually something that can be run with relatively small amounts of computation kind of On The Fringe and you know our algorithm is already so incorporated into our world and the technology that we use that it does when you actually get down to Brass tax you try to write legislation around this it's very difficult to regulate something like this in a sort of similar way that it is to regulate something like crypto as well and that the whole regulatory apparatus is sort of based around you know you you regulate these large intermediary um sort of entities these institutions and both Ai and crypto just fly directly

in the face of that so I do think there are going to be some interesting this is parallel to draw between the challenges regulating Ai and crypto I think so I was I was literally thinking about this not in in relation to the to all in practice I haven't listened to that one but I I do think um there's some really interesting Coral areas between what Sam was talking about as to and I totally agree I don't think he's like pulling up the ladder behind him I think that he's he's basically trying to Curry favor with politicians to say hey yeah sure it regulate us absolutely and maybe we're the ones that gets the license maybe we're not the one that gets the license and there is no licensing program but you know as soon as this this technology you know to your point and and we've seen this with a

number of uh investment opportunities that we've been looking at of just disintermediating decentralizing the process of taking a model training the model using the model and having people pay for it and completely decentralized network path uh you know this stuff is going to move to the edges very very rapidly in the exact same way and kind of what we were thinking about internally at framework was in the exact same way as being a validator node and Roofing State network has moved to the edges of the network you can be an at-home Staker with a small computer a small Computing device and be one of the nodes that's participating in the ethereum network you know if you have 32e but I think that same thing will happen right now it's not the case where you

know open AI has chat GPT and that's a closed Source model Google has barred I think there's llama is open source but all of these are kind of varying degrees of Open Source closed Source but really the training aspect is something that happens at the core kind of compute engines that you would expect the Doodles the Facebooks the microsofts of the World open AI now but as this stuff moves to the edges you're not going to be able to put the genie back in the bottle and I think Sam knows that and in the exact same way that crypto you know there's been so many attempts to try and say oh validator is now fall under this regulatory regime it's like you can't put that Genie back in the bottle like there's too many tens of thousands or hundreds of thousands of node operators that are running software on their own

private devices and that's not going to be something that you can just go back and say okay let's let's take that back so I do think that you know the coral area that we were thinking about is running the training or running the models themselves at the edges with validating creative state networks or or proof of work networks as well but you know validating networks are mining networks you know that's just something that I think is going to be at the edges permanently I think maybe the one interesting difference here and I'm not sure how it's going to play off is that play out is that like you know my limited understanding is that you know open source in AI is a little bit different than say open source on the crypto side because the source code can be open source but like the the neural

net weights the nmws all right Terry all right um and so I think that they need to come around some standards for licensing on on that side as well um otherwise you don't really know what's getting you know going into this model even if the source code itself is completely open source I would imagine that the training of you know the the models that are exist right now is in the you know tens to potentially hundreds of millions of dollars so it's at a it's at a price point that's not attainable for any individual at home uh trainer um but you can assume over the you know the the increases in efficiency and potentially decreases in costs therefore you know you and and also not the very

open um and uh large uh surface area models that we've seen today but if you go after very specific models that are trained on very specific problems I would imagine that cost goes down quite a bit um that that's kind of what I'm thinking about so I want to transition Michael I'm going to ask you in a in a minute about just like the the state of the sort of private markets and and the sort of cap raising crypto which seems about as apathetic as as I've ever seen it um I it I think it is just to maybe bookend the discussion of AI I did see a headline uh From the Block that Paradigm is actually broadening its crypto only focus to areas including AI uh yeah following along the trend of several entrepreneurs who recently have probably dropped out of crypto and are focusing

on something AI related so I just kind of interesting it was a good article they did some some digging they basically changed uh it's not confirmed obviously but the but Paradigm did change some some language on their website back on May 3rd according to the Wayback machine uh basically to scrub you know discussions of crypto or investing in web 3 protocols to being a research driven technology investment firm so I think the idea is not that they're like pulling out of crypto but they certainly are broadening their approach uh or their you know their sort of investment strategy curious what you think man yeah on that particular subject and you know this happened like

20 minutes before we hopped on so I don't have too much contacts other than what you just said um I I would say you know there's a couple things going on right now um the first is with any with any Venture fund or investment fund your fund size and your fund structure dictates your entire business model your entire investment strategy and so if you know our our most recent fund that we raised almost a year ago or a little over a year ago was a 400 million dollar fund I think what was reported on Paradigm uh with their most recent fund was a two and a half billion dollar fund and there's a couple of ways that you can look at that you can say Okay um you know the investors that are putting money into that fund you know generally have the same expectations

which is you know historically you want to have overuse reacts to be successful to be really successful between a five and a 10 anything over that is like uber successful um and so to get to you know a 3X net distribution means that you have to return Assets in excess of 7.5 billion dollars which doesn't even factor in the fees that they will charge whether it be management or performance fee so you're probably looking at somewhere between eight and a half nine and a half billion dollars of gross returns to be able to get to that 3x return fund and that's just really hard I think and not just in like the markets that we've seen historically over the last three years like that that would be hard as well but

it's even harder especially with what we've seen in the last 12 months and so you know just doing a little bit of the fun math and kind of sit back and think okay well you know how do we how do we do after opportunities where we can justifiably underwrite these Investments to say they have the potential of returning 1X the fund or 0.5 x the fund and um the other the other aspect here too is you know I'm not exactly the size of their investment to the size of their entire team each investment that you make isn't just like okay we made the investment and you know give us a call when when you want to return Capital it's you are working at least the way that we do it hand in glove with the portfolio or companies that you bring in with the founding

teams that you bring you know into the fold and you know that's so much of the value add that we have but also you know I think they think of it the same way and that's that's really kind of how you get to you know not only just like pick the right winners but also help make them the best that they can be um and and that did take success as well and so you know there's only so many hours in the day and there's only so many people that you can have on the team that if you're looking at something that's you know 10 times uh or six six to eight times larger um you know it just means that you're gonna have six to eight times more people maybe um so I it the the the the fun math starts to stretch a little bit

um and uh and that's just not even counting you know the size of prize potential of what crypto has shown Us in the last 12 months so not not for anything not surprised um I would say though that like the best time to do that probably was like two years ago uh it does feel as we just talked about we're hitting sort of a fever pitch in AI maybe and maybe this is just like the start who knows uh and it's just gonna continue upwards um but you know there is potential that this is the fever pitch and by switching strategies um you do get the question of like are you really bought into this industry um or are you just kind of looking at this uh as as in Industry that you cover and the advantage of us you know

framework being a web free only fund versus any of other generalist Venture firm that we would potentially compete with is we we know the space way better than they do because we live in brave-based 24 7 and that's all that we think about and do um so I find it hard to think that someone who is more generalist than nature is going to be as competitive in one specific discipline versus you know multiple at the same time what I found myself thinking about when I was listening to that description Michael is like there were a couple there are some mistakes that got made in crypto generally it's like you don't want to make the mistake of getting too greedy and that applies maybe to like that attemptation right to accumulate management fees I'm sure is probably pretty high right but you don't want to do that as a VC you don't want to do it

as a Founder in terms of valuation like there are some horror stories not horses but there are some cautionary tales that frankly are playing out right now in this industry of yeah it sounds great when you get a huge valuation as a Founder but like you better make sure that you don't need to raise Capital at a lower valuation or something like that because then your life is going to be hell same thing down to if you're an employee employee and look there were some crazy salaries that were thrown around in crypto the last couple years and you might have thought that was a great move but when things turn around guess what comp structure is one of the first things that gets analyzed and if you are and you know a gigantic outlier like guess what you're just vulnerable so there it obviously is like look you

gotta push for things and try to you know you know advocate for yourself get more salary get a higher valuation raise a big fund but you can do too much I would say one of the biggest things that has been happening or starting to happen in the Venture industry broadly uh is you're not starting to see subsequent funds raised at smaller size but I think that that's going to happen in the next 18 months the first one that we saw so far was Founders fund and I think that they went they were they were targeting a two billion dollar fundraise for I think their ninth fund I can't remember these details might be slightly off but instead of doing a two billion dollar raise they decided do a one billion dollar raise and say that that's fund number nine and then their tenth

fund will be another fund another one billion dollar fund so they they effectively cut their fund size and by doing that um and not to say that the two billion dollars in commitment isn't going to be committed it's just going to be called and actually utilized and invested at different periods of time and think about it in the way that you just talked about it Mike so you know typically you have a two percent management fee if you have a 2.5 billion dollar fund that means that you're taking in 50 million dollars a year in just fees and that goes towards keeping the Lights On hiring the staff you know paying for office space travel all the things that go with the process of operating a firm and you know if you increase the size of your firm because you think that you're

going to have and you know it's a recurring Revenue model you you have that two percent uh usually it's for the first five to seven years of the fund life cycle when you raise your subscription fun maybe it drops down a bit but you've got a recurring Revenue model where you can keep everybody employed and on staff of the firm for a fairly long period of time but what it does require is that you raise the same amount or more the next time and it's a really difficult process to go through cuts on an investment firm side because as soon as that starts happening it's sort of a question of like well what's wrong and then that reputational potential hit gets out so you know I I do kind of see this as an effort to expand into an adjacent industry that is

obviously you know doing very well right now with with a hype cycle happening and potentially you know they can they can pull it off to its Bend but I I don't know if um you know next time there were to come to Market fundraise whether or not 2.5 would be you know justifiable for crypto only fund and so you kind of have you know one of those two paths that you can choose I think that makes a lot of sense um maybe this is kind of more transitioning to you know where we'll talk about next is just the General market thoughts but yeah you have these Mega funds raised that the capital cycle um and now they just you know are looking for ways to deploy those funds um and their options are you know paying up at a much higher price to these very

crowded consensus bets um you know Michael you probably see it too but I think the hottest larger you know I would say like you know B series even a series deals are still getting priced up to you know kind of peak cycle multiples um and or you could look to the liquid market right so looking for like undervalued liquid tokens um you can it actually have some liquidity um you know and then after that it becomes a question of okay do we expand the Mandate um and I think the the Ultra Mega funds that have the you know ability to go get those you know resources in-house that can allow them to be value-add in other you know non-web three uh sectors could

do that but you know it's very very limited um and you're obviously kind of losing some Focus so and as it relates to Fun Size I think uh first thing I thought of was you know Benchmark strategy of just having a winning formula with with a fun size and an investment strategy and just running that back um again and again with the same size team essentially um and it's one of those things you know to your point like like in terms of Being Greedy or or just sticking to what you do best I think that that's where you see that kind of shine through totally agree with that greed is just it's got to be the number one thing that just takes people down crypto it's it is tough you know the incentives are right

there and you just gotta have a somewhat longer term mindset on it because just look at the people that got carted out this last cycle in crypto yeah yeah but in miles on that on that point in particular there's a great book called The e-boys which is on the starting and sort of the the growth of Benchmark and they had the exact same thing happen where in the you know 98 I think they started raised a small fund then raised maybe like a 300 or 400 million dollar fund and then they ballooned into like an Israel fund a Europe fund and maybe even Asia like AUM massively bloomed totally cratered in in the.com Crash and they had to take like three to four years to rebuild

themselves to get back to this model and they decided never again you know we're always going to stay to 450 and that's it um so there's a lot of interesting story lines that you can see with the progression of these different firms from previous generations I think we're going to see a lot of that stuff play out for Webster funds as well yeah couldn't agree more could you uh you know I would love to get you sort of a sense of engage on I was actually at a dinner with with some VCS this week and kind of echoed actually miles what you were just describing there which is basically overall there's way less opportunities um but the good ones are kind of like almost immediately right everyone kind of swoops in and bids the deal up and then it gets closed

um so I guess the good news in there is that you know if you're a skill founder maybe with a track record or a great idea or whatever you can probably still get your idea funded but it does look like overall there's been a barbelling in terms of uh funding and then there are just less projects overall I would uh I'd be curious if that kind of lines up with both of your perceptions as well well 100 um you know I think it's just it's it's tough won't there and and there's only there's there's still like you know you're seeing much more reasonable valuations at the for the first check and a lot of times these days but you know when you have a billion dollar fund you don't have the time or resources to write you know 50 to 100 of those you know seed checks because they all take a

lot of time to develop those relationships and to win the deals right um and then so you're just kind of hoping that some of your previous funds Investments have large follow-on rounds where you already have you know Pro hour share at a decent price um or you're you know forced to take much higher prices and sacrifice your Returns on that um which is okay if you're a huge fund but that also you know prices out a lot of these players that are um you know would not be willing to take those prices on for because it's a much larger chunk of their fund size right so totally agree the the first time fundraisers so whether this is like a seed or a pre-seed or sometimes even you

know it might be an a size investment round the the reasonable expectations on you know valuation on the amount raised on you know Milestone based um uh agreement for the next fundraise and and very clear ideas around um you know what they need now versus what they're doing in the future it feels like that is a very kind of sober and realistic perspective that we haven't seen in that area of the Venture market for the last two years I would say maybe even three actually but uh I would say anyone who is coming back who hasn't been to Market to fundraise in the last 14 months is not seeing success and is not seeing um you

know frankly what they're ready for what they want and that's I'd say the hardest part of the market where expectations on the you know 50 million dollar seed round that they did last time you know now it's it's going to be a 25 you know because there hasn't been enough progress or there hasn't been enough you know movement or change or frankly like the market is just you know not there um and so I think that is probably the hardest subset of the market right now um and then there are some deals happening although I would condition to to say that a lot of the like series B plus deals that have been announced recently were actually funded like 6 9 12 months ago and and so it is sort of like a misnomer right now to have the

expectation that like you know some of these massive multi-hundred million dollar deals were done recently it's like well no those deals were negotiated in March of 2022 and then funded in May of 2022 or April 2022 and then you know now they're just getting around to the announcement uh so I I there there is some misdirection on that I would say um but really anything that's B plus right now is not happening and you know if these are companies if these are protocols whatever they may be um really like the Benchmark for Success at this point is how much money are you making if you're a company and it's anywhere from like a 20 to 35 x ARR multiple for where you currently are so

if you are making on average you know as of May 25th 2023 your average annual run rate is a million dollars your valuation is somewhere in the like 25 to 35 million range and that's that's kind of how you know most of these companies that are selling you know services are being valued if there are protocols and the potential for you know protocols to become layer twos or you know base layers um and you're going after a decentralized network that valuation could change um but you have to have a justifiable way of getting there in a justifiable reason for existing and yeah I think the other aspect here which is also extremely difficult is a lot of

the the products and categories that work started in 2021 and early 22. frankly the the market has just moved away from them and that is another kind of subset and we have a couple of portfolio companies that are going through this process right now just you know the big pivot and um you know moving away from the concept that they were thinking about into something you know that now may have a chance for it and whereas you know everybody's in agreement what you were previously building is not going to go work at least for the foreseeable future um so there is kind of a lot of conversations that are being had around that as well so you're saying you're not bullish on metaverse land basically I don't know if we ever made any

investments in metaverse land but no I'm not uh who knows I mean I'll probably work next cycle but yeah I they're they're definitely I mean that's one of the um I do think one of the cooler things you get I've sort of gone down this rabbit hold on I'm a big fan of listening to old podcasts I love to sort of get a sense of the arguments that people are making in different periods of time and you can go back and there are these chains that didn't necessarily work or sort of these projects that I have in my head where it's like oh yeah that like wasn't a great project but it's like oh the founder of this person who was working at this old project that didn't work is now the founder of curve or something like that and there are actually lots of

examples like that in crypto where you know maybe a chain like Kanto would be a good example of one that like may or may not deserve its valuation but there are some kind of cool innovations that happen there that might work in Kanto where they might get copied on another chain so I do think it's one of the cool things about crypto maybe I would love to this is kind of a meaty topic here so I want to make sure we've got enough time to talk about it but vitalik wrote a piece this week that I think got a lot of people talking which the title of it was don't overload ethereum's consensus and the basic point of the chain was highlighting the important of ethereum uh to basically be able to uh come to consensus and the sort of dangers of co-opting ethereum's either validator

set or perhaps more dangerously social consensus for other aims so the three sort of examples that he gave here are kind of like the ultimate Oracle right so that would be something where uh basically incorporating the concept of an oracle into ethal dators as an example the other two examples that he gave were restaking um so basically being able to hypothecate your stake and use it to secure another protocol that's sort of the eigen layer thing or L1 driven recovery of L2 projects so the idea being if there was some sort of like let's just fast forward two three years into the future and say something like arbitrum or optimism had 20 billion dollars of TBL locked up there and there

was some catastrophic hack or bug or code failure and all of that TBL got vaporized would there be political pressure to roll back ethereum the chain to recover user's funds and you know he goes into a whole bunch of different more benign examples basically but that that's the idea that he was trying to warn against and there's been some pretty Lively debate off of off of this I don't know where you guys want to start or maybe we could just start with your kind of high level reactions to the piece yeah um yeah I think the two buckets that I reacted to the most were kind of the the general thoughts on the restaking component um and also what I kind of took away as you know things that are too big to fail

within ethereum um and whether it's a layer two or something like Lido or or even usdc you know like what could actually be so impactful that ethereum would would hard Fork um and then that kind of gets into you know well which will do this thing it should ethereum maybe consider built in shrining into the protocol so that you know it's it's less of a external dependency that they're worried about and something that they would have more control over um but yeah I don't know if there's a one area you want to start maybe on the the eigen layer yes um if we have some thoughts there yeah I mean I I don't think it's any surprise or

um it's definitely not subtle that this is uh you know a direct shot at eigenlayer um I think eigen layer is you know set to at least let at least launch their test stats um I think fairly soon for their data availability Network um and true ROM the founder of hiding layer you know had a post afterwards talking about this I I do think that you know like my visual takeaway here is um where we got in trouble before Mike we've literally been talking about this is like great takes over on what happens next and this is this is a situation where you know restaking I think will have in in asymmetric understanding of the risk

versus reward potential where risk is actually much higher relative to the to the incremental reward that you could be earning um and we have yet to see what the networks are that we'll be leveraging the solution dividing layer or any restaging solution in general um I would imagine that uh you know it'll be it'll be a highest risk to begin with but it'll still also be a lot of additional risk and you know the slashing element isn't just like a um you lose part of your rewards it's really like you lose your Capital at stake in in a way that you know is very very you know real and I'm not sure that most people who will want the incremental five to seven to eight percent will quite understand that so

that that's kind of where I draw most of the risk with restaking in general we just have yet to see what that looks like the part that I thought was the most interesting social layer thinking about you know these things get too big to fail and and therefore we just roll it back and you know that's like the the bailout moment that we lived through again I just don't ever see that happening you know as a potential option going forward um if the industry is too big we're too established um even if something is made as like an Arbitrage you know which is talked about in the article were to you know get hurt with something with some malicious attack you know the amount of value that's that's in there which is about 10 billion dollars currently that's you know small in comparison to the rest of

the the entire ecosystem um and you know maybe it gets to be large enough to where it really matters and it's an existential threat but I don't I don't even think Arbitron is close to that right now um so I think he's really digging into something interesting here because I have actually uh miles you and I have been actually asking ourselves if it's a very similar question last couple weeks um of what would happen something in the event like there was a yeah like a hack on a big L2 and he vitalik actually uses the example of you know if if there was a consensus that if there were to be a hack on a large L2 the if main chain would be rolled back versus a much smaller L2 than it wouldn't that creates a lot of the same moral hazard that frankly has been highlighted in the

banking system for the last couple of months um it's the exact same thing right then everyone's going to deposit at JPMorgan instead of a regional bank and not everyone has the same footing I do think however the Counterpoint to that is eth's explicit road map is to move people and tvl and activity up to the layer layer twos Roll-Ups and if there isn't some that's almost like the analogy that I think of at my head is kind of like a regulator or or government kind of prodding and saying this is what we want you to do I think to do that and then not give guarantees about moving funds

and um activity up up to the up to the roll up layer then probably the result is that pvl and activity is going to be stickier on main chain than you might think and the Roll-Ups aren't going to get the level of adoption that you would think and this might be a little unpopular but I think in order for Roll-Ups to get the level of adoption that they're gonna get I think I think I don't know I don't want to say it because I could be totally wrong about this but yeah I kind of think you it is hard for me to imagine people doing that without some sort of guarantee I think it might have been Hayden that tweeted this this week but I think there's like some interesting choices ethereum can consider in terms

of like enshrining standards like ways of doing things at the L2 level so whether it's like uh you know approving standard or something else so that at least you know the risks are are somewhat controlled because everybody you know some of these main like attack vectors would be kind of enshrined at the L1 level um so that everybody would follow them and there would be you know all these uh like you know all the eyes that could be looking at this would be looking at the same standard um I think that that's something that could be an interesting middle ground there um and yeah I I do think on the the restaking component will will be very interesting because I think so first of

all you know I I get layers governance uh which will be a a committee to begin with we'll control you know which lsds uh or lsts we're calling them now are white listed uh for for restaking um and which which projects like Roll-Ups like oracles like Bridges can integrate um on the other side um for to be eligible for restaking um and then there's a third component in that if there is a slashing event this Council will like with human eyes actually review what um happened and if it's deemed to be you know unfair uh then they will basically be able to veto the slash

um and what's interesting about you know it connects kind of to Alex piece is that you know that's why he's stressing that any of the jobs that are being economically secured by restaked meat should be extremely quantifiable and straightforward and not subjective to this you know needing to go to this like Council of Elders uh which which just in general doesn't feel like it's in the spirit of what we're trying to do here right uh longer term that's exactly I mean that's exactly the point that I I'm a better articulated way of saying what I was trying to say which is the fact that you just even have the counsel that you go to as in as a point of standard or a point of infrastructure suggests

that there's going to be a fair number of these situations that arise and it calls into question kind of whether or not this is even you know worth it right um but not not saying this not saying the council itself but but just like the that that's exactly what I've been talking saying right is that the social consensus layer is built around arbitrating whether or not these things are real or should happen and you know you've got human society and on one end is this fair is this not is there a standard for that you know it has to be quantifiable um whereas if that existed you know imagine if that existed at the early onset of ethereum and for all the different bugs or issues that people run into there was it was a there's a council that existed to decide whether or not we were going to roll back the

chain you know there'd be a thousand Classics at this point right right exactly and and I guess the other the other component here is that even if eigenlayer is you know you could even if they were run as like an extension of the ethereum foundation in the spirit of what the ethereum foundation would do themselves uh right so doing this as responsibly as possible um you do face the risk of you know a fork coming along that just you know decides to you know maybe be a little bit more relaxed about some of these things in in order to you know go after some sort of uh some some you know middleware that wants to juice yields even further or or you know do lots of

different things right um and so you know I think that's it's kind of a it's going to be very interesting to see how it all plays out and not to mention by the way the people the protocols that are building on top of eigenlayer on the other side that say okay you've taken your restaked you know you're taking your LSD and you've restaked it now let's you know make a derivative of your restaked LSD um and create like a trance miles sorry would you mind actually just um because eigenler is one of those things I'm sure people know what it is at a high level but could you just give an overview short I but restaking the Primitive actually is and you add those three models we were talking on the phone last night you just go through

this three different models actually for how it could work just kind of run through the user flow as as fast as I can or I guess maybe we'll start with who who is IGA layer's customers they are you know protocols like Roll-Ups like oracles like bridges that today are you know either centralized in the way that they do critical functions um or or you know maybe secured by their own like governance token and the idea is these could be improved a lot um in and there is a market for this of people that would you know choose to uh restake their eat so that they could then be economically secured by an asset like eth which is a huge market cap it's

less volatile and so you wouldn't have you know the security budgets of these protocols going you know being as volatile as the tokens themselves or you know controlled by a central party so that's the demand side now the supply side can look a little like a lot of different ways but from the perspective of the user let's say I hold steth um and I want to get additional yield on that steep well I can then take it and look at a number of opportunities of all these protocols on the other side that have opted in and say I can go you know restake to an eigenlayer operator that is running you know the sequencer for arbitrum for 10 extra yield or I can

restake to you know the bridge operator role of like Wormhole right for maybe an additional 15 but it's more risky um and so I will basically then take my you know LSD choose which protocol I want to restake or rehypothecate that Capital to um and now I'm getting basically the yield of ethereum L1 plus the yield of whatever you know the protocol is offering which I restaked to um but I take on double the slashing risks so if I delegate to an eigenlayer operator who is running a sequencer for arbitrum and they do something malicious and it's provable

um and they get slashed you know that's my collateral being slashed right and it gets slashed in both places because I've given basically you know the eigenlayer contract the ability to withdraw my stake and and slash it essentially um and so the problem is it you know this this is good um you can do more with your Capital yes um and in these protocols were hopefully more secure than they would be or more decentralized than they would be or both um that are using it but I guess my point on the other side is if I take my liquid state you know eat and restake it um it's non-fungible anymore but that doesn't stop a third party protocol from

coming in and allowing me to create a derivative you know or a token that represents my restaked um and so you can then see uh all of the kind of risks that people have talked about with with liquid staking you know kind of being exacerbated or compounded by adding you know another layer of Yelp yeah and to give to give um one of the other interesting Parts about eigenlayer is that it enables different sort of risk and yield profiles so let's say um just in this example let's say you had steath and you wanted to get a little bit of extra BL deposit that uh you you could basically you could imagine a world where there are certain eth validators that maybe only do sort of more safe things right like maybe

they only run a sequencer for something like arbitrum or optimism that's relatively safe so probably the yield on that would be a little bit lower then you could imagine a world where some of the validators do much more risky things right they start rehypothecating their stake to very uh sort of unknown chains that have much higher aprs but they pay in the native token and so you can imagine uh sort of a risk curve being built in terms of in terms of each the problem is you know one of the big problems of liquid sticky in general is sort of a principal agent problem where you as the the principal the holder of Ethan the delegator there's an information asymmetry right between even just like how node operations work for something like Lido but then if you

layer on this additional you know sort of this this additional layer of risk right which is I don't know how the eigenlayer sort of trusted middleware works and I let alone I don't know how this other chain that they're securing is all I know is the yield that I'm getting is just not particular it just is worrisome and really what what eigenlayer is if you think about it we started with one sort of Bearer asset like eth then you have steath which is sort of another claim on that asset and then you have another claim of a claim you know in my opinion I think this is a way to introduce leverage into the system that's what this looks like to me more claims on one underlying asset and just just to further that point I agree with the leverage analogy

um you know and I agree with a with a fully efficient and and uh fully developed Market maybe you've got you know some components of a sequencer that's running on optimism on arbitrum but that's not going to be the case in the from the outset and so I think you also are going to have a bit of a selection bias as to which Protocols are using this server service to begin with versus which ones you're going to be using the service eventually and you're going to have sort of you know in the analogy um you know the the lower the the higher yielding lower well established uh protocols as the first entrance into the market because they don't necessarily have a governance totian that's you know traded and you know liquid and available

uh for all as you would have with the arbitrums and the and the optimisms of the world um and it's going to be a lot easier for them to get started with a liquid with a eigen layer you know staking solution versus something that they've already built up over the last few years so it's really only I think or not only but it's largely going to be net new opportunities to begin with OR these these double stating these leverage staking opportunities um and maybe they've got some Partnerships uh where where they're going to announce but but you know we'll see my guess is it's going to start with entrepreneur which means that the real students would be that much higher uh to begin with so that I think is a is it a major component as well where you know

the potential for issues with earlier stage protocols is that much higher than something that's been on chain years yeah but that's interesting actually I didn't think about that in that way um and that it has like an adverse selection on the on the demand side um I definitely thought about that from the perspective of liquid staking protocols that are trying to become more competitive with each other and they just decide that you know their validator set they're all going to go do you know another job too um right so that they can get their yields and light out um yeah no I think that's I think that's interesting I actually thought about it from the standpoint of you know this was if you think about like the distribution schedule the admission

schedule of say oh op right um they've got a huge bucket for liquidity mining incentives and all these incentives to come you know use apps on optimism they did not budget out at cost for decentralizing their sequencer and what they would necessarily need to pay eigenlayer operators um but you know that's something you see with app chains like standard right you have a bucket that you're paying your validators because they're securing your your chain so you know it'll be interesting to see that this distribution like what these you know the pie charts look like of say like Stark net or or another um ZK sync that wants to be you know use eigenlayer from day one

um and they'll say okay we got this for liquidity in times but we need to look at this for for to pay these costs because it you know just using a sequencer Revenue share is not going to be enough yield to make it worth for anybody right um well and I think and yeah and that's definitely what I was also going to say uh that you just peaked um in my in my head where does this yield come from is it going to be yield that is generated by transaction revenue flowing through this protocol from day one or is it going to be yield that's denominated in the native token that they're used to distribute to anyone who's staking or sequencing in this network obviously it's going to be the latter um so you know you know the the example

here is like oh yeah the yield may be very high but that is token denominated yield and that's inflationary denominated yield even more so uh so you know you know there are fundamental risks with with a lot of this and I I really hope that it can work and it becomes a Mainstay and it's very successful and um but I do think that the initial bootstrapping is going to be very difficult to break here's a just to present the Counterpoint here because I think we've all been pretty um you know good at citing the risks of something like eigenlayer I do think there's sort of an inevitability that people are going to do what they're going to do and what I mean by that is if you look at something

like the decision to do um you know not have delegated proof of stake in something like ethereum the reason why that wasn't implemented in the beginning was because they didn't want 150 validators with all the stake or whatever whatever it's going to be and what did we get you know initially we got exchanges right and they're like hey actually we are okay State we already you know are custodying for you so we might as well stake for you as well and then everyone said oh my gosh we need to come up with some sort of solution and we came up with something like Lido which has basically facilitated delegated approved mistake on something like ethereum and what you had there was very good intentions right in terms of the

designers of the ethereum protocol but you were fighting up against human psychology and human interests um which is most people want the yield but they don't want to do the work and I I do think when it comes to you know when you talk to people who uh you know from Wall Street they all have a very strong belief that anyone should be able to do if you can create a contract and make an agreement you should basically be able to do that thing so I think something like restaking whether it's eigenlayer or some other middleware primitive or whatever it ends up being this is this is going to happen no matter what so I at the end of the day people are going to do what they're going to do um and I think it's probably just good to highlight some of the risks and try

to do it in the smartest way that we possibly can ethereum has a tendency to you know push a lot of complexity or these decisions to the market instead of doing it in protocol um like if you this is not a perfect technology but like it in protocol version of eigenlayer is kind of like polka dot where you already have you know like all these staked Dot and then you're you know basically loading it out to these different para chains um and obviously like ethereum does a million reasons why they didn't want to do that along with you know not wanting to do delegate delegated proof of stake um but you know you just have to be wary of like the market with the market the

Market's going to build it then and it's going to be not maybe not in your control of like the perfect pollution that you want it to be um you know we see that with Mev we see it with liquid staking um and then eventually they come and push back when when you start to see a winner take all sort of Market with you know an actor that's out of their control um like I'm sure they would much prefer you know light out to have thousands and thousands of validators at this point but they you know that's just not the way it played out right um so yeah I do get kind of like especially coming from Cosmos working in there a lot where like building things into the chain is part of the value prop that they that they have and they lean into it um versus you

know ethereum which is value pop is very very different so they make sense they do these things but then don't like you know get mad at the market like this is what's good I understand that Viewpoint too though the difference between ethereum and Cosmos is that ethereum is securing hundreds of billions of dollars worth of value you know and that's the but that's the that's the pros and cons of it that's why Cosmos is allowed to do so much in the way of exploration which is why I think some of the coolest experimentations going on there but you know ethereum has this enormous uh sort of privilege but also you know heavy on the shoulder or heavy lies the crown sort of thing because they have to be very careful for um for what they put in in the protocol and there was actually a I haven't gotten to

reading it yet um otherwise I would have asked you guys opinions about it but Mike uh there was there was a a blank on this last name uh Mike neuter uh wrote a great post about um sort of his his version of how enshrined PBS is going to work um which I think is still a decent ways away but this was a helpful like hey this is how basically I think I think that it should work even in trying like you know the decision to try and propose or build their separation was very well you know deeply researched and sort of thought out and they allowed a a lot of infrastructure to come up like either Mev boost or or whatever to you know be off chain for a while this is the

perfect example of the kind of the rational the rationale behind this approach is okay let the market experiment a lot you know off chain or say on l2s and and eventually will coalesce around some standards that we feel comfortable enough to bring back into the protocol um we're seeing that we have not seen that with liquid staking but we have seen it with with Mev and it'll be interesting to see you know which way they go with with re-stanking and just generally like you know this idea of being able to extend ethereum security um or sell this Economic Security to other protocols last last question for you guys on on all this the the sort of elephant in the room even on top of something like restaking

or some catastrophic bug in a layer two is the fork Choice rule right now is heavily dependent on something like usdc right and where usdc withdrawals initiate to and honestly something like Lido right so I guess my question to you is the fork Choice rule is something that's very very important it's very kind of critical to how blockchains are supposed to work the ability to Fork the code do you think it's the inevitable Destiny for base layers to lose full sovereignty um as apps take off on their chains and become larger and more significant losing full sovereignty not we haven't seen it yet because what it

comes down to is whether or not there's a contentious fork and contentious in between and what I mean there isn't contentious between different factions within within the base layer I mean base layer versus application and that so long as everything is humming along and say that that is fine I do think that the apps have um have exerted enough power to be able to dictate which one becomes the canonical chain I totally agree um I forget where I saw it but there's a it's not something it was like Fork choice on eth is a call between like Jeremy uh Paolo from tether and lydo which is not you know it's like

tongue-in-cheek but at the same time there's there's amounts of truth to it um I mean but it's also a choice between like what Brian Armstrong thinks at coinbase yeah they're it's not it's not just the decentralized applications it's it's the centralized ones as well um and you know which assets they support which ones they don't I remember when we went through the merge you know that was a big question as to whether or not you're going to be able to get that that airdrop token and then coinbase wasn't going to support it and I can't remember which kind of like out there Polonius right yeah exactly Polonia exported it right but nobody else did so like you know if you don't have a market for your asset your ass is obviously gonna die it's not gonna be worth anything

um so I I don't think it's just the dapps the decentralized applications but it's it's broadly everybody interesting interesting thing to ponder uh for sure so I'm sure we'll we'll sort of fleece this out as uh maybe one uh one one question just as an orthogonal point and this is something that we talked about at framework every once in a while is like is there the concept of a protocol being done and like finished and and certainly not having to go through this type of stuff anymore you know um obviously the merge was a huge component change for ethereum that brought about a hard Fork that created you know ostensibly a new asset how many more of those probably you know less than a handful you'll have left before you can kind of in a sense say that

ethereum is done maybe um but like is there the concept of a of a base layer protocol being done and therefore being able to say hey like we don't have to make these decisions anymore now it really is just you know there isn't really any contention or contentious conversation because we're not you know we're not changing things yeah even things like like less technical just like monetary policy right like even if ethereum road map was like complete at this point people would still be talking about like should we burn the Mev right um and to accrue more value to the to the Token itself um and then yeah for so for base layers it's it's you know it's you'd see maybe like a base layer

eventually taking away token formal token weighted governance if that's where it started with like like you know Cosmos and lows actually yeah you know for digital token waiting and then it moves over to some sort of social consensus which is harder to change um but yeah I mean and then at the application layer like you know Lido has talked about ossifying like parts of the protocol you know so basically making the contracts completably completely immutable but you know they could do that with critical components of of their of their protocol but they're still going to need to oversee like how deposits are allocated across these different validator sets right um oversee the fee structure

um so yeah I think there's ways to you can be completely done and immutable from you know maybe a technical standpoint but there's still some sort of oversight if the periphery economics and other stuff that makes me think probably not it's more of a hypothetical versus uh like how do you apply this to existing protocols I'd say the closest to being there is maybe ethereum that's still like you know a sensible years away um but it's yeah more of a thought exercise I have a response question to you Michael do you think companies are ever done no because companies are inherently a people uh conversation and um I'd say maybe well I guess it depends on how you look at done right

um because people need to show up every day sell the product build the product um that is a very different uh proposition than having a protocol that exists as an intermediary a technical protocol that exists as an intermediary between validators and and users um it is it is a very very different you know equation you could probably look at some companies like I was having a conversation this sort of a funny conversation I was having a conversation with a friend who is friends with the family that owns the Tabasco company or the company that owns Tabasco products and they have had Flatline Revenue has has unchanged since 1990 and it's just

like every single year it just like has how much revenue it's going to have you know like the biggest Innovation that they had recently uh or actually sorry in 1990 the biggest Revenue Source differentiation is they've they slightly widened the whole of the bottles so the more Tabasco would come out and that like increased Revenue by 10 you know like but that's like you know that is the the type of changes that they're making in the last you know 40 50 years um maybe that companies kind of done but uh but there's still you know a bunch of people that are building you know and making the product and I I do know that they've come out with new flavors but it hasn't generally changed too much um but you know there are companies that

you can kind of say are done but I'd say most companies that we're looking at and thinking about probably not done it could actually be done yeah well you could you could argue like the opposite of the spectrum is like maybe open source protocols that we use like email protocol or like you know like https like those are done and they're done because they're non-monetizable right the they're that's that's kind of like and they're used you know to the point where they're training is you know I mean HTML5 came out in the 2010s and that was a that was a pretty pretty I I believe so I mean I could be wrong with that but that was a major kind of like web development standard change um SMTP hasn't changed that I mean I I

agree those are perfect examples of how like a protocol could very much be done um and and yeah I agree the the non-monetization element is a major component as to why you can consider those to be done um that being said if you have a perfectly balanced economic ecosystem you know maybe you could have monetization factored into that and still have it be done I don't know I think I thought about this a good amount I know Vance is on the train of definitely if something can be done and then you leave it actually Dan elitzer had a pretty good thread today on something about this and maybe there's a distinction between a protocol and A Primitive or something like that but um I don't know I think one of the reasons why equities are you

know Far and Away the best performing asset class is this concept of compounding so once you start to win and drive excess profits and returns you can invest that into the business and then you can if you're good at doing your job you allocate that Capital effectively those early wins can over a period of time compound into much larger wins and that's why Equity does so well as an asset class I think if you take the concept of a protocol being done and you take humans out of the equations I think that's pretty bearish for token prices to be honest with you because you lose a lot of that compounding value because here is XYZ thing and it's a protocol and it's done and you know the whole point of crypto and disinter mediation

is to eliminate rent seeking so it doesn't seek that much rent doesn't reinvest or compound those profits so it's kind of like a low yielding annuity and in that in that instance and I think if you take that approach I think you I don't know I I am at this moment in time I hadn't really thought that much about it but at this moment in time I'm not inclined to things that way I mean the vast majority of economic gains in corporate equities comes from some sort of uh distribution back to shareholders and and yes I agree they're you know there is an element of investing into new adjacent business categories you know Apple being able to take their iMac

iPhone iPod uh you know uh earnings and and pump those back into the creation of the iPhone the iPad iWatch everything else um that they build but the vast majority of their economic gains for the Apple share itself started when Carl I can and Tim Cook had that dinner and and Carl convinced him to start buying back the shares so I do think that they're you're right in that you want to build the base of economic viability with the businesses that you have then you know the the protocol or the company whatever it may be but the vast majority of economic returns comes from delivering value that shareholders from an equity I agree there's but there's a life cycle of a company right and I'm sure that it differs I don't have these numbers off

the top of my head I'm sure it probably differs based on the era of the United States or whatever but you know in general I feel like that life cycle ends up being around for successful companies you know anywhere from like 40 to 90 years something like that um and generally in sort of the first half to drastically oversimplify of that company's life cycle you're building an asset and then in the second half you're kind of returning Capital to shareholders and harvesting it so the reason I would push back a little bit strongly you know just given that timeline is that I just don't think we have time in crypto for anything to be done and frankly just to call us beta spade a lot of the stuff that's like an immutable

contract there's a lot of people involved and there's a lot of like BD work that gets done and like it's not just like hey we built this contract and tons of stuff flocks to it there's a lot of like stuff that happens behind the scenes that makes that stuff go it's not like these you know you put these contracts out and they just all start doing amazing things like there's there's people behind them uh yeah I think I think maybe that the the one nuancer I like like third option is that you know at some point the focus becomes building you know a company's Building Products on these protocols like maybe taking a swap v5s V6 V10 at some point right we're already starting to see the majority of like real um investment going towards the equity

company that is trying to you know get this protocols product into the hands of lots more people so that you know it becomes very valuable over time but um that's one way where you could maybe see the protocol being done but Innovation on top of it you know is still in earlier stages 100 degree yeah you know you know swap labs and unusual protocol perfect example what do you guys think about last question for you guys what do you think about companies that have both a token and equity in the company um it depends yeah because like I uh

I like I can see the challenge of um you know even if your goal is to maximize the long-term value of the token um you know not building anything that accrues to the equity company on top basically just leaves you with the option of becoming um you know a a service provider to the Dow um longer term and frankly like you know in the case of uniswap if you know swap Labs team was was being paid by the Dow at this point like I would say that that is a like worse long-term outcome for uniswap than if they go build something on top that actually make the results in

like significant significant 10 to 100x is the option of people using the protocol um on the other hand it presents some you know unfortunate conflicts of interest uh where you know make you don't know there's no there's no proving you know just how much of the value of uni wallet success trickles down to unit swap itself and potentially you know maybe they don't want it to yet because that gets them in regulatory hot water um so that's just one example I think you know maybe another one is like Ave where you know they've got pretty much the entire all of the resources focused on the protocol and building you know things for the Dow and Ave Labs is you know still like had to go back to the

Dow and say can we get like 16 million bucks for V3 we have like you know videos a brg or blg I can't remember the team the core protocol maintenance team that's now like a service provider right um so I think it's it's complicated and but to just say like it's a it's a it's probably net bad overall but like it's not there's definitely some nuances there where like I I can sympathize with even you know just for the sake of the token building things on top uh at the company level um but yeah we'll see yeah I would say there's a lot of variables that go into this number one what you're building and uh how how like it is what you're

building something that should be like truthfully should be decentralized if that's the case uh it also depends on where you are are you based in you know in the case of Ave are you based in Europe uh are you based in you know Asia are you based in the United States you know all of them come with different flavors of kind of like current Best in Class way of doing you know whatever it is that you're doing I would say typically the way that an investment works is you're putting money uh investors are putting money into uh corporate equity and that corporate Equity can be called Labs or it can be called you know something that's where all the employment relationships are that's where the technology is developed and then there's also a a equivalent

token warrant that happened and in whatever cases uh the token can relate to the network that is developed by the company and the company distributes or transfers that IP of the open source Network to a foundation and that Foundation proliferates the network then that company whether it's called Labs or anything transitions exactly to what model said into a service provider where their contributing services in addition to other participants or other companies that are also contributing services and getting paid for those services from the decentralized network and we're now just starting to see what happens if the protocol is you know

generally done or there's a diversification and a decentralization of ownership and contributions to that Network so that it's completely you know the proliferation of it is is complete uh maybe not the protocol is complete but at least you know the labs concept or the original the originator of the protocol can take a step back and that's what uniswap labs is now doing so they're they're now transitioning into a product company that builds on top of the unit protocol in the form of their wallet and that may be the Playbook going forward for a lot of these a lot of these you know companies that produce protocols that then build products on top of those protocols um so it really depends on kind of what you're building what stage you're at um and and frankly where you see kind of

the long-term incentive model but you know one thing that is just never gonna apply is you know having a protocol and then doing a company and it you can't have both at the same time because you can't you get into real big issues with the conflict when the value of cool mechanism is something that gets changed happen halfway through and that's how you know it's tried to be happened it happened a couple of times from what we've seen and never really works um and so you have to make sure that you're aligned for the different stages um and with your investors at those stages could not agree more um and you know there is something to be said for building a you know product on top of the protocol that allows you to keep funding yourself because otherwise you become a burden on the Dow

um you're right you like it's interesting to see just which com which protocols at this point have actually transitioned to the Ops company under like the umbrella of the the Dow's budget versus which ones are you know still you know working off at their VC funded Runway um and you know even the Dows that look profitable today may not be like super profitable if you were to actually bring all those costs um but you know like lydo's one that they now have like 70 or 80 heads under the you know the budget of the Dow um but there's very few like that so yeah I think I think it'll be interesting maybe last point is like there are just things that can be executed better if they weren't under

the purview of of formal governance um and so I wonder if there is you know a hybrid Middle Ground where like you spin up a company that has it is you know owned in some capacity by the Dow or at least has ability to directly you know um accrue value from like a wallet product built on top but that wallet team doesn't need to like you know go through like a governance vote for everything they do right and they can go acquire customers et cetera et cetera the Lido I feel like is the example that makes the most sense to me when we're talking about a product being done and you know I I do also think oftentimes

you know we've talked about on the show before but being in a dow can feel empathetical to working efficiently and in this case I do think the ethos and ideal of decentralization and the value proposition of Lido are actually one and the same in this instance you want something you want something to be like Lido to be completely transparent 100 you know it's decentralized as as humanly possible and and you want the surface level of what Lido does and therefore the governance to be very thin you don't want it to be broad you probably don't want Lido to be

doing 100 million things and reinvesting in yada yada XYZ I think you probably want them to be relatively um yeah I I'll agree at the end state but I think it's also if you were to look back at Lido on day one if they had tried to be like as decentralized as possible then they wouldn't have been in this position where they're now competing with the exchanges yeah I agree with you you're in the middle stage where they say okay we need to do the staking router we need to do the you know dual governance this is what's going to eventually let us become a super thin layer but it still requires like a lot of work today um but I could not agree more that like you know end state for them with the

biggest possible market share is probably comes with a very thin layer of governance um to get people comfortable with their market share cool all right guys I think we've got to wrap it up for the fun one [Music]