Fixing Crypto’s Broken Token Structures | Roundup

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You know at the end of the day though as an investor again here like when you invest in a or you know Axar etc you're expecting value to acrew to the thing that you're investing you're not expecting guy to acrew to two different things and you're certainly not expecting guy to just acrue to one entity which you don't have any sort of like you know whatever enforcability authority over. >> Quick shout out to today's sponsor Katana. We'll hear more about Katana's 1 billion cat campaign later today but for now let's get into the episode. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only, and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold

positions in the companies, funds, or projects discussed. What's up, fellas? Hello, everyone. Welcome back to another episode of Velcro. We got me, Miles, and Z. How we doing everyone? doing great. Great to [clears throat] be back. Another good topic. >> Another great week to be a token holder in crypto. [laughter] >> Uh there's a maybe just to use this as a jumping off point for for the episode. We're going to be talking about I think there were three big things that inspired the topic of this week's show, which was one unification. So this was the proposal. We actually had Hayden and uh Jesse Walden on the show to talk

about this. But one there was unification. So it was the combination of the labs and the foundation entities at Uniswap to put one entity. Uh they no longer are charging fees on the front end and moving everything under one roof. Uh and then simultaneously this week maybe on the less positive front we had uh pretty open infighting between A Labs and A DAO. Uh, and we also had an acquisition of Axelar by Circle. And I think when people first read that headline, at least this was my experience. I read that and I thought, "Huh, that's super interesting. I want how did they actually do this? Did they buy a bunch of the token to own a controlling stake in the network?" And very quickly realized that that is not

what happened. They did not acquire any tokens. Uh, the foundation wasn't impacted here. They literally just bought out the intellectual property and some employees at the labs team and token holders got absolutely nothing. And I think people were pretty irate about this. And this is we were talking a little bit before the show, but I think that the rubber is finally hitting the road on one of the nastiest, thorniest topics in crypto, which is what are tokens and what rights do you get as a token holder? And I think what we want to cover this week, and you guys let me know what parts of this I'm missing, but we want to use these two going to go just give an overview of what happened this this last week, but then use that as a jumping off point to

examine what why is the structure for crypto protocols so complicated to begin with, right? There's a little bit of a Gendler era uh reason for some of these structures. Why are we seeing some of this play out? And then what does this ultimately mean for for token holders and how does the industry need to change? I think that's the big one. How does the industry need to change? What is the way forward from here? Because I think everyone is pretty rightly fed up. What what else am I missing here? >> No, I think that's it. And maybe just like where where are we going and have we actually you know solved this problem that you know was or like the root problem um of why we're seeing like those headlines this week I think was a

Gensler era like problem but I don't think we've actually solved it. So maybe we can talk about that um towards the end. >> Yeah. And I think uh Mike, you just tweeted about it just then, but also interesting to take a look at it from an investor versus sort of founder perspective as to, you know, why certain founders might choose to have value crew to either a token versus an equity and also what protections investors have because there's been a little bit of mayhem on the timeline this week with regards to XLR token holders. So yeah, I think uh interesting to discuss from that standpoint as well.

>> Okay, can we can we actually start this off? I would love Miles, can you give us a rundown of what first happened in uh some tension that initially kicked off in between Mark Zeller and [clears throat] Stonnie originally in Lobster Dow, but then spread out all over Twitter. And this is I think the A example is potentially even more interesting than Axelar because it is such a bellweather asset. And simultaneously it's one that's so difficult for me because I look at that category and I love it. Like Borrow Lend stables are moving on chain.

A has the brand, the liquidity moat, they're the obvious category winner. So many instances when you see a category take off, no one's able to catch them. And yet this there's this challenge around the equity business versus the Dow and the token. So what what piqu this? And it's very rare by the way. I've never seen Mark Zeller and Stani go at each other. It's kind of when you think of a you think of those two guys when you think of them as being aligned and uh you know there's some definitely some vitriol that goes out but I've never seen it internal. So I'm curious give us give us the rundown of what happened here. So I guess like the the the context um going into all of this is that A's been around since you know their DeFi 1.0. They really did the like

DAO route properly or at least they tried to do it as properly as they could. Um >> it's really them and arbitum that's holding >> it doesn't doesn't really lio. um doesn't really mean it's like easy but um you know they they built the protocol um then they launched the token and then the labs team became you know a service provider to the Dow right so it the labs team is largely building and and operating the the protocol and the front end um and they have been for years they've been getting paid by the foundation or by the DAO to do so um and you know there's a bunch of other service providers but like a is not around with a labs obviously. Um so there was a revenue stream that was

acrewing to the DAO from swap fees within the um uh the like a like protocol. Um so I think this was going you know they were routing like swaps to Paris swap um which is an older project. Um and the uh labs team I think like made an upgrade to route swaps uh to cow swap. Um but in making this change they also changed where the uh a's like share of the swap fee revenue goes right so I think it was the run rate of like $10 million per year was going to the Dow from these swap fees and then um you know with like a a just a protocol like update which didn't necessarily need to

have like a change in the economics. Um it al it also came with like you know that that revenue is now going to go to the labs team and sounds like this was not um I guess you know communicated or like there was m you know misalignment even with it between the foundation and the lab scene which is not like crazy. We've seen that before but it's not usually like public if that makes sense. Um, so we get back to the like this kind of now looks like unis swap, right? Where they for years had like swap or front-end fees going to the lab steam.

Nothing acring to the foundation to the DAO uh the token. Um, and yeah, I guess that's I'll pause there. That's kind of like the context. >> Yeah, Zave, what do you think? Yeah, I think something interesting to note uh in this scenario is that a is kind of pulling in a different direction to unis swap that you mentioned before Mike. So unis swap had >> the two separate entities. There was a lot of controversy there over a long period of time and finally with some regulatory oversight you can see this path to the unification whereby you know all value is acrewing to the same thing and you mentioned in your tweet before Mike but you know for employees or AC

having a unis swap foundation and a unis swap labs they're kind of two different teams maybe incentivized in different ways and therefore like are they actually aligned towards the same goals and I think unis swap now has done actually a great with this unification and we were talking before the show as well at like just how hard that is to actually enact. On the flip side, as Miles was just mentioning, you have the opposite with Ave now where for so long, value has acrewed to the token. Pre-regulation, there was always a question of governance tokens in general in crypto like what is a governance token? Okay, you have rights over the treasury maybe, but like you know, do you actually have any authority over the protocol? Whereas like right now finally it feels like okay value can actually acrue you can

actually enforce some of these things as token holders but at the same time that regulations are pushing forward the infrastructure is now more ready and so apps are being built on top which just flips the business model again in terms of like where value occurs it's more at the sort of interface layer and that's like previously and historically being controlled by labs entities and so maybe some teams like a are feeling like where's their share of the pie and maybe like they're owed more than what they're getting from just the token alone. So that's a kind of interesting way of looking at it that both unis swap and ar have historically gone in actually opposite directions if you think about it.

>> Yeah, I I think there's so many things going on here, but I think going back as far as when I first got in the industry, this was 2017 time frame when ICOs were happening, people used to commonly say there's no investor protections. And what they meant was there was a couple of things which was one there was concern that these things might be securities and two you have no protections in the same way that equity holders have explicitly spelled out protections new trade on New York Stock Exchange. I would argue we've made some amount of progress in terms of how can we launch these things and the answer is you have a foundation and the foundation is based out of the Cayman's or some other place like that and you have a

labs co and you have clearly defined firewalls and you have a Cayman director and all of these answers for how we can launch these things and have them not be labeled as securities and we've made zero progress on the second part. But now that the US has cracked the door open and said maybe you can actually launch these things here in some sort of compliant way, the rubber is hitting the road. We've also had 10 years of shenanigans in between now and then. And I think people are just frankly sick sick of a lot of this. And there is a there are very real infrastructure legal and regulatory reasons why a lot of these entities are set up in the way that they are. Uniswap and A are great examples of both of this where they just existed during the Gendler era. And what one reason why these entities were set

up in the way that they were with the foundation and lab separate is they didn't want to get sued and put in jail. And I would never in a million years hold any of these founders. I wouldn't have done anything differently. So but but the other reason um so I think that's but the other reason is actually there were just logistical reasons. For instance, a huge reason that has only recently gotten solved with things like the Duna, which didn't exist a couple of years ago, is you actually couldn't as a DAO legally contract vendors, things like that, right? There were very real just logistical challenges. So to me, that is why, you know, when you look at something like the front-end website of A that why is that owned by A Labs? a bunch of reasons, but I think very

charitably you can just say based on all of the different reasons out there that exist, it just made sense at the time. We need to be able to interface with vendors and contractors, all of this type of stuff. Now, the game on the field has changed and I just have so much empathy for these founders like Hayden and Stanie. To go back and undo all of that work is just an enormous amount of work. you're combining multiple organizations. You're uprooting everyone's mental framework. Frankly, it's just a lot of work that needs to get hap that needs to happen. And we just haven't let that entirely play out yet. Um, and I I think that we're just going to there's just going to be some time and

frankly some I think some of these companies it's really interesting to look at the a and the unis swaps of the world where I'm curious to get your guys take on this purely from an investing standpoint. There's an investing and then an operational standpoint. But from an investing standpoint, my mental model is when you see a new category emerge and someone clearly wins the brand. I mean, you almost never see that group get unseated. But at the same time, it seems like there are real structural disadvantages. Um, Stani is in a really difficult place, right, where he, you know, there's just a huge amount of very unpleasant work that is needed to restructure a here. And at the same time, what you get for all of that unstructuring is hand seeding a lot of control to the DAO, which I don't know

that I would love to do, right? I mean, that's a that's a also a really challenging proposition. So, I don't know. I don't know. It's a really tough problem. Uh, but I have a lot of empathy for anyone who's in this situation. >> No, I I do too. Um yeah, I think like there's pretty distinct like phases um and and types of organizations in in our space right now. you have like the Gendler Gendler era um projects and that is what we're talking about with like a lido unis swap all of these guys that had to jump through insane amounts of hoops and also like the supply stuff basically like all Cosmos I would say like Salana projects for the most part

tried to kind of avoid this stuff but um there were you know most ecosystems like did feel the need to lean into this and as somebody who was like a you know a Dow how service provider in in my past life. It was awful like doing trying to run uh you know a startup and a fast growing like you know industry in that setting was impossible. you're doing like B2B, you know, negotiations in public with, you know, a bunch of very loud >> I remember so much sympathy for you on these calls that >> you don't want to name any names, but I vividly remember, you know.

>> No, no, but yeah. I mean, like, so here's the thing. the we um at Revy we we ran like um growth programs and we did strategy and BD work for protocols because they felt that they couldn't do this unilaterally from the labs or right they also had massive like lot of capital in the foundation in the DAO that they could put to work there um and like legally they had to you know they felt the need to outsource this or at least have parallel tracks of like a Dow you know doing it while they do other stuff. Um, and yeah, I can tell you that it was not helpful for any of those projects. Like not saying like we weren't helpful, but like this whole, you know, structure and the way that

things had to operate and then having like, you know, sometimes there'd be foundation teams that weren't allowed to talk to the labs teams like they have to have like you know firewalled Slacks and things like that. It's like we are just setting up we have like a hard mission already which is to create like a new category of applications and scale them like you know to to the world and uh make them usable and improve them continually over time and you're just setting up like you know an enormous amount of obstacles right so that's like one set of considerations for all those projects that are now trying to unfuck themselves in like the Gensler era right and then I think for the past year or two we've been in like a weird like uh interim era where we know when there's not going to be enforcement. So folks

are just saying like screw it like we're not we're not doing the DAO thing. Um we can have a foundation but we're not doing this like decentralized you know governance thing which often looks like decentralization theater. we're just gonna kind of play this out, right? And like I would put like, you know, pumpf fun in this category where it's like you just ran, you know, the product like a normal company scaled it super successfully. We're dropping the token and now they're, you know, kind of have like a weird split there. Um and then you know I think everybody's expecting there to be like a a phase three after the the clarity act which is like you are either going to be a token and it has like you know that is one animal or

you're going to be a security and you got to play by the rules right um but I think I feel I have a lot of sympathy for founders in the Gendler era obviously that was awful >> I think I have sympathy for you know builders today because it's just kind of unclear. Like you have A16Z, you know, put out a great piece a while ago of like the foundation era should end. Like here are all these like non-logical things that, you know, if we were starting from scratch today, why these don't make sense. And yet we're not at the point of like you know um like we we're not so sure of that fact that like projects today are not still launching the foundations and we don't have I think investors like to put that hat on are kind of like well is there a bare

case for tokens where they're valued you know not onetoone with equity because they are like lower on this cap stack right and they don't have these rights and they never will and Um, yeah, I don't think we can make that call yet, like until until we have a sense of what we're working with. And, you know, if we overshoot and we get a new administration, who knows if they like try to walk back any like, you know, really helpful progress we've made. Like, I don't it's it's really hard to to operate. So, I'll pause there because I've been rambling for a bit, but yeah, what do you guys think?

You know, I think there that is the key debate there is are tokens just equity and do we need to rewrite some of those laws or rethink some of how we've evaluated that in the United States or are these separate instruments at different parts of the capital stack? I think an enormous amount there is frankly just not agreement in the industry. Even for me, I'm not actually sure where I fall. Here's where I do fall. I there is an investor way of looking at this and there is a founder and operator perspective and one of the things that equity does in a company is it creates clarity and unity where there might otherwise be misaligned incentives. So like as you grow and scale a company you have different

functions that have healthy tension in between them. So sales and marketing are typically an area where this shows up. And sales goals require as as you get large northstar goals that become dependent on multiple stakeholders. There's a question of division of resources and labor. Hey, if I agree to this sales number, I'm going to need this help from my marketer. The marketer thinks, okay, well, if I help you, everyone's very, you know, politically selfishly motivated when it comes down to it. If I help you with these resources, then I'm not going to be able to do my own work and get you X, Y, and Z. Product and engineering are another classic area where there this tension exists. The way that at a high level you bridge that gap is equity. Equity doesn't give a [ __ ] how the resources

are allocated. It only makes sense that the most important outcomes go. So if everyone's properly incentivized, what it should do is unite everyone in the same in the same goal. Even if you have different different if you're selecting with different parts having two instruments not only does not accomplish that but I would imagine that makes it even more divisive and crazy if everyone is working towards different you know explicitly different goals. So not only it's like hey if I give you this amount of my time and my team's resources not only are we not working towards the same thing but it means your thing will go up and my thing will go down. that is. So, it's just no matter how we spin this, I just can't see a future where businesses

have multiple instruments. It doesn't make any sense. It flies in the face of every lesson that I've learned over the eight years of building block works. I will say can I also uh oh sorry Dave you're gonna I I have one little bit of hypocrisy I would actually like to point out from the investor side here uh as well because a I see a lot of investors out there who I'm generally very sympathetic to you know saying this is another example of token holders getting screwed. I would like to point out a similar something similar that uh A Labs has found itself in hot water a couple of times this year for uh what I would say are token holder violations and there was a controversy back in August this year around something called Horizon. So, Horizon was a product that was founded. There's there's a grant

that was given by the DAO to A Labs to create an RWA uh an RWA initiative and there was talk for a little while that a second token was going to get launched and something like 15% of that was going to go to the Dow and there was an uproar, right? I mean, it was to me it's a similar egregious like egregious level of token holder violation. I mean, it just confuses the narrative. But what it does I you know what for all the investors that I hear protesting this today I did not hear this back then uh from many investors. Um, and I think the reason for this, and I think the reason why at signoff of a lot of businesses, there's there's an equity and a token holder grant, and why that hasn't gotten scrutinized to the degree that I think

it should have, is, hey, I get two of these things, and I can dump one of them, right? One of these things is going to be worth something. I can dump one of them. That I'm being a little uncharitable, but I think that's largely logic from the investor perspective. And so, I don't think you can have it both ways. And I know there's complexity here. Some people only operate at the later part of the capital stack and they're only liquids and some of the early gut, but this should have been scrutinized far more than it has been. And these chickens are just coming home to roost. So to me, there's a little bit of first of all, just to call a spade a spade, naughty naughty from a this has not been a great year uh from a token holder perspective. Um and you got Mark

Zeller is a colorful character, but you got to give him credit. He's been, you know, calling out uh calling out some of these. He's been a fierce defender of the DAO, which is its own interesting entity. But yeah, I don't know. I just wanted to point that out because we we're talking out of both sides of our mouth a little bit here as an industry. So save, sorry, I just rambled there. >> No, no. Um, yeah, great points by both of you there. I I think in general one thing we also haven't mentioned is you know there's a very big player in market right now which I heard actually at digital asset summit at some stage and I think I mentioned it on a previous podcast that actually never gave out equity to early employees and now they're kind of floating a token and they're using kind of the token to

incentivize people now who are joining and then the question there is like I think you was tying back into what you were saying before Mike is okay like you're a joiner at, you know, X company and these people who are super early have a bunch of equity and that's valued like really healthily right now. What is the token going to be valued? And you're kind of putting in your effort and your resources towards you know acrewing value to the token whatever that may be. And like probably these days the way that we've seen tokens versus equity is that you know value does acrew at different um instruments. You know, going back to the Ave um Ave example, you have labs, for example, acrewing value at the front end, which is to some extent makes a lot of sense for that

team, of course, but if you think about it, they have the knowhow to build that front end. So, of course, they're going to acrue the most amount of value there and they're going to end up extracting value from the protocol itself. And this actually ties back into our previous podcast around you know product versus platform and where does value occurr in general where I think like at the interface layer of course like these apps they're going to charge extra fees and I think in general another thing that's happened this year which is also topical is you've seen the first breakout apps in crypto which don't need a token to actually work and generate revenue and I think like poly market is a great example here where okay the product works it's generating revenue and they might not even need a token are they going to launch token you know,

speculating here, but one might guess they probably will. Is it needed? Like, not actually sure. Is value going to acrue to the equity or the token? Again, not actually sure. But I think from the investor perspective, like Mike, you were saying before from your founder perspective, you know, from an investor's perspective, typically these days, what we'll see is like uh you know, equity and token warrant. And what that means, like you were alluding to before, is they have the option to kind like it's there's a lot of trust in the founders. So put go putting it back on the founder here. Uh like as an investor, I'm trusting the founders a lot. Like sometimes I speak with founders and they have like a goal and there's a main token and then especially in the last 12 months by the way and

it's something else extra to think about. Internet capital markets there's a thesis that's popped up and all of a sudden people just want to launch tokens like here and everywhere. And so it's like and and there's quite a lot of platforms really their business model is based on launching tokens. So they'll approach some founders that we work with and say hey launch a token and they're like oh okay this is actually an interesting uh proposition like maybe I'll launch this token and then the question there is like what are you actually launching the token for and like is it like a meme coin are the rights to that coin is that the same token that you know we might have invested in at the start and then on the flip side like I you know alluding to as well is that maybe there's the token

warrant but ultimately these days with mergers and acquisitions which you we also haven't touched on yet like mergers and acquisition itions in itself is also a growing category in crypto and they're not acquiring tokens like I have a good friend of mine you know shout out to the guys at Aretta they did some really early work into like sort of crypto M&A like over the years but now the M&A space is institutionalizing and maturing what you're seeing at the moment is that they're actually acquiring the equity they're not acquiring the token and what I'm seeing now when speaking with founders is they're much more aware of this of like hey they're going to look at potentially the equity if we want to sell onto Stripe or someone like that we need to also make sure that some value is accuring to the equity and I think

this is what's and just to like finish here you know stripe is somewhat or whatever these kinds of incumbents are somewhat corporate here why because uh founders that maybe are building a network in the past would have had just a token they'd put all the effort into the token these days they put quite a bit of effort into the equity as well because who knows at some point in time maybe they're generating enough revenue serving that network and we've spoken about Patrick from commonware commonwear's kind of business model is around serving the networks that it built itself and that's very valuable for the equity of commonware itself and so you have this chain of thought around okay great like equity can acrew if you serve a certain network for example on the flip side though what you're also having and we spoke about this earlier

in the show also the incumbents are somewhat corporates here is that stripe or you know whoever else there's tempo etc arc like they're kind of issuing coins or tokens let's say but they also have equity value and then the question that we will have right now is that we don't actually know the tokens themselves. Are they going to have tokens? Are they going to be rights to these tokens? Are they going to have cash flows? I think a huge gap in the market right now is like just transparency across onchain and off-chain revenues. Like it would be super cool if someone like Stripe came out with like some technology which allowed a holder of the token to verify what was occurring to the token onchain versus what was occurring to the equity offchain. And I think you can potentially have both if you can verify

where value occurs and it's transparent and there are standards. But right now there's absolutely nothing there for for anything at all. So like I think we're in a tricky place right now where it's a bit of a who knows what the hell is going on. This episode is sponsored by Katana. Katana is a DeFi first chain built for deep liquidity and real yield by redirecting chain revenue back to active DeFi users. The 1 billion KAT campaign [music] is live. bridge and deposit directly into vaults in one simple click and start earning [music] immediately on your Ether, Bitcoin, USDC, and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research.

Could I like lay out a um maybe like a a formula of like the perfect world um I don't know, combination of of of like components? What I think if you were starting a company right now, like you wanted to be a like a web 3 application, let's just make it easy. Um, I think there's like some consensus things that everybody wants and we're not sure if we can have like I think having no token until you hit PMF is really nice, right? You don't need to you don't I think that's that's like I don't think there's a ton of debate about that. Um and then everything shifts or converts to the token post TGE right so this is like value acrruel IP ownership so that's

like okay great but we want to do this like without the operational tradeoffs um without the decentralization theater that you have to then partake in once you have launched a token right you just want to operate this project at like a normal equity project you know even post token and at the same time we also don't want the burden of like the token be being a security right you don't want to have to KYC gate you know investors buying the token you want to be able to use you know the token for things like token incentives that can you know be programmatic and go to anywhere you know to anybody in the

world if they do useful work or do like you know have like whatever you want to incentivize right and So, I don't know if we um I don't know if the clarity is actually going to give us this like perfect world recipe of things we want, right? It would have to be like some, you know, admission that yeah, these things are going to we're going to let them be securities, but we're not going to, you know, impose like security regulations on them. Um oh, paying taxes, right? Like the token, you know, for revenue like doesn't at the moment pay taxes. And where would they pay taxes? Is it a single jurisdiction? like how do you handle this stuff right and so this is like seems like a trillemma right you have you like I don't think

you can have all three of like having everything oriented around the token and dissolving the equity uh retaining though like equity like control and operations and value like classic value acurities laws so I think you know the the bare case for for tokens I guess is Like if people either if you either have to you know they become less fun because you have to follow securities laws or they become less valuable than equity like explicitly um because they are you know even further down the stack uh the cap stack with less rights and that might come when Coinbase launches a token right or

when companies like very large established companies launch tokens because then they'll have to like explicitly address that like you know what this thing is. C >> can I actually though even address it's not even super obvious to me. I know given what just happened these last couple weeks, this is going to be a very unpopular thing to say. I don't think it's a foregone conclusion that if you were to have tokens exist as a part of the capital st uh you know capital structure that's subordinate to equity. It's not clear to me that that would actually be smaller than equity if you got enough liquidity. And I would just say it's not like equity you would never we're making these almost value judgments like well equity is subordinate to bonds. Does that mean

equity is worth less than bonds? No, it's just a different thing. And actually, you know, should have been invested in equities not bonds the last, you know, although it's been a good been a good 40 years for basically everything. But anyway, that's I I do think there's a question there. But to to your broader point, I think a lot of it hinges on whether or not we are willing to change in the United States the version how we think of equities. I would say that we just can't surrender though on I think we're at the place where the rubber has met the road and you cannot you cannot that second bullet of having to operate in a cohesive structure. this it is impossible to compete in the way that these things have structurally been set

up for the last 10 years. >> I don't I can't point to a single instance of it actually working because and honestly the there's a strong correlation in between the companies that were able to find workarounds you know to this and still essentially get that equity like control within the bounds of legality. I mean those are the companies that worked but in the way that it we used to think of this as an industry the mental model on paper I think it's broken one other by the way one other point in this trilm that I would like to point out as a mental model that I think needs to break is I think that it's time that we acknowledge there's a difference this goes back to our platform I think a lot of companies in this space want to be a platform right and so the mental model that

actually does kind of make sense for L1's is there's a foundation that you know is in charge of this platform but then there there is a lab I mean this is interesting in between Ethereum and Salana there's a labs entity for Salana but there is none for Ethereum but there is such a diverse range of contributors and people that are building on for instance Ethereum that I think they have achieved this platform like scale versus and I think people tried to borrow that mental model for unis swap and a and I'm not picking on anyone here I'm just this was the mental model the whole industry had is Oh, we're not the sole contributor.

We're going to get Uni the protocol to a point where we're just a contributor. And it's like, guys, come on. Like, that is so clearly not what's happening here. Who is competing as the other dev shop opposite Uniswap Labs or A Labs. Come on. Or Board Ghost or whatever they're called. I I I'm going to stop using specific names because I really do not want to pick on UniS swap and a here, but it I I just think that that mental model is doesn't make any sense anymore. And again, this is the market telling you what is a true platform versus what is a company with a product. And there's nothing wrong with a company with a product. Uh, but I think that we al that's also part of something that's getting mixed up in here is a broken mental model of there's the platform and

the foundation and then I'm just the labs entity and I'm just providing a service. And I I think we need to update that mental model because it doesn't make any sense anymore. >> I mean, I don't think it anyone ever thought it made sense to be clear. I was just like, if you want to launch a token, here are the tradeoffs of of doing so. And most people are like, yeah, that's worth it because I mean, we're not going to not launch a token. And others were like, no, we're not going to do that. Poly market, great example, right? Um, and so it's I think the set of tradeoffs are now a little bit more unclear. And that's that's kind of my point.

>> That's a very good point. That's a very >> I think uh as well you made an earlier point, Mike. I think around like sort of a as a brand and like how that has established itself now as this category winner. Um it'll be interesting to see how the market response. I mean at the end of the day like we're going to see if a response occurs and yeah I I actually read a post just before I hopped on here around like I'm pretty sure the are the DAO governance is already sort of proposing some things to acrue all value to the DAO like as of like as soon as possible. And I guess there's some conflict there between like Ave the entity versus Ave Dal. And you know, I think we spoke about it in a previous podcast as well, but Morpho

versus Ave here again I think becomes interesting because I what you're probably going to end up seeing is some teams splirt with acrewing more value to their equity. And it is a temptation and I was going to mention before as well like think about yourself Mike with Block Works and of course you know myself at Chorus one in the past like you have these companies that are you know proper equity companies that have always had the option to launch a token and then the question there is like it's again trust in the founders themselves like you know like as an equity company should you do this in the first place like well as someone like Block Works or Chorus one like there's always that temptation But probably ultimately it's

always best not to do that with a etc and some of these other newer examples. The temptation is they're already a Dow but the temptation just to go like the other way around and go more to the equity and trying to acrew value there. So ultimately it's always like an incentive thing. They want to acrew as much value as possible. And I do think there is something to be said about the centralization of crypto that's happening these days where like we accept socially that some of these things are centralizing including where value occurs and maybe teams deserve more capital. the Axelr example we gave earlier, you know, of course there they circle acquired the core Axelr team and it's now being maintained by another core contributor that is a lot less wellknown and then I guess they're you

know if they someone took them to core they'll say well it's an open source protocol we have other contributors but we're just a core team and you know at the end of the day as an investor again here like when you invest in a or you know Axlar etc you're expecting value to acrew to the thing that you're investing you're not expecting value to acrew for two different things and you're certainly not expecting guy to just acrue to one entity which you don't have any sort of like you know whatever enforcability authority over. So I do think right now we are at a very very interesting time especially when it comes to public markets where if some of these bigger protocols like an RV or Axar and you're seeing it with Axar right now by the way like the Axel token is dumping. Uh there's a question there

in the first place of like do they have a great business like probably not. Uh so is it fair that being acquihide? They're not really being acquired as more acquired. Okay fair enough. They're all like good examples, but I do think right now that like it's also an opportunity for some protocols which get it right and actually wait to see what their competitors do and then maybe someone like a morpher or someone like that can understand that okay like the Ave token is tanking because you know value is accuring to the equity maybe a's end goal is to be acquired by some major fintech company why don't we have a lot of value acrewed to the Dow and like push forward like that. So yeah that's a nice chart you have right there Mike. Uh yeah. So let's So I mean first of all it only gets worse but and and

I'm not trying to pick pick on anyone. No one's chart in particularly good these days. But uh I would love to shift to talking about Axelar a little bit here because I think this was the straw that broke the camel's back for a lot of people. And you know to your point Z one thing that tokens have not gotten public or punished in public markets for this type of behavior in the past. They just haven't. Um, but I wonder it it felt it's probably too optimistic to call this a potential changing point, but I so basically Interop Labs, which is the, you know, the lab co that um is the developer for AxelR the network, they got acquired this week by Circle. And so the headline was something to the effect

of Circle buys AxelR. And that seemed exciting. And I'm showing this chart because what you probably saw was a little bit of I don't want to call it insider trading, but the price moved up before the announcement. So I think some you know some people it looks that's certainly what it looks like. Uh I have >> no insider knowledge here, but you know you never love to see that in markets but anyway um yeah so you saw so that was the headline and then as soon as people dug into what did circle actually buy uh what they bought was the Interob Labs engineering team. So essentially the key talent um and then you know proprietary non-opensource intellectual property which was developed by interop labs right so this was you know it seems

like what this was based there were it seems like to summarize is it's an aqua hire for both arc which is the layer 1 blockchain that circle's developing and then the CCTP the the bridge uh for seamless multi-chain USDC transfers so yeah that what was explicitly excluded And I think this is what was frustrating is you know there was no um you know that the circle's announcement clearly stated that the Axel network foundation and AXL token are not part of the deal. Uh so a separate entity common prefix is going to step in to lead many of the former development activities for the Axel for Axel ecosystem postcloing. So it it is a little bit unprecedented,

right? You would you >> Is it is it though? like didn't Tensor get acquired like a month ago or something like that? And like maybe the nuance here is I don't think token holders are up at arms thinking that they've like been cheated out of a massive outcome like like big you know like like they get a bunch of money from this acquisition because they wouldn't like this is not [clears throat] it's an acquire like they should be getting pennies on the you know the dollar which equity holders are as well. Um but we are seeing it more and more and like there was just like no communication whatsoever from the team to token holders that is in any way like you know throwing them a bone of some kind. Um tensor was

>> there's a comm's piece here that got dropped. >> Yeah. Rough. Um well I don't what are you going to say also like there is you know kind of like to be fair like yeah guys like we're we're we can do this. This is the best move for us like and we're doing it. So you because it's not it's not >> all you can do and then take your medicine because there there are people that bet on you, right? Yeah. >> No, it would be a governance vote if the you know the Dow owned or like the the ownership of the IP and um was over there maybe. Um but yeah, I mean the tensor one I feel like that project was you know wasn't also like a rocket ship in terms of its fundamentals but it was doing pretty well. Like I think people

were fairly, you know, um bullish on Tensor and now like that's gone. So it's just one of those things that's probably going to be like um factored into valuation decisions, you know, for liquid investors in general, like especially if you were to, you know, we're going to have like mutual funds ideally holding tokens at some point. And if you're looking at buying a token and you're looking at the exact same product that's you know a standard equity company and you can invest in both like fundamentals are one to one but valuation won't be right and so that's not ideal um but we could it it I don't know it's it's not right or wrong

necessarily right now >> I think it kind of hurts the prospects of token premiums in future if you have teams that you know all of a sudden acrew value to a different entity well who's going to have any confidence in investing in tokens and you think about us already moving into a bare market well I don't think this is going to help anyone's case where you have tokens that you know we need more buyers on liquid markets right now we need them investing in fundamentals and if they can't build conviction in a team and a token you know I I think in general again takes me back to my point earlier like it' be I'm sure a lot of investors want this like actually or actual rules or you and not just regulation but actually onchain uh you know proper

protocols in place where you can verify what's actually happening and where cash flows are going and you know obviously we're a long way there yet right now in crypto another point I was going to make a bit earlier is you know in crypto because these things don't really ever go to zero like the token is always kind of like you never really know like everyone's got where they think the token's coming back and that's probably the same for like the 10 million tokens that exist these days, but like realistically a lot of tokens that are trending down probably never come back like if you think about it and so like I think token holders themselves like if you're holding an asset and they get acquired for example I think the belief and the hope is like oh like you know it was like one or two billion at some

point in time you know now might be like 200 million 100 million but they still believe that it can reach that alltime high and like I think some of that again maybe comes down to communication of like teams these days they have these tokens as they pump and then you know when the token price is going down it's not like in equity where they have like you know great PR and on the phone all the investors all the time saying what's happening like it's kind of unclear a lot of the time what's actually happening internally and like is there actually value that they're generating and like what are the growth plans and all of that like it's unclear so I just think in general like many teams probably look like they might be coming back but they could be already dead on arrival and so like as a token holder

again it's like can you really judge some of these teams when they're being acquired and or acquired like when a lot of the time you don't really know the full side of the story. I don't know. >> No, I would never judge teams for being aqua hired and I like I it's rough out there. Starting businesses is tough and you owe it to yourself and your team if you're in a situation where your enterprise is failing get aqua hired. Absolutely. I I think what people are the heristic that people are objecting to is generally in an aqua hire situation that would like no one faults you but investors get whatever funds are left over right it's kind of like okay I'm going to take a wash on this but it's fair everyone takes a wash and you

know okay god be with you do the thing that's right for you and we'll fund you on the next one or you know that was whatever it was what it was but that's not what's happening now it's because there are two separate groups which are getting reward I saw Hib arguing about this on Twitter. He's like, "We didn't make any money on this." It's like, "Yeah, but you probably didn't lose as much money either." And I think there's the rub. The fact that you have two will always mean it's and and we you can't I think the takeaway from this conversation is you can't have it both ways. You can either have it be a subordinate part of the equity of the the you know capital structure in which case this can happen but then we don't deserve tokens don't deserve premiums or you can collapse it

into the same thing but mile to your point Miles to your point you have to play by more of the rules. I I I could I present a potential door number three uh where I for this is this for me would be the happy case where I think that we should I think that crypto in many ways predicts the future in the same way that the early internet you know like tour networks where you could just download anything predicted Spotify it was telling you something right you might have looked at lime wire and things like that you could have looked at that and been like oh this was a flash in the pan but it wasn't it was telling you something about the way that the future was going to happen and crypto's already done that with so many things trading 247 right that was only in crypto and

now that's becoming standard practice for the NASDAQ right like US equity exchanges and there's a million little examples like this and I think what crypto has told us is that we need to reevaluate equities laws in the US and I get that no one wants to do that and that's a huge can of worms but that's what it's telling you I think and that's that is to me the true thing that's being told about the future and uh the other data point that I would give view here is that public markets are not functioning well. Um I I think that it's a huge problem that companies want to stay private for as long as they do. It is concentrating wealth in the hands of so few people. Think about who has made money on open AI stock. That is as is a sorry there's no other way. It's a

tragedy. It is it's exacerbating so many societal problems that you know that 300 VCs get this instead when Dell went public they went public at $150 million market cap. I mean think about the wealth creation that is shared there and that is not happening. And you know I think about this whenever I hear people say well it's it works. Private markets work. No they don't. They they will I think it's a it's a huge problem with society. We need to we need to look at this problem another way and say how can we encourage asset issuers to want to go public sooner. And the answer to that should be from my from my standpoint is you lower the barrier to entry for the disclosures that you have to make. And

that's where crypto's awesome because unlike regular off-chain businesses where this data that investors need is siloed off in individual invoices, everything is public on chain. So what the superpower of building onchain business somewhat there's there's work I get there's work that needs to be surfaced but I think that there we need to re-evaluate uh the disclosure requirements for crypto-based businesses if you put your entire business on chain and disclose everything >> that that to me that's the answer right >> better disclosures equals less regulation and then you put the owners back on the investor if the information is there and you make a dumb choice that's on you um but you should be able to if you're disclosing more be

regulated less and I think there's a we need to ree about that to me in the best case if maybe there are lawyers out there uh who are listening to this but that would be for me the best case for regulation is not to create this dual structure I think we need equities light and I think we need to that's what I would do >> yeah it's funny because like we've been dealing with our problems in our little bubble you know for the past like three to five years um and they're very like cryptocentric problems and then I think to your point like like the biggest tailwind that we potentially have to like actually because the the crypto like you know native problem is not big enough to change equity you know uh you know regulation in the United States

like the what could actually change equities regulation is this problem that I think everybody sees whether you're in crypto or not uh which is like you know builders have zero incentive to go public and the IPO market is totally broken right and Uh I've talked to a bunch of folks that have worked on like um you know some of the earliest like direct listings like Spotify's direct listing and just kind of you know broach them with like hey we're thinking about this problem you know you've been working on this problem for a long time we have these things called tokens we can you know basically like look how fast we can raise money from anywhere in the world. these things are clearly better technology. Like are we have we

found a match here of like you know a problem that you guys have been thinking about and what we've been working on already? Um, and you hear Bill Gurley kind of like he doesn't >> I was going to say Bill Gurley's sniffing at this. He's circling. He's so close. You usually you usually hear it in the along the lines of like and you know I hear like blockchain technology could be the answer to this and it's like I've been talking to Hester like Purse and like and and it's always like well maybe yeah but like um I think you know that's that's the sort of um that's we need to like piggyback on that you know train basically to um you know uh get enough people like outside of crypto

on board that this can actually solve a big problem. Um, and I don't think it's as easy as just like uh tokenizing privates, right? And and selling that to retail, right? Like there there's how do we do this without tons of adverse selection and retail tiers like um it maybe not as easy as we think it is, but I do think it's a it's a problem worth working on. Um, and I'm glad there are a lot of teams that, you know, have this like dream of of fixing the IPO market within crypto itself. Shout out to today's sponsor, Katana. Katana is a DeFi first chain built for deep liquidity and high yield. No empty emissions, just real yield and sequencer fees routed back to DeFi users.

Incubated by Polygon Labs and GSR, Katana is launching with notable ecosystem of primitives, assets, and partners like Morpho, Chain Link, and more. [music] Katana's 1 billion KAT campaign is live. Bridge and deposit directly into Vault in one simple click and start earning [music] immediately on your Ether, Bitcoin, USDC, and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk. Terms and conditions apply. Do your own research. I do think like a potential small risk that may occur, but I'm not sure if it necessarily will is if big large corporates, you know, keep feeling like they have the flexibility to launch tokens on chain and then, you know, like

maybe Tempo is the first of many that come in the next two or three years that we actually don't know. And then if they keep launching these tokens and it's really unclear like when you buy these tokens what rights you have it's different rights for every token like these things should be in the billions and billions of dollars and then retail starts investing because at the end of the day they have big brands they can really come out and say you have a token and then all of a sudden retail might buy Tempo over every other token that exists right now in crypto and they might buy the next corporate token because they really believe like the Apple token like they love iPhones so they're going to buy like the Apple token it's easier to buy than the Apple stock for example and then all of a

sudden you know retail was at stake here. And I think at that point in time, you mentioned before that crypto might not be big enough as an asset class to actually change equity laws. Well, I feel like if they keep flirting with danger, which we might be the really really sort of start of of this trend. So, we we actually don't know. So, it' be interesting to see >> like as things progress uh yeah, what actually ends up happening and you know whether standards are clarified or not. I think that's a very likely relatively near-term catalyst. And it's hard for me to be I don't have strong opinions here, but if we saw corporates launch tokens, and there are a couple that maybe you could think, Tempo would be a super interesting one.

>> Base has already said they're they're like doing this, Inc. has already said that they're doing this, right? And that it's going to be I'm I'm I'm not super excited for that. Um because I do think it makes us confront some things we don't want to necessarily like are ready to confront head-on about like what what these things are and aren't because it's not Coinbase equity. It's taking a piece of we don't piece of like a revenue stream from Coinbase and like putting a token on it and then you know if they make 50 to$100 million a year in sequencer fees then like you know uh the the to the value of the token on their balance sheet is going to be many many multiples of of that you know single

revenue line right and how the market values the equity of that revenue line so ah I don't know >> when are we going to be ready to confront it. That was my question. Why? Why? I I think that I'm very much in the camp that the longer you wait to confront these issues, arguably it would have been easier to confront this four years ago. But now we have these now we have, you know, multiundred million and billion dollar valuations that depend on answering this question in the correct way. It's only going to get harder the longer you wait. We have the most friendly administration we are probably ever going to have. I'm like, what's going to change? Why why will we be ready to do this in two years?

>> Well, no, sorry. I I'll correct myself. This is not the way I want to confront it like with with existing um equity companies with public stocks or like very very large private companies just launching like siphoning off a piece of their business and launching a token on it and usually is going to just like I don't know it's it it seems like there's an extraction play here. Um and I would rather confront it on the from from the bottoms up um sort of approach of like companies that you know have a token but just act like equity and value like acro value and companies that like try to break that trillemma um and come across

like maybe you know issues trying to do that but people will see it's better. So does that make sense? >> I think you'll get both. I agree. I in the in the happy case it would just be hey let's do the right thing here but the way that I think issues force themselves and get played out at this scale is someone does a bad thing and then we have to confront why the bad thing happened and then fix the bad thing and I I but I do think that you have an opportunity here I'll call out unis swap has done the hard thing they are they were kind of the poster child of this misaligned incentives you know this misalignment not because they wanted to be but because that was the game on the field and the game changed and they're doing the hard thing. And I

also saw an announcement from Jetto that the foundation they're bringing the foundation back to the US. And I only read the top line, but I I think you'll I think you'll see companies differentiate themselves because again, I I think that this really purely comes down to the other context for this. Imagine having been a crypto founder for the last eight years. Most of these people are tired, man. Like there are there is there really is a tale of two cities happening in crypto at the moment where there most people are tired and burnt out. And by the way, people are getting their mental models constantly invalidated. That is exhausting work. Um that's demoralizing. It's exhausting.

You're watching your token get pummeled. That the but the rubber is meeting the road and this will force the good teams. You have an opportunity to stand out as a really good team here. and the teams that are able to stick it out, be the line, grow into this next phase. That's how you're going to get these massive outcomes that I think people have, we're we're finally fixing. We're getting down to the root and fixing this. And >> maybe maybe one last point to to mention as well there, Mike, which I don't think we discussed much on this podcast so far, but on the other side, you have tokens like the kind of premier tokens that people enjoy holding. And if you think about what tokens people like enjoy holding and as success stories in crypto at least in my opinion you have

things like pumped off fund which has like a bunch of buybacks and you have hyperlquid same story where you have a bunch of buybacks. So there could like I think now going back to what we were talking about before maybe the market which is already happening to some extent like a lot of fundamental investors are really raiding tokens that buy back their own tokens and you know maybe that becomes the standard in crypto where it's like if you're not buying back your own tokens and that's its own can of worms but if you're not buying back your own tokens maybe that's going to cause some suspicion with regards to like where value is acrewing and if it goes to the equity token and maybe there's going to be some premium on that in itself. So I do think that on a token side also there's a lot

happening even just this year you know really hyperlquid and pumped up fund only came out the last six 12 months. So yeah whether or not people will follow trend there like to really try and prove that there is actually value in the token even if they have an equity by buying back like I could see that trend continuing as well and if you don't do that I think you might be in a little bit of trouble going forward. >> I have pretty strong feelings on buybacks but maybe we should save that for another podcast. Yeah, it's like a signaling thing, right? Because if nobody knows what's going on, expensive signal, nobody knows how to trust an expensive way to signal that >> you can't trust you can't just trust the team to reinvest, then like, you know, it's either buyback or they're, you know, blowing the treasury on.

>> I think it always comes back down to the same thing though, like trust in the team. Like that's what I think about the most here. Like the team has the power. >> Yep. Oh, totally. Okay, guys. I think did we solve this problem? the three of us to solve this problem. I It's I don't know. I My my takeaway is I think we're just at the beginning slog of this and I think this will take two years minimum to solve. >> I think more actually. I'm going through or >> Yeah. >> Yeah. Yep. Yep. >> Yeah.

>> Everybody has strong opinions, so it's it's it's fun. Um but yeah, we definitely don't >> Yeah. So tough maybe market for tokens, but I think it's finally the motivation that people need. And I, you know, I've talked to a bunch of projects that were going to TGE and they stopped and they're like there's just no demand. I I think finally we're starting to see that we're just run we are I've been very skeptical of this argument, but I think we're legitimately running out of buyers that people want to buy this stuff. And one important dynamic that's changed is I don't think crypto is the fastest horse in the arena of risk assets anymore. And I know a lot of people have made that call, but the reason it was is it was always the

riskiest, stupidest, like dumbest. It's the furthest stuff out on the risker, but a lot of this stuff has been derisked. We're not going to ban this stuff anymore. Bitcoin is not a security, right? Like a lot of the, you know, Bitcoin hasn't been hacked. you know, check off the existential risks that have plagued this industry, which ironically have informed that fastest horse narrative on the risk spectrum. I don't think we're in that spot anymore. I think we're in the scale up part. And so, if you're not just going to go through this cycle of speculation driving gains, you you need something else. And I I all the pieces are falling into place, but I agree. I think it's going to take more than two years if it's I think it's a we're probably

looking at something closer to a I I would bet this moment is 2002 for tech stocks for crypto. I think we just had our there's a lot of deep questioning. Uh there's an ideological bare market and we have to work our way through a bunch of these crap but broken frameworks that we've had as an industry for a number of years. the people have to do really hard work restructuring and I think that'll take two three years but then I think it's a slow grind up and I think there will be generational buying ops for the right and the right teams will show who they are as the market consolidates over the next two years your job will be easier >> plenty of room for growth I think still that's the that's the optimistic bullcase but yeah totally agree with you

Mike >> plenty of room for growth is a hilarious way of thinking about crypto there [laughter] certainly always always been that uh But okay guys, I think we got to end it here, but this was a really fun one and yeah, we'll be back uh we'll be back next week. >> Awesome. Cheers, mate. Cheers. See you guys.