Every Project Will Have Its Own L2 | Michael Anderson & Vance Spencer

Transcript

this episode is brought to you by paraswap the leading aggregator to find best prices across various dexes you'll hear more about them later in the show every developer is going to choose more utility versus less for their coin and that will eventually mean building their own l2 once they quote unquote outgrow ethereum and so the monolithic model of solana is just fundamentally bearish in this paradigm where you assume that these things grow large enough that they want to have and own their own communities and so i think broadly michael and i would say that we're definitely eth bulls but more so than that we're just like modular blockchain bulls and i think that's really kind of where the future goes over the long [Music] term right everyone back with another

episode of empire we are joined by two of my favorite people uh at one of my favorite funds in the industry michael and vance at framework ventures they started with 14 million dollars a couple years ago and have turned that into more than 1.4 billion they're coming off the back of a massive fundraise from their third fund it was an oversubscribed third f fund where they raised 400 million dollars really excited to chat d5 gaming they just had some bold predictions they put on their website so i'm sure we'll get into those uh michael and vance welcome to the show guys thanks for having us yeah of course glad to be here long time it is it is um all right so i had this whole outline shout out to our podcast producer garrett he put together this entire outline on uh d5 and gaming and

all that stuff but then obviously over the weekend massive thing happened yuga labs launched their lan sale uh total debaucherous moment i would say in the space for nfts and for crypto and vance you had this great uh tweet on this where you said you were talking about just like what should you go labs do right one of you labs tweets was we're sorry for turning off the lights on ethereum for a while it seems abundantly clear that apecoin will need to migrate to its own chain in order to properly scale we'd like to encourage the dow to start thinking in this direction and vance you commented on that and you said okay stark net dydx style instance is not really ready app chain is too hard to build economically secure validator set forking in l2 is basically the only way to do this safely

and effectively at scale so i just want to get your take on just this whole uglabs like board ape debacle and then getting into tying that into just how should someone like you go think about scaling yeah i mean i'm not sure i believe kind of the the crypto twitter you know machiavellian conspiracy theory of you know they they planned it this way they they specifically designed the sale to clog the chain so they could you know make rationale for for their movement and their own you know chain as well but but if you really do break it down there are no good solutions to do this um you know if you want to build an application chain on cosmos building an economically secure validator set building all the bridging tools building all of the infrastructure that you need that's non-trivial and that'll take you you

know probably a few years where you could use you could just be doing what your business is meant to do which is putting out core ip so that's kind of off the table um if you look at uh you know building a stark net slash do idx instance you know that just isn't ready you're gonna have to write it in cairo um and so that's kind of off the table as well and similar to immutable x you know that it has the same sort of problems at the moment which is the technology isn't really ready and you know you're relying on a lot of externalities that aren't core to your business and so that's a big problem and really kind of what we see is one of the bigger trends this year is just the forking of l2s and you can see this if you look on the l2 beat website and it

has like metis and it has i think boba is another one but these are forks of i think optimism and then they have a lot of tvl and they're just able to spend themselves up and they're able to work correctly and they don't have to build any other infrastructure tooling and so really i think the ugo labs is an interesting proof point of like just play it out like what would you actually do there are no good solutions other than forking l2s and i think this is really bullish from for the ethereum internet thesis where you just have this web of chains that has this economically secure validator set that's backed up by ethel one and ethereum is this like very um you know it's it's it's not too hot it's not too cold it's it's you know too decentralized at the base chain for you

to really uh build an application on and so it provides you a fertile ground to launch an l2 where you can have your own native token you ever can have your own ecosystem and it kind of is this like perfect amalgamation of economic security but also optionality on the second layer um and so we expect to see a lot of that yeah michael you guys have invested in i think it's over 75 companies now a lot of those are built on eth as these projects get almost i'm putting quotes around this like too big for ethereum where where do you recommend that they go what do what what do what are what are their action items there so one of the things that maybe differentiates us from most other funds is that of course we've invested a lot in eth we've also invested on cosmos projects

and and we've definitely invested in projects that are building on top of solana and now avalanche more so but frankly for us it's really about where the entrepreneurs choose to go obviously we have perspectives and and we have insight and we can give advice and and we can advise on on different you know trade-offs and different ways to think about the different chains and and layer two layer one subnet base layer etc and so we spent a lot of time kind of going through that idea maze with entrepreneurs but but frankly we're not wedded to one we're not wedded to you know one concept versus another you know historically yes it has been ethereum and more so now it's been more you know optimism uh immutable which are you know layer two solutions for ethereum so we consider those to be in the same family

but but generally you know if you need really high transaction throughput and you need you know maybe not as much security there are other chains like solana and potentially avalanche that are there may be more akin to what you're trying to build so you know it comes down to two things what what are you trying to build and you know how do you think about it and then you know where does the entrepreneur have you know an insight or have some desire to go and and you know one of the things that i also think is kind of interesting is we're starting to see uh what might be sort of like a multi-chain approach to architecture design where you're not fully built on one chain maybe you have aspects that are built on solana because higher transactions proof it maybe the economy or the token needs to live on ethereum

because it needs more security um and you know maybe there's part of it that's even centralized because you can't have per transaction costs and so i i i think if you switch to the future the architecture design of the future doesn't look exactly like we've seen over the past two years and and so you know that that's just something that we're tracking as well the the other thing just to add on to that is um you know if you build on the evm let's say you build on on ethel one and your uv labs you know like moving to an l2 is is is trivial compared to the alternative of moving to your own chain um you know you you have the same evm toolset you're able to migrate pretty seamlessly we saw axi do that with ronin and it wasn't you know

world ending for their community and so like that's a feasible option if you build on something like solana like you're you're there for better for worse for for the long term and you know like there is no concept of you know an l2 for solana yet you know and they're still kind of on this like monolithic structure and architecture and i think that's great but you know long term i think a lot of the plays for these companies are you know let's build our own little you know mini kind of garden of this ecosystem that we have our own native token for and that native token serves a higher purpose than just incentivizing the community to do things it serves as you know auctioning off mev sequencer spots for that l2 and so just it seems like a much more robust approach in the short term and really we

think all of the major applications you know for the most part are going to be built in the next three years and ethereum just has the the highest credibility scaling red map especially over the weekend when solana goes down it it just it highlights how nascent a lot of this tech is why would you fork the l2 though like why so optimism obviously had their big announcement last week with their token and a lot of eyes on optimism and like why why couldn't they just go build on something like arbor trim or optimism why why would you fork the l2 so i think you can do either one and frankly it might be a staging process where you start off built on top of a layer two solution to build the community base build the application base and then once you hit stale and your single

application becomes sort of a universe of applications it becomes an economic uh tool that you can use if you have your own layer two solution where you get to to change the the configuration of how transactions are customized you you understand more about how people are using your application so you can build a custom you know tooling solution for that universe of applications but to vance's point uh you have this this token that isn't just something that's a governance token isn't just something that's used for transactions you know back and forth on top of a layer two it's actually used for the security of your ecosystem of your universe and and so having your own token that has the multivariate possibilities of what that token is

useful for and the value that you can describe to that i think becomes a core advantage over the long run in the same way that you know salesforce is a single application that turns into an apple an api layer and and i think you're going to start to see the new api layer as new layer 2 solutions that are custom built for these universal applications that's a really interesting thesis okay so then where does the value accrue right because i'm thinking about something that uh shoot who said this um kyle i think it was kyle simon he said l2s are parasitic to l1 because the layer two stakers actually determine the ordering and that layer two stakers get mev i think i think i'm quoting him right l2 stakers get the mev and l1 stakers don't vance if i'm under if i if i understand

your thesis correctly and michael too i'm assuming you guys are in agreement here you guys think that the winning l2 is eventually going to be the one that kind of best captures uh and allocates this mav to the community and that l2s will actually capture a lot of the value so is kyle is kyle wrong here no i i think that's exactly like i think your description is exactly right like look at all of what optimism's you know basically economic marketing is it's we're going to capture that the mev we're going to distribute into public goods funding we're going to build bootstrap and fund you know initiatives that better the the overall l2 that can better ethereum in turn like that is the overall prognosis for what these l2s will do and like sure you know fees will go down by 10x uh you know

from l1 to l2 and people will migrate but the overall universe of people that can use these things will go up by 100x and so you know it's it's not just about like oh my god fees are just going to be parasitic and decrease because there's going to be cannibalization like you're actually growing the market um so it's the first thing and just to double down on what michael said earlier like apecoin we don't hold any board apes in the fund but uh like you know think about apecoin it's a little bit silly right now it's just like this coin that exists in the ether to incentivize people to do basically nothing and and uh you know it's used for you know i guess paying for land and other side things like that but once you actually have utility for this thing then it becomes

disproportionately valuable as you know something that's core to the security of the chain the community et cetera and so every developer is going to choose more utility versus less for their coin and that will eventually mean building their own l2 once they quote unquote outgrow ethereum and so the monolithic model of salon is just fundamentally bearish in this paradigm where you assume that these things grow large enough that they want to have and own their own communities and so i think broadly michael and i would say that we're definitely eth bulls um but more so than that we're just like modular blockchain bulls um and i think that's really kind of where the future goes over the long term yeah i mean it feels like the narrative and the big conversation uh the big question back maybe let's say let's take it back 24 months was will we live in a

multi-chain future maybe 18 months ago everyone's like will we live in a multi-chain future and now everyone says i think kind of the uh the agreement maybe you guys disagree with this is that okay we will we will live in a multi-chain future but what does scaling look like and maybe what does interoperability look look like i think there's um there's a lot of focus on something like uh avalanche's subnets there's kind of this renewed interest in cosmos's app chains what does maybe michael go to you like what does the future of just like the the multi-chain future look uh uh it's a broad question and i think it's it's gonna take a ton of different forms you know and uh if we think about the diversity of potential applications that we're talking about you know extend uh the the vision of blockchains into you know the the future

at a certain scale and you start to basically have every single type of application anything from really robust financial services to consumer social media applications and everything in between you know chat commerce content basically anything that really revolves around consumer and the internet usage that we see today those patterns are going to be built or at least tested on blockchains and so i think it really depends going back to what i was saying earlier it really depends on what the application needs and so if you have the liquidity aggregating on one chain the security because of you know higher prices higher cost out of data on one chain you know you're going to want to be able to access that chain while you're also going to have lower

security lower cost needs and it's similar in the same application that will have to be aggregated on a different shade and so you know that right there implies that we're going to have interoperability in a multi-chain world just in in that one application instance and and so i think what we're going to see is you know right now obviously it's pretty negative uh in terms of the virgin ecosystem out there um i think one of the things you know in this maybe a little bit counter perspective but one of the things that i think actually will alleviate a lot of the stress of layer twos is centralized bridges we still have yet to see you know coinbase come out and and build a bridge to arbitrary optimism and you know as soon as you have that you know that onboarding into the layer two ecosystem is

how basically everybody that i know got into crypto originally and you know you pull your east off of coinbase and you put it into a metamask wallet and you know now you're a d5 i think the same thing's going to happen with player twos and so as we start to see more value you know and trust build between the different chains we're going to start to see the actual technical solutions of robust bridging interoperability ibc become just as viable as the centralized options and trustworthy as the centralized options and so i think that's we're really going to see you know these interoperability solutions come about but to go back to the original question it's absolutely going to be something that's multi-chain it just really depends on the application for the centralized bridges do you mean something like what ftx does with wormhole like where you can withdraw

your kind of portal wrapped assets from ftx into wormhole exactly yeah and and we just haven't seen anything on top of a e flare or two yeah one of the uh one of the interesting things just on on that topic is uh like when we were talking to maple about um you know basically there and for the people who don't know maple is a decentralized barlen desk for crypto native borrower or lenders it's basically a capital market solution where they have a pool that underwrites risk uh you know for a given counterparty they'll look at their balance sheet they decide to give them a loan and they'll do it under collateralized they'll do it at more competitive rates than people like genesis and they're just growing like an absolute weed you know they were going to expand to salona and and one of the questions was you

know should we just have maple exist on ethereum and and we can give out loans and people can bridge and do kind of whatever they want because there's a big solana community who wants a lot of you know capital as well um but really the thing that you know we found out in talking to institutions and also just you know using these things ourselves is that people are not willing to use bridges in an institutional capacity you know that is the highest vector for you getting hacked on any given month day week year like it is just an absurd amount of risk and you know that is fundamentally bearish for this like multi-chain architecture that exists outside of something that's economically secured by the same validator set um and so that's just a lot of our perspective on on where things go is that you know

bridges are just absolute nightmares when it comes to security and we haven't found a security model that works for us yet in actually building things that span you know multiple chains that are not evm based or at least share the same economic validator set yeah you guys have these amazing predictions on your website when you announce the new the 400 million dollar fund you also put up a bunch of predictions 20 30 predictions bold move uh making predictions 10 years out eight years out and we'll link it in the show notes if you guys want to actually read all of them one of the predictions was uh a 10 billion dollar on chain i think it was a 10 billion on chain hack will occur does this come from a bridge do you think or what what does that 10 billion hack dollar hack look

like a very good question as well i mean really kind of the the intention behind that and the intention behind basically all of these is you know it's really easy to kind of look forward in a couple of months or a couple of quarters increments um and you know predict what's going to happen and generally directionally what's going to be you know the the end state of the world after that time period it's really really hard to predict years and if you look backwards in time over crypto and d5 you know it just moves at exponential exponential scale so a lot of these are really just extrapolating forward the continued exponential or non-linear growth that we've seen so far i don't know if we've actually had a an official billion dollar hack ronin might

be the biggest one with the you know 600 plus uh million and but if you take that and you extrapolate forward a couple of years you know it could be a bridge if that's where the ad the aggregate value in a decentralized ecosystem with smart contracts uh is is being most used and you know that's probably the biggest honey pot that you can imagine and so you know that's where bridges you know fail currently but if we take that and think about where you know that value aggregates eventually it could be a staking contract it could be in something you know like a you know an amm it it really just depends and so you know what we're really doing here with all these predictions is just extrapolating forward and kind of putting something out there that says hey you know this is the scale that we're going to be getting

to in the next three four five eight years and so we need to think about how to protect ourselves or how to you know live in a world which has this level of you know on all of these predictions this level of scale yeah let's pivot a bit from talking about scaling and talk about staking um uh maybe a week or two lido i feel like people were i don't know i feel like i feel like everyone loves lido and then people were kind of turning on lydo on twitter the other day maybe a week or two ago and i just want to get your guys's take right 30 of eath right now is staked via lido and lido has something like 85 to 90 percent of the liquid staking market um is lido's dominance a threat to eth at all um so so uh

let me just back up to like the controversy that was happening you know i think i think it started with like kobe is obviously you know uh you know a member or founding team of lido and like ryan berkman's great guy uh he's you know very pro-ethereum and and has led a lot of the research and analysis around as an asset um and i think you know what he was trying to say and it got a little garbled and like kobe is a great guy i don't think he like has any like you know he's like solana funded i think was like the kind of metaphor they were using but i think what brian was trying to say is that hey there's a lot of concentration here in lido both from a smart contract standpoint you know if that contract were to get hacked but

also from just like a client diversity standpoint in terms of you know the people actually operating these different sticky instances that there's probably a pretty healthy market for being you know number two and in all software categories really kind of what you see is you see like the premium brand who's run away with the market who's captured most of the customers that everyone kind of hates and then there's like somebody who comes second and he's like maybe a lower cost maybe a little bit lower brand but like being number two is actually a huge market opportunity and so i'm glad that people have like you know started to throw spaghetti in terms of like okay how much do we hate lydo maybe maybe actually a decent amount maybe there's a robust and healthy market for you know this second competitor and i think they're coming frankly

lido's just had such a head start and nobody really thought that ethereum staking would be quite as large as it is today that you know they were just beneficiaries from that first run and they're going to go multi-chain they're going to spread their efforts they're going to spread their focus and and they will naturally emerge the second spot and you know we've certainly been active in funding a lot of people who are trying different staking derivatives and we'll be active and putting our capital behind them and so we're looking forward to making this a horse race but the whole drama was basically there is a a market for number two um and there isn't one and there should be i mean it kind of reminds me of just uh this might be an overused analogy but like the cloud wars right yeah people when when aws launched like people

didn't realize there was even a market for it and today it's 180 billion dollar market aws obviously dominates they have 33 of the market then azure has something like 20 but then you've got a bunch of little players that have like between 5 and percent you've got google cloud and alibaba and ibm and salesforce and and tencent and like look five percent of 180 billion dollar market not too sh not too shabby the public cloud uh market and dynamics have happened over the last i call it 15 years probably is exactly the way that we think about it i think we both agree that there's probably going to be like three to four maybe two to three really large winners here lido is obviously a suggest case here you know rocket pool is definitely you know coming at number two right now and i think there's gonna be other

solutions some of which as vance alluded to that we funded that they're gonna be right up there as well if not surpassing some of them and i think the second place is definitely valuable third place is valuable potentially fourth place as well but i i also think we're about to go into an era of post-merge eve where not just you know any of these winners but the entire ecosystem is going to grow in the same way that you see the public cloud you know take off over the last 15 years and you know as we start to realize that e2 is happening you know proof of stake is going to happen and as these institutions and many of which we've talked to need to move away from uh lido or or have diversification of their liquid staking operations whether it be it from you know some internal rule that they

have or internal diversification requirement or just like a natural sense of decentralization and so i think you're going to start to see this become a forcing function over time into the number two number three number four will this look like one or two companies come out and and try to compete with them either centralized companies or kind of defy or decentralized companies uh or is this like almost uh something that really doesn't exist yet like an association association or like uh a bunch of them kind of band together to almost take on lido i i think you're gonna see kind of all flavors of like go to market strategy you know you're gonna have like the populist like frog nation style you know like we're gonna we're gonna really decentralize taking this time for the

people and and you know who knows if that'll work but they'll be aggressive they'll be throwing tokens at it there's an appetite for that type of go to market then there's gonna be like the centralized companies that just go to whoever's doing you know the ethereum etf when it comes out and they say listen like we're gonna stake your assets super safe in a custodial environment you know like we're gonna and and you know obviously they're gonna be a big player and so you're gonna kind of see the whole rainbow i also think you're just gonna see you know you have this thing where you know you obviously create a decentralized staking derivative and then you have that it's in defy you can do something with it and you can go and bootstrap different ecosystems you can go and you know incorporate that into the treasuries of all these different

projects and so there's just so many different ways to get distribution for these things um that i think we're going to see probably even more fragmentation than we see in the cloud market just because there are frankly more levers that you can pull centralized decentralized you know populist you know very enterprise go to market like there's just infinite kind of diversification that you can have in how these companies operate yeah can you go deeper on staking derivatives and just explain to folks what that means yeah so a staking derivative is essentially you know in in the form of um lido for instance uh when you stake one eif into the pool you get a std uh staking derivative back and and that staking derivative um in in particular with lido rebases so sde

rebases and increases the number of st that you have uh based on the amount of returns that you get from the staking that's going on from you know your each actually on a validator set right now and so right now i i can't remember off the top my head i think is about five or six percent yield for anyone who's staking within the uh the validator set within the initial test net for eth2 but the expectation is that post merge that staking uh rate actually goes up to somewhere around eight to twelve percent and so you could actually see a doubling of the amount of return that you get and so you know another you know liquidity sync another reason to state when you actually see you know massive return potential uh in the form of if but a staking derivative is really just a way

of capturing that and the derivative token itself is really dependent on the platform that you're choosing and that's that's the one specifically how lido works michael you were talking about uh the eth merge so we just had travis kling on the episode if you guys haven't heard it yet you guys should definitely listen to it and he was talking about how the uh he thinks that eth is incredibly undervalued right now and he's holding more eat than he's held in a while uh because the merge will make it uh deflationary a yield generating asset and it will then uh kind of check the box on the esg narrative uh that institutions need to start allocating capital real capital to ethereum like uh kind of similar to what happened two years ago when paul tudor jones uh started allocating to bitcoin called bitcoin the fastest horse in the race

that kind of took away the career risk for hedge funds to start allocating to bitcoin he thinks that the merge is going to start uh we'll do the same thing for ethereum so michael in your mind is the merge priced in right now absolutely not i think i think crypto in general just a broad universal statement is some of the most inefficient uh markets that you could ever see you know solana is down one percent after being offline for seven hours on a saturday you know the market is is disconnected from you know network uh and network usage or network statistics but no i mean frankly i still get questions personally like is eth2 gonna happen is the merge actually gonna happen and these are people in the industry you know some people that should be knowledgeable about you know

the status and uh i mean if you follow any of the people on you know twitter that are that are talking about this you know there's tons of people uh tim you know or uh uh you know anyone at ef is is talking about the live updates uh of of all of the different you know initiatives and and time scales to actually get this thing live and it's going to happen in the next few months i think there's a lot of you know questions around what's the timeline for like the shanghai hard fork afterwards where you can actually withdraw the heath from from the validators i mean there's questions around you know what the economic opportunity is going to be around post merge you know is it is it really going to be as much transaction fees on ethe l1 versus l2 and so they're

obvious questions but i think generally you know e2 is not priced into eth and i fully agree with everything travis talks about you know the institutionalization of eth as an asset becomes viable after the merge because it gets de-risked and and that is probably one of the biggest opportunities in any financial market that i've seen so far keep in mind staking was supposed to ship in 2016. um so there's there's reason for people to not believe us you know basically um and when it happens i guess the proof is in the pudding you'd also just be so surprised at how many people who run funds who are you know quote unquote subject matter experts just have no clue what is going on with ethereum like i remember a fairly well-known hedge

fund manager was telling me that five eip1555-1559 would not happen because the miners would block it like what you know it just it doesn't it doesn't make any sense if you spend at least 10 minutes in this discord you'll understand that that's just economically mathematically not possible um and so there's just tons of alpha in this space still it's the world's least sophisticated market somehow with the most upside um and we're we're definitely beneficiaries of that you were vance you were nodding your head the entire time pretty enthusiastically the entire time that michael was talking there if you're i know you both of you guys are incredibly excited about eth what are the high beta plays then that almost could outperform eth how do you look at that how do you

almost invest and allocate capital when you think that something like eth which is almost becomes your base case uh could could three or four or five x whatever whatever you guys actually think they're like how do you actually think about allocating capital to outperform eth i i think really what's going to happen with ethereum is that it's going to prove to the rest of the world that staking is the birth of you know the merge is the birth of an industry and when you see ethereum spitting off you know between five and ten billion dollars of cash flow in a really good year potentially even more than that and it's returning basically all of it to stakeholders in the form of either burning it or direct yields and and we don't we still don't know if that yield will be taxable you know that that court

case that came out around you know how property is created in a staking context you know it kind of leaves the door open for a very favorable interpretation of the tax law when it comes to this and so that combined with just the economic upside you know people are just going to take a step back and say okay this is the this is the major narrative that is playing out you know where else where can we find exposure to this other than ethereum and keep in mind ethereum will probably run you know at some point as this happens and so then it'll be like okay where is this yield going you know is lido getting a slice of it is rocket pool getting a slice of it what about you know subnets what about avalanche is there yield there how does this work and so you're going to have this whole

framework built around this in terms of you know how do we get access to staking yield that may be favorably taxed in an environment that's very high growth and so i think you know things like the staking derivatives are obviously going to be quite successful projects that build you know staking derivatives into their own models whether it be you know something like tribe putting a lot of its eth into uh you know uh eat staking and obviously they have yield from that which they can then in turn put into the project again you know there's going to be kind of this reflexivity that gets generated by people who have some tangential connection to staking but every single product project blockchain will integrate staking into kind of what they're doing so they can pattern match this narrative and so you know as you think about

uh you know the last major waves of narrative rotation like the l ones you know the the games the things like that it's probably going to shift towards an environment that's more judged on a fundamental basis as to how much cash flow are you accruing and that's going to create you know frankly some of the first fundamental valuation models that we've seen in the space yet so it's going to be a different type of environment and it's going to be more institutional friendly and you're going to we have people that are able to allocate large dollar values into these staking networks and so you're going to have a wind at your back and that's always very important when you're investing yeah so you agree with someone like um jeff dorman who we also just had on the podcast folks should go listen to that if they haven't already uh jeff dorman

believes that right now there really aren't fundamental models in crypto but eventually every asset class gets these fundamentals whether it's like um oh yeah pretty much any asset class eventually gets these asset models where right now if you gave like an asset to 10 different analysts they would value it in 10 different ways but if you give like just an equity to 10 different analysts they're all going to value it on some sort of discounted cash flow so you guys think that this space eventually converges upon fundamentals absolutely and i think it was ryan berkman's who put it out uh ethereum cashflow.com you know there have been some initial takes as to what the post merge you know dcf model for ethereum could be and um you know there's still a ton of variables and assumptions that go into all of these models just as any any dcf

would assume but you can actually start to get some of the the points filled as you start to see some of this stuff happen once the merge happens we're going to actually start to see you know what are transaction fees doing you know what is the post merge burn looking like post eip1559 as well and so we can start to put in into into place some of the variables that are you know unknown at this point and from there you know this is one of the reasons why we believe that the institutionalization is is going to happen it's because as soon as you start to get clarity around what these models look like anyone who's an analyst at any bank or institution or or fund who's looking at crypto and saying okay well how can i how can i know whether or not you know ethereum is

valued properly or ethereum is valued fairly right now or if it's undervalued or overvalued you know there's just going to be a market around predicting where ethereum goes based off of the cash flows because you get two forms of cash flows whether it's a burn or or it's basically a distribution from staking and so the the only variable that i think is going to be interesting going forward is it's not just owning if that gives you a right to that secondary cash flow of state you know returned assets in the form of basically a stock dividend but if you are a stater and you do have access to staking products and staking services really at your head very easily then you can be someone who receives that as well and so i think that's one of the reasons you know why we're also really bullish on staking

derivatives and staking products and services because if you allow those to be easily accessible to institutions you know it doesn't it doesn't have to be something that's impossible for them to get access to and so i think you know there's just a lot of a lot of financial viability in terms of where this thing goes and and the analysis that's going to go into it over the next 12 months the the other thing i'll say about kind of staking in in the context of how we see the investing world evolving is you know this year is is a is a great example of how investing is changing and you know bonds have had their worst year in 40 years this year and stocks have just gotten crushed alongside them and so you know there's this idea that maybe they aren't you know as uncorrelated as you might

think and maybe it's just not a holistic basket for how you might want to structure your entire network worth around these investments and so you know if you think about how crypto evolves and like how you can structure something like a total return you know like a fund that like bridgewater would put forth you know maybe half of it you know maybe 60 of it is staking where you have you know reliable yield that you can hedge out the risk of and you can actually have that yield start to stack and build a creative value to your portfolio potentially in a tax-available environment and then you have you know probably some some assets that people can start to take fundamental views on that look a little bit more like how you trade equities where it's like okay this this company has ex cash flow we're

looking at it growing at y rate maybe it has z multiple like you can construct a total return portfolio that doesn't look like gambling or totally insane in the context of crypto once you have the staking derivative that's a little bit more consistent yield and so i think with this birth of an industry will also become the birth of just entirely new types of investors that are creating these new types of portfolio for folks based around something that's a little bit more fundamentally valued but also that it just has you know yield coming directly from what you're staking if you are someone like bridgewater and you want to actually allocate to uh like staking assets or taking derivatives are you going out and buying steak d like are you like spinning up a pool on lido or uh like what's the best way to allocate

there what are you actually doing what are you guys seeing on the ground here so the uh so like you know what's going on right now is uh you know let me let me tell you where i think the trade will be so i think that like the trade that a lot of institutions will put on is uh you buy eth on coinbase exchange and then coinbase will you know assume that they'll have like an institutional staking program at some point once ethereum turns on you take your youth you stake it with coinbase you know they'll give you back your your stake d derivative so like you know in the case of lido it's steath you know you take that steath you send it to ftx and you use that collateral to short the ethereum perp the future and so what you have there is you know

you're collecting yield from you know the e field on on that side you're collecting yield from shorting the perp and it usually pays you to go along the perp and you're entirely hedged and so basically what you have there is you know and people are reducing the funding rates and so it looks more attractive to long eath if you're not in this trade and you're just you know retail that's punting around and so you know the entire dynamics of this space are going to change a lot you know once this trade is put on and people are going to put it on in huge size and there's going to be squeezes where people run out of collateral to short the perp and it'll exacerbate some of the moves in that regard but you know that's the fundamental trade that people will put on because it's delta hedge you

know you can do it entirely custodial in some contexts um and you know that is where you get the most value for your buck if you're an institution um it's harder you know if you think back of like you know you mentioned paul trudy jones earlier you know say you're an analyst in this big investment bank you know you have two things that you can pitch one is you're gonna buy digital gold for the coming apocalypse two is you can put on a delta neutral trade that earns you yield which doesn't make you seem like an ideologue you know it's like very clear where most financial professionals land when you like talk to them if you have and it just feels very clear where this is going to go and so you know we're not people that call for the flipping but like it feels like it's going to be obvious

at some point and i think it'll be either this year or next year you know that ethereum is just a generational asset you think it's this year or next year that the market cap of eth which is today what like 350 billion flips the market cap of bitcoin which is something like 700 750 billion so bitcoin's what 2x ether and you think it flips i put it next year probably like that seems reasonable to me just a pity back to what vance was saying though when you take that concept and what vance described as a perfectly delta neutral perfectly hedged situation where you're just earning the yield the other thing that i think we're going to start to see is number well two things one you're gonna see that packaged up into a product that probably is sold by institutions as well so you know if you

want access to that yield there's a there's a basis for having a fund that manages the whole thing for you and two i think you're also going to start to see people get a little bit more directional in terms of their betting on on that exact concept or maybe they go half-hedged and you know they get half the upside of what ethereum will do which is effectively an index proxy to what the growth of the industry will have and you have some downside protection with your income generation that's that's half hedge and so you're gonna start to see a ton of these different flavors of products and it's not gonna be just one size fits all for everybody and i think you're gonna just as you see with etfs and just as you see with you know some of the more managed funds that these

banks are putting out these are going to become managed funds that will probably be just available to accredited investors and not something that's approved for retail but there's going to be a massive opportunity for for building those products we're selling those products and you know the people that are getting access to them are going to get indexed and hedged or completely hedged or some someone had access to the industry it's like you know all financial professionals do all day in in michael and i's estimation is just like dream up these like new products that they can sell people you know like qqq with like a dash of leverage you know like oh we're gonna we're gonna hold if you're pimco you're making like you're making these bond portfolios and maybe you'll sell some vol just like juice they yield a little bit and like you know they'll

come up with these fancy descriptors and why this is risk-free and amazing and this is no different and frankly they just haven't had a product to sell before and the product they were selling before was you know gold like gold is going it's gonna become more important and maybe bitcoin is like digital gold that just like is so specious and reliant on so many different assumptions that like that isn't actually something you can package up and sell it has to have heal or it has to have something that's fundamental all right everyone quick break from the show to share a big update from our friends at paraswap the best platform to stake swap trade farm and more paraswap just launched gas refunds based on how much you stake you can now get up to 100 of your gas refunded on all of your

swaps on pair swap this is huge for anyone who has spent a lot of time in d fire maybe it's just starting out you know how egregiously expensive the gas transactions can get the gas bees are ridiculous at some points in time and now you can get those entirely refunded on pair swap to participate all you need to do is take a minimum of 500 psp big shout out to the pair swap dow for making these refunds possible really it's just it's tough to be pair swap right now they give you the best prices uh they save you money you've got this gas refund if you stake psp they've got a smooth and really user friendly interface fast swapping it's really everything that you'd want from a d5 platform if you don't use them already

check out paraswap today at paraswap.io now let's get back to the show let's talk about new products um one new product a couple years ago was uniswap right and union swap kind of changed the game of defy and really took off uh during d5 defy summer as this like this you know amm right which was incredibly i would say like revolutionary uh and opened up a lot of capital flowing into d5 um vance i think it was you who said you're actually pretty bearish on amms there's a lot of x like citadel drw jane street folks are building kind of better trading protocols that are cheaper for users and just a better business model for wallets and i think this is like on-chain payment for order flow but i

want to make sure i'm i'm not putting words in your mouth and i just want to hear you kind of expand on this thesis on why you're actually bearish for amms yeah so like the history of amms is you know order books are just a faster cheaper more efficient way to you know execute and get best execution on orders um amms were designed for ethereum because it was too slow for order books um but it was you know fast enough to have these x times y equals k curves be calculated and distributing trades liquidity etc on the fly and so like amms if you look at the historical context are very specific to how ethereum you know was constructed still runs still scales etc what you see now is you see these people

who are building things for faster chains and faster changes is like the key criteria here where you have things you have chains that are fast enough for an order book they're fast enough to sell order flow ahead of time and they're fast enough to effectively have you know instead of phantom you know basically allowing their users to get hit for you know 10 20 30 basis points they can sell that order flow to market makers ahead of time those market makers can give the wallet you know five six seven eight bips on that trade and the wallet has monetization the traders get better execution and it's just overall a better model and so you kind of believe one of two things with the future of trading you know either amms continue to become the you know the dominant form of trading and that relies on kind of these

slow chains proliferating which maybe that happens maybe ethereum l1 just runs away with it that's the only thing that happens but i think more likely is the case that everything moves to low-cost chains you know the next billion people are going to come onto low-cost chains they're not going to be the same degree of crypto whales that we had in the past and so you know kind of by logical extension assume that you know it's either going to be amms or this payment for order flow model that dominates and if it's on a low cost chain and that's where the center of gravity is the payment for order flow chains facilitated by an order book are going to be the ones that win and so for us that's frankly where the most interesting things come from and that's you know just one project the other

things that we see are you know dark pools that are built on zk zk roll ups where you know you can trade 500 million of ethereum anonymously with a counterparty without signaling to the market at all and like you know just the complexity of how different trades are done are also going to expand and the types of institutions that trade in them will also expand and there's just going to be a lot more avenues than just a vanilla amm going forward and i think you see a lot of this in in v3s architecture where they move towards more of this quasi-order book model just because that's frankly where we think the space is going yeah i have i have a bunch of questions here one is doesn't that contradict your earlier thesis though that a lot of this ends up getting built on eth right because if

everything's if you think that as retail comes in they go to these low-cost chains and like that you expect then like payment for order flow protocols to kind of supplant the amms uh if everyone's moving to these low-cost chains like a salon or something like that that's contradicts your earlier thesis that everything gets built on eth now i i think like things are going to get built everywhere i think predominantly where things get built are on l2s or on you know frankly rollups that use eth for data availability i think that's where everything goes long-term and you know assume that eth will scale you know once sharding gets done probably like 10 to 100 x assume roll up scale another 10x in between then and maybe even more and so you're talking about on on ethel one probably transactions under a dollar consistently

in the next year to two years if you're talking about l2s it's probably much lower than that it's probably less than you know 10 cents and so i think you know the scaling of eath has always been faded because it's been on the horizon for so long but most of the decisions that were made to scale ethereum were made three four years ago and they just happen to be playing out today um and so i think that's a lot of our thesis there yeah um so it kind of feels like payment for order flow protocols will get big on something like eth or wherever it is once things like gas like gas is probably too expensive right now for this model to work but once exactly it becomes cheap enough okay then amms kind of get supplanted i think i think payment for order flow

will you know start on things like solana and polygon and then move to the higher cost chains as they make tweaks to it payment for order flow is an amazing business model for folks like robin hood the only problem in traditional finance is that there's only one person bidding or allowed to bid on this order flow and it's citadel if you open that up if you have dao's bidding on overflow if you have all these different market participants it becomes a really interesting and robust business model and we just think that's where our part of this goes so you'll see a bunch of folks like a tokamak pop up let's start bidding on this right like exactly that's part of the thesis for tokamak yeah interesting santiago uh thankfully is not here so i can ask this question because he hates when i ask this

question but like are we like i'm hearing you guys talk okay so like lido owns has like a monopoly on on each staking you've got like payment for order flow is the better model and obviously like you know i think some of the pushback maybe of crypto is like we're just kind of recreating traditional capital markets and what what i would probably say to that is well we are recreating a lot of capital markets but it's just a hundred times more efficient than what capital markets actually look like today when you hear things like okay payment forwarder flow is the better model let's build that uh there's like a monopoly on staking like does this not make you um i guess it just there's always a middle ground i was gonna say it's like not really in the ethos of of crypto but i guess crypto is changing a lot so i i

think the advantage of defy and the advantage of having all this built in the open is exactly that which is it's transparent and it's open and it's fair yeah you know as vance alluded to citadel is the one who controls you know basically the entire choke point of all the value that's flowing through payment for order flow models right now and it's because you know they they're you know the biggest they're the best they've built the best systems but you know they've been able to accrue network effects to what they've been able to build and i think we you know the reason why you see lido as we discussed is the taking taking it away right now with uh decentralized staking derivatives is because we haven't seen competitors pop up yet we're also you know probably like three four months ahead of the merge even happening so like the in my book

the competition hasn't even really started yet and so i i think we're going to start to see a lot more competition we're going to see a lot more competition especially on the payment for order flow as vance was alluding to with having all different types of flavors of participants be able to bid on this on this flow and so you know the advantage here i think isn't you know or to go back to your question we're not just recreating everything on chain and and you know it's we're going to end up in the exact same world of like winner take all markets i think what we're going to actually see when you have open and transparent uh markets for all financial services is that you have more competition and when you have more competition things will eventually get more fair and they'll eventually get cheaper and more efficient but i think

that's just not something that you see right now in traditional markets and that's the advantage of d5 yeah what are your guys's thoughts on kind of these og d5 protocols off it was at 600 bucks may a year ago i was trading at 600 bucks a year ago it's at 140. so it's down from like 600 to 140. uniswap was trading at like 45 bucks it's down to six or seven uh you guys had a large allocation to chain link right it was like 50 bucks now it's down to like 10 like do some of these og d5 protocols that are actually used a lot um yeah what are your thoughts on some of these like old old-school d5 protocols i think with these old-school d5 protocols like the charts are obviously super unfortunate um i think that's obviously due to a degree of you know

the narrative rotation outside of d5 into game phi but also a lot of the macro stuff and you know to some degree they have no control over either of those but um the most important thing about any protocol is just like how good is the team and i think a lot of these d5 blue chips have earned their stripes because they've been through a couple of these markets and they've sometimes even built to the last bear market and so for us people like sergey people like stanley people like kane people like hayden um and we don't have any exposure to you swap specifically but you know those are the folks who you know we just see them being able to build a business that has longevity in and things will come and go and like uniswap could turn off it could turn on the fee switch

today and rock it back up to 45 you know like there are catalysts here and there are usage it has 90 percent of the amm market um and so i think to some degree you know we will see these come back just because you know they already have gone through all of the cliffs of investors unlocking they've already gone through the product market fit iterations that didn't work and they found something that does and a lot of them are frankly generating enough cash flow where you know they're just undervalued relative to almost any traditional metric and so just like coinbase has a pde of nine right now uh you know these things have a similar profile and so we're going to see a lot of these come back we're also going to see a lot of them die and never you know ever return but the only thing that

really matters is who is in the chair typing the the keys or the code or the doing the podcast and you know it's just all about good management those things don't change from web 2 to web3 and i just add there that i think one of the the reasons why we've seen such a malaise over the last year is like going back to this whole eth2 layer two you know everybody we expected that we're gonna have optimism arbitrary live at this point last year you know they're just now kind of getting to the point of realization and so all this stuff gets delayed by years when you're building really really difficult technology and the software takes longer just inherently and so you know that i think was more of the play of the og d5 which is built on e-flare one and you know they're having to transition to

different you know layer two solutions and different chains the the other thing i'll say you know is that we're gonna also start to see some of these funds and you know i don't even know how many billions of dollars have been raised by crypto bc over the last you know x number of months but you know it's in the billions of course and it's probably gonna you know double triple by the time you know maybe even this podcast comes out but it's you know something that i think we're gonna start to see uh people actually taking steps in open markets to buy tokens on you know exchanges when you start to see some of these values as chances alluding to whether it's price to earnings the cash flow that's being generated you know those become really viable venture bets whereas previously they weren't unless you were in the private rounds in the

seed rounds and so maybe there's going to be an inversion of you know public tokens to private deals you know whatever you want to call it but i think you're going to start to see some some of these funds take you know an allocation of their capital and go buy tokens yeah we're talking about these og d5 protocols a lot of them use just like liquidity mining to bring users in and then people realize oh i give a bunch of tokens well then people actually end up dumping the tokens so maybe it's not an amazing customer acquisition tool let's lock up the tokens right and so then ve got introduced and uh you know vu is actually this like nice model for a little bit right with like curve and convex and things like that but now we're kind of seeing some of the downsides right i think just this past

week the biggest whale on uh phantom got liquidated or almost got liquidated for like 50 million due to loans on this like four year locked position vance you're laughing maybe it sounds like you know who this was or uh i don't i i i someone just messaged me on slack about it so i don't even i haven't even looked into this but um what are you guys thoughts on ve and vance maybe if you have a story about the uh the phantom liquidation too so i i think you know generally what uh what we're starting to see is just maturation of token economic models writ large and it's through experimentation of course um and you know ve was pretty powerful for for curve and the way that they kind of initiated that entire concept the the other one that we're starting to see as well is this x token

concept where you know i think sushi was the one that pioneered that model uh you know there's been a couple of proposals from from even some of our portfolio companies on this edge token model i think we're going to start to see more shots on goal in terms of you know what models make sense for the right token the right community and the right right application and um it's nothing perfect and as you get to points of sufficient decentralization a lot of these decisions are turned over to the community and we'll see kind of which way the wind is blowing when these communities are making these decisions but you know these models are improvements inherently than just having you know liquidity mining incentives and you know new tokens being spit off into a into a unispot pool to incentivize that liquidity i i think you know these

are fundamental um increases in the utility of the token when you have the ability to stake it you're segmenting active participants with stators and non-stators um and and so yeah these are generally improvements ve i think it's been you know it's definitely been used quite a bit but it's definitely an improvement over just a regular token um just as x token is as well i don't know i feel like with x token i've seen some of these models too and you guys know this 100 times better than me but like it kind of feels like the dow ends up handing over the vast majority of their protocol revenue to like a handful of whales which kind of ends up further concentrating ownership and control over the protocol but i could be sure and and so this is this is really dependent on how you do it and you know

maple as we've talked about is one of our portfolio companies they publish treasury reports on what their total costs are you know the the cash flows that are distributed to uh to the ex mpl or will be when you know the proposal goes live you know that is something that's x cost and so i i think you know these models are starting to be figured out not all of them are uniform and not all of them are the same but i i do think that you know if you do it right and you have the incentives and the alignment of the community they can be powerful yes every single one of them isn't the same and not every single one of them will work perfectly but but i think generally once again these are just improvements over you know having the general liquidity mining incentives as the core use case

for the token anything else on defy that you guys are really paying attention to anything else that's really interesting i want to talk gaming for a second but um anything else that's really interesting that you think is kind of under looked or or over looked right now i i think like a couple of things you know just the level of talent that's coming into this space from like jane street citadel drw you know like you're gonna see a major upleveling of market participants in the next six to 12 months um and i think you know the name of the game as i kind of tweeted it as we've talked about is just like where is the flow going is it going to amms is that likely to be the future or is it likely to be more of like dark pools for large block trades

payment for order flow for retail you know mev becomes increasingly important staking becomes increasingly important that feels like more where d5 is going over the next 12 months then like let's build a copy of uniswap on phantom like those days are over if you're still on phantom you should be you should know that you're just in this like pvp game you know with other people who are trying to take your money um if you're trying to find real innovations you know you should probably come back to the chains that are actually fundamentally interesting and i don't like to you know on entrepreneurs i also just don't like blatant cash grabs um so that's kind of my perspective let's talk gaming so you guys raised this 400 million fund what percentage of the 400 million will get allocated towards gaming we've said

half but you know any number that we put out there is just inherently going to be wrong so you know it could be plus or minus michael yeah it's you know we can make predictions but our predictions will be wrong yeah i when i think of framework i think of like defy ogs right i think of people who are not just invest we're not just investing in d5 before pretty much everyone else but actually participating in d5 right for anyone who's listening to this if you've interacted with the d5 protocol before you've probably also interacted with framework or framework labs uh in some in some way or another and so i think of you guys as these like yeah just some of the catalysts for defy why are you guys starting i wouldn't call it a pivot at all but like almost an extension of the fund like why are

you guys so excited about gaming right now you know just simple simple facts are gaming is the world's biggest market there's three billion people who play games a year there's 1.5 billion people with internet connection that make less than five dollars a day you know they're to go play play to earn games when these things came out um more than that you know this is actually closer to michael and i's original background you know i worked in corporate development and netflix michael was a pm at snapchat you know media gaming entertainment these are the things that we came from and you know we did defy because it is going to be one of the biggest markets in crypto but also frankly it was the first category of product market fit that was ever going to exist blockchains are built for financial products you know that was

just going to happen no matter what um and d5 is in large part the infrastructure for a lot of these use cases nfts are just a financialized version of just you know trading pictures with your friends um you know a lot of the use cases that are very powerful in gaming are also built on d5 primitives and so for us it's just a very logical build in terms of like we're going up the stack towards you know use cases that are more top of funnel that have more chances of mass adoption um and it's also just challenging as well and i think that's always kind of the the you know challenge with a new fund it's like a new album you have to you know reinvent yourself they loved your first album like what about your your new stuff like can you get them to to

kind of be into that and and for us that's just like the fun part of running a fund is is having the ability to continually reinvent yourself and i think that's that's the macro perspective you know obviously massive market but if you think about the micro as well you know there's just a core advantage that you have in having ownership over the assets that you develop in the game ecosystem having the ability to partake in a marketplace that extends and enhances the gameplay experience and and you know play to earn with axi who really kind of innovated this concept in the first place you know it's an interesting model and i think you know give them hats off to them like they created the concept but what we really think of is the transition from play to earn to play and earn where it's a supplementary element to the gameplay

itself which really is defined by is this something is this a game is this something that i want to play on my own like would i fall down the rabbit hole just by playing on this uh you know on a friday night and if it's not then you know there's going to be a hard time for us to to really believe that there's really true staying power and you know this can mean anything from a fast casual game like a you know fancy birds type uh you know experience to something like alluvium which you know and we've backed both of those concepts where um you know you do get an opportunity to have open worlds you know massive scale uh gameplay but also have a marketplace which enhances the elements and and potentially you know it and really you know creates the gameplay experience in

a way that you haven't seen before and so you know when we think about gaming it's not as much you know pure axi as it is sort of the future potential of what that model could be innovated upon um into and and so that's you know one of the things that we're looking at when you look at financial markets in crypto um the kind of bigger banks and bigger exchanges were just way too slow on this right they're way way too slow what that did is it opened up a market for the coin bases and geminis and krakens and and block fish of the world to come in and dominate and their success ended up causing uh caused a lot of entrepreneurs who were kind of pushing at the at the edge of innovation to build and defy right what we've seen with gaming i

think looks a little bit different which is you had some like really really early games that were pushing the edge of innovation like someone like an axi the and then now i the some of the og studios are actually i think pushing faster into gaming then it you know took some of the big bigger banks like it took someone like jp morgan like 10 years to actually think that crypto's real but when when uh these gaming studios start to get competed with it they're i think they're moving much faster than any of these banks moved so when you guys are looking at like what the state of crypto gaming looks like in a couple of years is it are some of these games built by the big studios and like these triple a games are going to be built by the big studios or are they actually built uh from like

crypto native entrepreneurs i i think it's going to be a little bit of both but you know if you've worked in a big tech company or a big gaming company you just know how hopeless they are in like ever being agile and and developing a new product category before it's been proven and you know they're not going to be the people who go off and pioneer and we've heard like rumblings that you know there's going to be plato and games coming out from some of the major studios in the us but like dvd we've heard that for a while um and so like who are the people who are most likely to take the superpowers of blockchain and i would define those as global distribution of wallets you know tokens is a new asset class uh internet native culture and just the ability for composability censorship resistance that

anybody can build and combine those into a game you know it's gonna probably be the crypto natives and it's not gonna be you know probably like the crypto natives with no gaming experience like i don't think dark forest is gonna like emerge as a breakout hit that like everyone plays but it's probably gonna be some indie studio with a bunch of guys who are trading crypto on the weekends who really know what this is about they're really passionate about it and they're just going to say you know i don't want to go and sell another game to a major studio i want to try something new i think those people are going to have the highest shot of of you know creating something that stands the test at the time and franchises like ea and blizzard and activision there will be crypto native versions of those like as sure as

we are sitting here in two or three years those will be something that exists um and i think one of the main things about like d5 versus the banks and like you know maybe the indie crypto studios versus like the bigger studios these things take a long time alluvium was funded in january of last year it's probably going to be another six or nine months before like the mobile game comes out you know all the bells and whistles are there the gameplay is fully viable and so there's a gestation period and any new game that gets funded you know like i see the funding announcement of these new games i'm like cool i'll play you in three years um and so you know are we good gaming investors like we're gonna find out um and we're gonna find out probably sooner than other funds because we were just earlier to this

trend in general what's more exciting to you guys a crypto native game that looks kind of like alluvium that's like like eluvium is uh is as crypto native i think as you can get right like everything's on chain they've got nfts they've got like the dow makes the decisions or you've got option b which is like ea sports or like so i don't know some some some huge gaming company goes and builds a game and like they've got in-game nfts but they've got all the gaming experience right they've got like a thousand game developers and like in-game economists what's more exciting a or b you know no it's definitely michael michael was thinking b and vance was about to fire himself i was gonna say both uh let's see both

um but i i think you you have to live and breathe this stuff to really know what's gonna work in this industry um and if you don't i think it's it's to be an uphill battle getting caught up to speed um you know in an ideal world you're you're able to to conceive of what the game is going to be and you'll be able to tell a story and you'll be able to just build a storyline and character development around that and and that's going to be something you know that you're equipped to be able to do but you also have the web three native approach and you also have the ability to to resonate with the community um and and so yeah i think generally you know i ideally it's both but i think you're starting to see you know the the bridge somewhere in the

middle where these two sides are going to meet and you're starting to see people from the gaming world really get up to speed on the web 3 aspects and you know we went to we went to gdc uh which is here in san francisco a couple weeks ago or just a couple months ago at this point the entire conversation you know the biggest game developers conference in the entire world was 100 web 3 and i mean not i'm being hyperbolic but it was all about web3 and you know how do i integrate nfts what are the different types of solutions what's the wallet solutions that i can integrate into my game and you know that was the entire conversation point and so you know this stuff is going to happen a lot faster because of the pounding effect of having games and game developers just

understand that this is the new platform and you know not only is it the new platform for you to be able to develop a game you know a major part of our thesis is the catalyst of what happened over the last 12 months where apple and doodle have removed the idfa from from most of their applications and their their operating systems and so what that means is that the business model of advertising for small to medium-sized game developers has been rugged from them you know and so now it's not just a nice to have let's go it's for how to build our game on top of a blockchain it's a need to have it's you know the only economic viability that they have to continue to build games is moving to this nest platform and when you have a marketplace element that enables you know nft sales and

resales uh being your economic mode and your business your business driver it just means that you don't have to rely on being an advertiser to build your business and you know being a subscriber advertiser there's nothing worse than doing that and so there's there's just an opportunity for you to have you know real scale with real business around a blockchain and so i think that's you know the recognition of that is really what's driving a lot of this inside of it yeah uh you guys have like 20 different predictions i don't know the actual number but um there's a couple that i want to dig into this one uh most sas businesses have their own l2 on ethereum replacing their public-facing api and this reminds me a lot of like i don't know when i got into

the uh into the industry like 2016 2017 enterprise blockchain was the narrative if you guys remember that like everyone was talking about enterprise blockchain and if you do i don't know yeah i don't know if you guys remember the uh oh my god what was who was the commercial it was ibm and walmart and it's like walmart is moving their mangoes onto the supply chain with like the help of ibm blockchain everyone's like oh my god and actually that was what convinced my co-founder mike who was doing uh management consulting and supply chain uh i finally convinced him that ethereum was real because of uh because of this commercial uh it turned out to be totally not real but um anyway this kind of your prediction here most sas businesses have their own l2 on ethereum replacing their public-facing api it's super interesting because it almost takes me

back to that enterprise blockchain narrative but i could see this one coming to life so michael or vance whoever made this prediction can you just talk through what you're thinking here yeah so i i think this one was me i can't remember exactly um but this goes back to somebody we were talking earlier uh you know about where sas businesses have this this api ecosystem which they try to get their you know partners integrators et cetera to build on top of and and you know i've used the example of salesforce as you know it's now more of an api company than it is sort of a you know a core product company and and that's how they would describe it but i think generally this is how you're going to start to see the points of integration where businesses want to integrate and get on

chain but you know the going back to 2018 i think the narrative was something akin to you know it's all about blockchain but not bitcoin you know if you don't have the the token the token that is building your level of security you know building your level your layer two and incentivizing in that way you know you're really kind of missing the forest for the trees and and so i think what we're gonna start to see is you know your only or two as opposed to leveraging you know something that is built on a way or two because you want to have that token build your security layer for your ecosystem and you know the apps that you're building the apps that your partners are building are rebuilt on that l2 and integrating through that l2 you know and this is also you know these are eight year

predictions so squinting into the future to see what this looks like this is also kind of the basis of what interoperability could mean for us as well where you start to see these enterprises across layer two to layer two you know have these you know data sharing agreements have these partnerships where you know you're you're building apps on each other's layer twos and and you know that's that's how you connect um and so you know that's kind of the basis of this but um yeah i mean there's a lot of ways to potentially see this one coming true one thing to add uh i i think enterprise blockchain failed for the for not the reason that people think it failed like let's go back to 2017 2018 when they were actually trying to do enterprise blockchain you know what blockchain were you gonna were you gonna build like you were were

you gonna fork like a very primitive version bill jp morgan forks yeah he goes and builds on quorum yeah but like you're building your own validator set you have to build like again like going back to the hugo labs example what does enterprise blockchain look like in 2022 you're just going to fork an l2 it's going to be yours you can control who's in there you can control who's not you're secured by ethereum it just gets far easier to do this and so i mean we think enterprise blockchains are going to be back at some point and it's just going to look like l2s like this is going to happen and you know it's it's the it's the perfect level of like marketability of you know we're doing something we're on ethereum it's controlled though like it's ours so like we kind of own it um but you also

have real utility you know pay us and stable coins integrate our api it's on a blockchain like you just have something valuable there and it doesn't have all the overhead that it used to have yeah i'm laughing vance because um mike and i always joke that we that we are going to completely miss the next like big like the big social network built on crypto or like the enterprise blockchain thing we're going to completely miss it uh when it actually happens because we're so pessimistic uh and got so like just like yeah we just saw so much obviously in the 2017 uh market so that like when the next social network gets built on eth or something like that we're gonna miss it because we're gonna be too skeptical so there are no bad ideas

there's only bad timing yeah literally every every idea that anyone has will come true at some point it just matters like you know do they have the right infrastructure to support it and this is coming from two people who built basically top shot in 2018 2019. oh yeah michael and i michael and i hated nfts for so long because uh as you know and we sold our company it was it wasn't like uh change the world outcome but it was certainly enough to seed framework but you know we hated nfts for so long that like we just wouldn't touch them and you know we were wrong about that for a while and i think we switched before we were really really wrong but you know it's the it's case in point yeah let's talk uh talk about another prediction um you guys had an episode of bankless

actually i think it was like june or july summer of 2021 in vance you said in 10 years 10 of global gdp will come from dows and then you guys had another you guys had an actual prediction on this blog post that said 10 dows will manage over 100 billion dollars each so can you just talk to me about some of your theses around dows and how actually how big they can actually get here yeah i mean uh let's let's take uh let's take you know faye tribe for an example you know tribe has about 700 million dollars maybe less uh now but um of ethereum uh and you know let's say that they don't do anything at all and ethereum goes up 10x you know they're gonna have probably about seven seven and a half billion dollars of assets in their dow and their whole

the whole point of of tribe is to you know generate yield either via stable coin by the pcv by other metrics um and so they'll obviously get some sort of multiple on that which they can then use to borrow against be more capital efficient generate more yield you know these things will you know be reflexive in that same way and so you know assume that ethereum is is even higher than kind of what we think you know these dollars are going to be within you know striking distance of 100 billion which would put them at the same level of the world's biggest investors so tiger manages about a hundred billion andreessen is about 56 billion today you know they're going to be right up there but it's going to be in a decentralized context and so it's going to be very controversial when they get that size

and they will get that size um because there's going to be you know a dow people voting on where the capital goes um and it's going to be you know a lot of spotlights that are on them as well but you know almost by the force of the the markets themselves combined with the utility of these projects you know they're gonna get there and and the same goes for the luna foundation guard which is basically a dow it's a multi-sig um you know things like tokamak as well which have like 1.5 billion in tvl um these things are going to get there and they're going to get there quickly and they're going to have a ton of leverage over the rest of the ecosystem they're going to be buying in-game assets they're going to be building referral programs to bring people in they're going to get very sophisticated

very quickly last question here i'm going to ask both of you guys michael we'll start with you is um we had haseeb and uh avicil a vitriol from electric and haseeb dragonfly on maybe a month ago and the way that they categorized their thesis on just what is happening today is narrative exhaustion right for the last 18 months things just moved so quickly starting with kind of defy summer and you know d5 summer for an entire year price of these things went like 100x then and you know people sold his nft for 69 million nft like we've been in 18 months of an nft bull market and it's been completely insane facebook changed their name to meta the metaverse thesis uh got really hot gaming obviously super hot so it's just um we had two years of just like

these crazy narratives and now it feels like things have really slowed down whether we're on a bear market or crypto winter whatever you want to call it uh it really feels like i like what avicil and uh haseeb said of just like narrative exhaustion people are kind of tired of the narrative we need a break for a second michael how would you categorize your thesis on just not the next eight years or ten years but the next six months what the rest of 2022 looks like so i think what's happened frankly i agree with narrative uh exhaustion and generally there's just been so much that's happened the run-ups have been massive you know this this is you know probably the third bull market that i've seen in crypto where you start to see you know 10 20 50 100 x you know uh

returns but i think generally so whenever that happens people are gonna you know be exhausted in general um and and so i think you know what i think has really happened though over the last six months or actually probably call it like five months now is really what's happened on the macro macro scale you know you actually start to see inflation become real and therefore you see fed you know increasing interest rates and you know you see what's happening in ukraine and you know the conflict between them and russia and that drives you know consternation in terms of global supply chains and and you know potential for massive uh military action and so there's just a lot of fear in the market right now and so i think it's the combination of the narrative uh being

over exhausted but it's also you know macro macro being something that's you know never looked worse than it is right now and you know a lot of the i can't remember exactly the survey but the the sentiment of um american investor sentiment has never been lower uh since uh march 20 2009. you know and you think about what was happening right there you know it was the depths of the global financial crisis and you know even march 2020 was not as low as it is right now and so you know the global sentiment i think is really negative um as well and so what what happens in the next six months well i think if we can start to see you know some abatement of inflation over the next couple of months that will be a positive signal you know some changes in the perspective of how many interest

rates we're going to have to go through for the next six months that would be some positive signal um a ceasefire or some you know change in the dynamics between ukraine and russia that will be some positive signal and so i think right now macro macro is kind of steering the ship um and so you know as we get closer to some of these positive events like the merge maybe that will will win back some of the the positive perspective for crypto but uh macro macro is going to be driving this stuff until then yeah yeah you could really see a world where the fed maybe starts decelerating tightening heading right into the merge and that kicks off something interesting so vance maybe if you want to wrap us up here i know we're on time so uh what what are your what's your outlook for

the next uh six months so i i would kind of put it uh i agree with everything michael had said i i would say like you know let's go back to mid-2021 you know interest rates are at zero uh you know crypto is crashing in the middle of the summer you know that's when i was super worried i i was basically like man we have the most accommodative scenario that we could possibly have and crypto isn't rallying um and so that was very concerning to me you know let's go to today you know people are the most pessimistic they've ever been you know the fed is going to go full you know bear whale and you know titan or titan and you know qt and all this stuff and krypto is hanging in there and so like you know i also think this is a little bit on the backdrop of

of people just being so scared and so nervous they don't realize that we're gonna have this huge post pandemic boom that's going to knock everybody's socks off like that's going to happen um and so i i'm fairly positive on the macro side like if you're in a good scenario where the crypto's hanging in there and there's you know nothing but potential accommodation on the horizon like that's when i get fairly bullish i also just think on a fundamental basis we need to build a bigger table you know we need to have use cases which touch gaming which touch content which touch commerce which bring in hundreds of millions of users we only have you know probably 30 40 million maus at the moment you know that needs to happen we need to invest in custodial experiences that my mother can use this stuff we need to invest in all

different types of payments that people can onboard easily but that's all the work that's going on right now and so we're fairly positive on all of this and you know i think when we look back it's so hard to remember you know it's easy to remember exactly what happened it's hard to remember how you actually felt people won't remember feeling this bearish when when everything kicks back off that being said i do think the scams the cash grabs those things need to die and i'm looking forward to seeing those people leave the space yeah do we have on one hand it feels like we've already gone pretty low on the other hand we have things like this crazy board ape metaverse land grab like land grab do we have lower to go here is sentiment low enough i would say i think we'll we're gonna go a little

bit lower we probably need a little bit more punishment um you know people need to really feel how how bad this could be um but you know there's gonna be a lot of dispersion you know ape is gonna be a very challenging coin to be holding i think over the next six months um you know the the facade of bugle labs being able to execute everything flawlessly was obviously broken last weekend um and usually that's kind of the first step you know once there's a in the armor it's like a little bit like okay hold on to your hold on to your shorts um so that's kind of my sentiment at least there's going to be a lot of assets that move differently than each other just because they'd have different levels of fundamentals yeah and i think you know markets always lead economics and then you know the data of the

economics is the ladding indicator so we're going to start to see the effects of what's going on right now in like three four months and so you know markets are going to change right now then the economics are going to come through and then we're going to get the the read out prints so i i would i wouldn't be surprised if you know this plus or minus a couple of weeks is is going to be the low but you know to vance's point it it it should be sooner it should be later we'll we'll find out michael vance this was awesome guys thanks for your time thanks for uh both jumping on this uh made it really special so i appreciate the insights into d5 and gaming and congrats again on the 400 million dollar new fund appreciate it buddy thank you very much yeah go

take care guys [Music] you