LIVE: Aerodrome and Metadex03 | 0xResearch

Transcript

Come on. [music] >> [music] [music] >> Perfect. What's up, guys? Welcome back

to another live stream of ZX X research, the first one of the new year. And today we're joined by Alex from Dromos Labs, um the company labs team behind Arrow, now changed. >> Yeah. Um, originally Arizona Belgium. How you doing, Alex? >> Doing well. It's my uh my first pod of the new year here, too. So, I feel like I'm shaking off the cobwebs a bit here. So, thanks for having me on. >> Very good. Thank you for coming on. Um, I guess like just to start us off, why did you guys decide to change it to Arrow is a good way to go with this?

Yeah, I mean if you think about the uh journey we've been on, right? Uh everything sort of started with with Veladrome on on OP mainet and drone quickly became sort of the leading exchange on OP mainet and then it's of course expanded across now 10 different super chains um and it leads across almost all of them. uh you know it also meant we launched aer drrome which quickly became the leading exchange of bass but that was a huge deal because bass is the L2 of Ethereum these days so it was no small thing and so I think as we began to think about the future um uh

Metadex03 is kind of a major upgrade to what we think is the leading DEX operating system on the market and it we thought it was time for these two protocols to come together as one to expand to mainet Ethereum, right? And kind of be that one protocol, one name, one unified ecosystem to connect liquidity across all of Ethereum. And then, you know, it's a classic uh I guess you know, social network vibe of like, you know, drop the drone, it's simpler, just go with arrow. And actually I do want to give some credit because quite some time ago uh when I first shared with Jesse uh Pollock of of the base team our our plan here and we

were talking about things his question was like well so what are you going to call the thing and we were kicking around a few different ideas and and when I mentioned arrow he was like no that's it you got to go with that. Now, it took us, you know, another few months of arguing and debating, but that stuck in my head. So, Arrow, it's simpler. >> Very good. I think I I agree with Jesse and with you as well. I like the although I did really like the Vel drone branding as well. Like the bicycle was very very cool. Um, is there anything that I guess like thinking about it, VEL stakers got Aero token, so there isn't anything functionally changing in terms of like revenues and everything, right?

How's it going? Correct. Correct. Yeah. The initial distribution is basically benchmarked on previous year revenue of the two protocols. So if you assumed right that the only thing that we announced last November was the two protocols coming together and we announced a lot more expansion into new markets, major upgrades to the technology, the economics. But if it was just the merge and you were to benchmark your distribution of the revenue of the two protocols based on that past year, everybody's claim of the PI would be the exact same. So Arrow um VE Arrow uh and Arrow tokens are getting dropped proportionate to Arrow's revenue. Same for Vell. But the great thing is is you aren't actually getting a share of the

same PI. you're getting a share of what we think will be a much larger pie because right now these two protocols only service about 1/5if of total EDM volumes. So in theory everybody's share of total rewards should grow. >> That makes sense. Um you mentioned Metadex zero free a few times. Um at a high level because I want to dive deeply into each section. What are the changes? So it's expansion into new chains as well as a few other things. What are they?

>> Yeah. So I mean we think Metadexo3 is kind of the the endgame of the the DEX design, you know, spot exchange design that will finally unify liquidity across uh all of Ethereum. So there's a few key features probably worth um hitting on here. Uh one is the air and rev engines. And so these are basically big changes to the uh economics of the protocol which we think are already the best economics in the industry. I mean Arrow uh led all dexes last year in revenue by a substantial margin. And even if you look at you know the sort of back

testing of the fee switch on unis swap it would lead it significantly even if it had been enabled over the same period. So the error and rev engines basically make the economics uh much more adaptive. It means we internalize new revenue streams like aggregator fees like uh mev like all these other things. We direct that to the token as well. So that is an increase in the amount of revenue coming into the system. And then the air engine means emissions can now be dynamically allocated which means we can drop the amount of value out. So air and rev engine simply just means more value in to the system what with less value coming out and based on our um

back testing and estimates it's like a 2.8x net increase in value you know flowing back into the system. So we think these are really powerful new economic engines. Um the other big thing is slipstream v3. So, Slipstream V2 already leads, you know, on a 3:1 margin versus uni v2, v3, v4 combined anywhere they compete. And slipstream v3 will bring even more sort of upgrades um uh you know, institutional level verification and KYC features, um upgraded dynamic fees, um and a whole bunch of other upgrades that will make it even more competitive uh than it is today. Um, one

I'm personally very excited about is meta- swaps. So, if you think about the experience of like swapping for assets on chain right now, there's still a lot of this confusion. Uh, you might have USDC sitting on mainet Ethereum and then you see, you know, Jesse's tweeting about some token. You're having to go through all these bridges and get it over and then you forgot to bridge the gas. So, you have to bridge that. And then by the time you get there, which decks do you use using an aggregator, etc. So, MetaSwaps is basically the first uh totally bundled crosschain, swapper, aggregator, and bridge all in a single product. So, you won't need to uh it won't matter where you have your

assets. If you see a token um somewhere that you want, uh Meta Swaps make it possible for you to click swap, trade, execute on the chain. and you don't need to worry about gas, any of this stuff. Um, there's a bunch of other features we can get into. I mean, open pools just make it way easier for um, like token launchers and things to integrate directly within our system. Autopilot just makes the entire like earning yield process much much simpler whether you're a token operator, whether you're an LP or you're participating in any number of these different ways. But the net result of this is is that this our hope is metadex03 arrows expansion. This will be the liquidity infrastructure of Ethereum

and that means it's one place to go for the best place to trade, the best place to earn and the best place um to launch new tokens. >> Perfect. I um there's a lot there. I guess Daniel, unless you have a first question I wanted to ask about. Yeah, maybe just one uh quick followup there. Curious on, you know, some talk about the expansion here and you mentioned meta swaps which which sounds interesting like are those intertwined in the sense that you know you're looking to expand the product to maybe a few chains here and there and then you know this product will apply to those environments or is it kind of more broadly encompassing of you know the variety of sort of like EVM uh ecosystems that exist? Yeah, meta swaps

will be live day one anywhere arrows deployed, right? So um on day one that'll mean um obviously uh the op [clears throat] chain that drrome serves today that'll mean base that aerodrome serves ethereum mainet circles arc and uh syndicates chain as well. Um and that will mean you know accessing and trading tokens and liquidity and all that sort of stuff across all those chains will be fully abstracted for the the first time ever. And this has always been the vision, right, of the Ethereum scaling road map is it shouldn't feel like this fractured thing. You should be able to tap into this um without needing to worry about what chain you're on. But uh we can continue to scale this to any chain where we see um activity users uh

interests. And the great thing is is because of our decentralized D app, we can scale infinitely at zero marginal cost because we don't rely on any centralized APIs, servers. were probably like the largest protocol without like an AWS or cloud account. And so it's as easy as just deploying the contracts. The front end reads everything offchain. And so you know while we will cover now I think like 23 or maybe even more with those chains of of global sort of EVM volumes um uh addressing the markets we're not currently serving will be very easy.

And then one just one more quick followup there like I think the expansion to like Ethereum mainet makes a ton of sense. You know a large large amount of EVM activity happens there. Of course um ARC and and Syndicate are interesting. Like I'm curious the decision-m behind like some of these newer um teams and ecosystems coming to market versus like I don't know like an arbitum or something along those lines. Yeah. What was the thinking? >> Yeah. So I mean yeah like you said Ethereum mainet makes a ton of sense because that is still where the bulk of trading activity happens. Um so service that win a significant share of that and you know you are probably now the largest decks in in volume terms uh

anywhere in in EVM. Um in the choices beyond that it's kind of about experimentation right now. Um I think in syndicate we see a very very interesting app chain model and uh they have um interest and ability in developing some like unique offerings. So being there day one it's kind of like okay let's see what we can uh build together in in that space um which I won't get too much into unless we uh get fur further along in the the process before launch but we see it as an experimental sort of place to go. Um I think uh ARC is super interesting because we've been very close partners with Circle for for years, right? Um you know I think our uh EURC USDC pool is the top onchain FX

pool and it's obviously you know then their top um FX pool anywhere on chain. Um and with them what we see is they built an L1 um because they see an opportunity to onboard institutions uh that for them any eventhereum chain is probably a step too far in the complexity. They they know they want to get engaged onchain. They want to get engaged in tokenization, but they literally want to be able to like call a CEO somewhere, you know, if something goes wrong. And so we see they have an opportunity perhaps to bring assets that would not ordinarily come in to other

ecosystems. Um, and they have the relationships at the institution level, I think, to do this. And by being the DEX infrastructure there, that means we are able to sort of host and service assets that we might not be able to otherwise. But then because of things like meta-wops, we give them distribution across broader EVM. And that would mean like you know if there's a really new interesting RWA and you want exposure to that again you don't have to worry about the fact that it's uh on ARC you can just swap on the UI.

Uh so we want to be that sort of bridge. If they are going to bring net new issuers, net new users, institutions, our liquidity infrastructure can not only help them but then bridge them back to the broader world of Ethereum. >> Perfect. I um about I'm going to go back to the meta swap for one second. So it's not I guess like a traditional aggregator in the way that like one in matcha is and is more so like a unified front end for all arrow products. Are you guys planning on charging a fee for that usage or will it just be treated as like the regular do you know what I like aggregators charge some form of whatever like five bits or

something you guys are planning on doing? >> Yeah, it's something we're we're looking at um because especially if I mean think about how cool this actually is, right? Because if you're on a chain right now with um [clears throat] bad wrapped ETH USDC liquidity and you could get better trading execution on the most basic swap or even the route of wrapped eth USDC on another chain um you know you would have to go bridge that right uh those funds in order to do that and you know most people are just not going to do that they're going to eat a bad trade on the chain that they are on. Um, so the big innovation here is the crosschain aggregation of liquidity. And so if you

uh just want ETH at the best price and you're on mainet Ethereum and we can give it to you on base or vice versa, um it'll it'll route your trade. And so we do potentially see, you know, if the um I guess rates we are giving and the access we're giving on the crosschain piece are significantly better than what other products can um give in aggregating even multiple dexes within a single chain. Uh that perhaps there's some additional fee but that fee again would only go back to the token and the token goes back to incentivizing liquidity providers. So it just be a way of growing depth um across all of these chains versus like you know there's

going to be an entity taking that value out of the system that's like core to us is that all value needs to be internalized. All of it needs to be redirected to the token. All the token needs to go to deepening liquidity which fuels the overall flywheel. >> Yeah, I think that makes sense. I guess like the reason that I was wondering is you might have to do some bridging but it does it it doesn't make any sense because you would just fill them on the chain that they get filled in right like if I >> yeah there would be some some bridging components in there and and you know uh we will have the ability to integrate with any bridging solution so for instance if you're going to arc right you might be using circles solution you might be using layer zero you might be

using uh hyperlane right and there'll be some degree of of bridging fees there. But um you know overall the goal is to keep the cost absolutely minimal. And if you know about how bad slippage can get, especially on low liquidity chains, I mean it's going to be nothing in comparison to the value you will make up. >> Yeah. I um I was recently looking at crosschain swaps and there are some uh providers that like intense providers that take um like 11 bips take which is very very high obvious.

>> Yeah. I think it's the classic line of uh their margin is our opportunity, right? And um so much of metadexa 3 is designed around it does not make sense that an auto compounder should take 5 to 10%. Let's just build it directly into the product and you could charge 1% if anything and then you redirect it back towards the token. um you know, secondary marketplaces for voting positions, um auto voters, um all of these bridges, aggregators, um there is just so much value that has been I think extracted out of systems at rates that are, you know, I think quite offensive or at least not what the market rate

should be if they were being uh competed with effectively. And we want to internalize all of that margin. We want to charge that bare minimum. we want to redirect it all towards the token um and basically internalize all the value that dexes so far have been very very happy to leak. >> Yeah, I think that makes sense. One last thing on the crosschain side um VE tokconomics themselves are kind of I would say more complex than other um other token systems. Is there how are you guys working around that? like if I want to vote on a poll on a Ethereum, how is that going to work?

>> Yeah, I mean I think that's where autopilot comes in. I mean like that complexity has um pros and cons, right? Uh on the one hand, isn't it incredible that a entity like Coinbase Ventures can go out, buy a bunch of Arrow, lock it up, and then use that to drive liquidity and business outcomes on base while earning back um you know, a ton of value for that activity. Like that utility is very good. It's complex. It takes some learning, takes some management, but that's a good thing. But on the other hand, if you're just a retail participant and you're just here to earn yield, that's where autopilot comes in, right? Where you can just say, "Hey,

I've basically locked up some arrow. I'm going to toggle the autopilot button and each week autopilot's going to vote automatically for me and return to me, you know, that yield in the token of my choice, right? It could be autoco compounding back into position. It could be USDC. It could be arrow. But we want to ensure that the access to yield is as simple as possible. And that's why, by the way, on the LP side, we're building in things like ALM with no additional fees. why we're building in things like autoco compounding with no additional fees or minimum fees that go back to the token such that like even if you're just a mini app user on the base app and it doesn't matter if you want to be operating right using locked positions

or you want to be um lping it's just a one-click yield experience um that is simple enough to manage on your phone >> perfect I have I thought this vote auto voting system or a form of it is already live, right? Like you guys have some form of an implementation and I assume this one is just going to build on top of that. >> Exactly. Yeah. So, as of today, we have something called relay um in which you can like deposit into the maxi relay vault and uh it'll do that voting and compounding for you. um in uh autopilot it's basically an upgrade where you know right now it's only compounding back

into the locked position versus uh converting your yield into the asset of your choice. Um there are also just some technical limitations on it right now around crosschain voting um doesn't work on the side. So obviously crosschain voting will fully work in the stacks that's going to expand everywhere. And then the number of pools right now is limited that the relays can vote for. So that can have like some trade-offs with with yields potentially in some conditions and bunch of upgrades just to ensure if you know you toggle that autopilot button and you know you go on hiatus for 6 months you come back and all you got was the best you could possibly have gotten.

>> I think that makes sense. Um maybe to to jump to another topic I'd love to get into the details here with you on Slipstream V3. like maybe can you give us some background explainer on it, walk us through it and then then we can dive in. >> Yeah, so there's a ton of stuff coming in slipstream v3. So like slipstream v2 has been like a an amazing success right anywhere it's deployed um like base or op mainet it's competing against you know basically like 10 years of or eight years of unis swaps development uni 2 uni3 uni 4 it's taking a 3 to one margin right so it's very very successful um and like one of the portions of that just to to highlight it is right we

direct rewards just into the active tick of liquidity Um so only productive liquidity is utilized and those rewards come in the form of error emissions. So that reward rate is constant, right? It's not going up and down based on volatility. And when you combine those two things um with dynamic fees, right, which are adjusting the fee rate like surge pricing um based on volatility in the market, it means you have kept liquidity sticky and you can undercut feebased uh sort of exchanges competing for flow um in moments of low volatility. And then you can uh increase the amount of liquidity you have available relative to

them and then charge higher rates when the volatility hits. So it's almost more like order books now where you're actually correctly internalizing the value relative to the the flow. And um Slipstream V3 will have a new upgraded uh dynamic fee mechanism. Um it'll have things like uh payment for order flow um Robin Hood Citadel style. So um if we know that you know every bit of flow coming out of coinbase.com or uh the base app or you know in the future Robin Hood you know things like that is non-toxic then we can offer a preferred fee rate for that flow because you don't need to charge as much and in doing so

we can ensure that we win you know the vast majority of that flow completely organically right not by cutting a deal not by having not by being privileged But just knowing that those are better rates um that we can offer. And this is also very important by the way with the expansion of FX um because if you think about like payments processors, service providers, I mean we know right now um like on EURC USDC we're giving a rate like uh 500x better than Wells Fargo gives on a euro to dollar conversion.

we're giving like uh 20x better than even like wise can often give um on these types of transactions and you need payments processors who are also going to be non-toxic to be able to get that kind of preferred rate on their flows as well. And so we think this is really important. Um and the other big thing in slipstream v3 is this verification stack. So we can plug into Coinbase verifications, we can plug into like world verifications, any of these sort of KYC like things which we think will continue to sort of be a slow burn but it is a really important thing to have the ability to build in as more institutions come on chain and the need

to validate um you know who is trading or at least that they are you know not baddies um in these pools and that's another big important part of it. >> I go ahead. >> I I um it's all very exciting. I have one with regard to the Euro C USDC thing. I've always wondered how has the um I think oftentimes we hear a lot about like order books bringing in new forms of equity or FX trading, but it's not as like discussed within AMMs or in the MM space. Have you guys seen like a significant change in um activity in terms of like real world assets or is it

is it not has it not hit the level that you would have expected yet? And maybe like a follow on to that is V3 um and like the verification you guys' attempt at making sure that more and more activity can come on. Yeah, I mean the the verification I mean anything that is composable and permissionless is going to be able to attract liquidity and uh activity in a far uh more capital efficient way we'll say right now right until there are major institutions that are going to come in and you could give them all the KYC liquidity that they want but if they're not going to generate enough activity to sustain it it's not going to be very useful and I think that's like what you've seen on the um like verified pools that Coinbase launch on uh Uni V4 is almost no

activity yet, right? Because we haven't solved that cold start problem quite yet. Um but like uh just as an example on the EURC USDC pool, I can't remember when it was sometime last year, you know, Circle came to us and they were like this is the only FX pool that we have found anywhere on chain where there is real organic activity that we can't attribute, right? somebody is using these pools for something versus this is just like a pool that's got bootstrap sort of static liquidity and occasionally catches some arbs and so I think it is happening um I think that is only going to accelerate. I think that is again why I think ARC is very very

interesting because what happens when you pair the best onchain ERC pool plus a bunch of uh global issuers of other uh you know local currency stables that are very very high quality and you have an onchain sort of FX market um that can also tap into uh lending markets to leverage up and sort of do these things like I think it's only going to accelerate but yeah we've been like um I think blown away because like there's no extra incentives or anything on top of the EURC pool. That thing has been self- sustaining for quite some time.

>> I imagine Circle was a little bit concerned if they don't know exactly who was doing it and why they're doing it though, right? Like they must have at least had some thoughts. We need to understand who is doing this. I mean I I don't think that hits them because you know if they are just the ones issuing the USDC and EURC you know tokens and then u you know obviously you can't go in and redeem those if you're just anybody. They're very very happy for widespread permissionless uh distribution and access of those things.

>> That makes sense. Um, is the MEV internalization going live with V Slipstream V3 or is that a separate additional product on top of it? that is that is part of the the V3 launch and you know that's a big one because the if you think about the total addressable market the amount of revenue that um uh MEV creates for sequencers I mean it's more than um like a drrome and drrome combined made in revenue the past year as again the leading indexes in the space so uh for us to have the opportunity to internalize that revenue, right? By doing this sort of uh MEV uh

auction at the AMM level versus doing it at the sequencer level and and intercepting it. That is like a massive new revenue stream um that we're able to internalize to the token, which means of course that token that we're emitting into the active tickle liquidity represents uh now even more than trading fees plus launch payments plus everything else, right? we are just increasing the rate at which we can reward over a feebased DEX for a liquidity provider which I think compounds our moat and that's all the more significant you know in this period where we now have competing economic models in the sense of unis swap

actually pulling back a bit on how much they're able to reward liquidity providers at a moment where we're actually trying to increase uh over swap fees the amount that we can reward liquidity providers I think that makes sense. I have one more thing, Daniel, and then you can go ahead. Um, I assume the MEV inter Well, I think the ME internalization can only be for Ethereum. Um, and then it's kind of a janky segue, but UniS swap is very very dominant on Ethereum. Um, now do you think that is mostly because there are no good competitors out there or do you think it's just it's going to be a

struggle for you guys? Now you've done very very well on base and on Veladrome and on like wherever you guys have watched. So I'm not I don't mean this in like a way like oh are you going to be compete but more like >> what is the strategy to compete? Because in my mind that is their well that's like their biggest thing, right? They don't have a lot of other areas that they're very competitive in right now. >> Yeah. I mean I think uh our answer is very much intrinsic to that right. Um we have tested now metadex O2 uh against uh unis swap in uh you know I can't remember every chain but you know let's just say it's six seven chains right and in almost all conditions um uh

the metadex model takes not just like a winning share but like a dominant share versus unis swap and so I think we're very confident um that bringing the same model that has shown an ability to compete uh and win against unis swap to mainet Ethereum will allow us to capture a significant um amount of share uh especially with the upgrades that we're bringing in in metadata 3 but uh in some ways you know uh it's interesting that we've been able to take that sort of 3:1 um [clears throat] dominance against unis swap in a period where they were still heavily able to subsidize their costs with the the token, right? So,

they were rewarding LPS with 100% of fees because the token didn't get anything. So, if we've been that competitive against them passing through all the value that they're generating, if you cut fees to LPS by 25%. which is the average I think of what they are doing right uh right now that makes our competitive advantage uh I think all the more significant because if you go back to the sushi swap vampire attack um which was I think the last time unis swap really got tested on mainet Ethereum what did sushi swap do they just provided some degree of additional value on top of LP rewards sufficient to attract mercenary LPS over to them and

Sushi Swap took 50% of Uniswap's share um in about a week. And so we think, you know, uh as they're dropping yields and we're increasing them and we're taking a model that is already very very competitive and extending it into their home market, we're uh very bullish, I think, on our potential. And by the way, it's like it's a very interesting thing because last time I looked at the numbers, if we just captured 30% of mainet, were the largest decks anywhere, period. And um I think it's an open question, you know, what has kind of held up uh you know, unis swaps, you know, extreme premium in

the market. And I guess I would believe that it's probably because they have still remained kind of number one. And uh if we only need 30% of of mainet and then you know folks have to start asking the question um is Arrow you know now going to be this number one exchange and what does it mean for unis swap if they are not um I think you could get some pretty crazy uh flywheel effects both positive and negative but I also just love the you know let's make mainet fun again let's make DeFi fun again I mean when's the last time we had a good good uh exciting battle you know, like the old days.

>> Yeah, that's true. >> Yeah, I like I like your viewpoint there, Alexander. I think um maybe interestingly to talk about mainet a little bit, it's not necessarily the case that they haven't been losing share. Um you know, Fluid has had quite a run this year on on mainet. Um something like 15% of market share now, I think, from the last time I checked the data. So I think it does maybe showcase the point that there's potential to sort of break into that market. It's not like they have an iron grip on all the activity there. Um so probably you know to your point there there's you know opportunity to compete.

Um that said I guess I'm curious like maybe your general thoughts on kind of the EVM DEX landscape going forward given you know the competition we're seeing even on base. I think um you know like Pancake Swap has seen a rise there. Um is this you know is it productled? Is it uh you know rewards? Is it who do you think are going to be like the winners uh going forward and and how and why uh in the VM tech space? >> Yeah, I think um you know when I think about think about who will be the winners I think you have to start with like what does winning mean right? And I think when you're evaluating a DEX, right, you have to take uh into consideration the core metrics of a DEX, right? So TVL

matters but not in isolation. Volume matters but not in isolation. Fees matter but not in isolation. And revenue matters, right, but not in isolation. So you you take those four together and you get a very different view of the DEX uh landscape. And so this will be like one of the times it's it's rare, but it happens. Like I'll I'll defend unis swap. um like fluid I don't think has actually cut into unis swap's fee share on mainet um they have cut into their volume share by charging very very low fees on uh stable swaps that don't produce a lot of value and so I would assume that unis swap share of fees on mainet has remained pretty healthy and then there's been some noise about curve but you have to isolate curve fees from

uh yield basis fees and same thing I think unis swap share fees remains pretty constant. Um, [snorts] you can get distorted if you're looking at volume. Um, and that's the same thing for like Pancake on base. Uh, Pancake has grown a lot of volume on incentivizing pairs that don't generate fees. Um, so we don't worry much about them because there's not really any value to necessarily be captured there. So, I think like the competition is definitely going to be fierce. like it's going to be a lot of fun but I think if you look across those metrics um it'll be very very clear who is actually winning right how much net new value is

being created how much volume flow that that's winning um and uh how much capital flows into those systems and I think there should be a pretty clear undisputed number one winner across all those four key metrics in pretty short order I think what we've seen so as far as it's distorted by the fact that not everybody's competing everywhere. I think fluid unis swap have been competing everywhere for a long time. Um I think uh the metadex model has not but it's really clear anywhere competes across those four. It wins hands down against all of them combined. And that is I think what makes us uh very very bullish on the model especially knowing it's getting a massive upgrade even from

where it is now with significantly more value coming into the system less going out and then all these other technology and UX upgrades. >> Yeah. I guess as a followup to that, what do you think about well on Ethereum this should be fine, but what do how like on L2 if for doing order books on prop AMM systems? Um what do you think about I guess a traditional AMM seems a bit weird to say about [laughter] you know what I mean? >> Yeah. Yeah. I mean, I think uh orderbook like experiences, the prop AMM, they're all going to have their kind of like niches and uh value and things that they serve. But I think um permissionless

AMMs, the composability, the distribution, the reliability, the transparency of them, you can't beat those network effects. This is actually another thing I saw, you know, Hayden go to bat for AMMs recently and and I think he was absolutely right. You know, if you look at, you know, the prop AMMs on Salana, it's servicing, of course, soul USDC volume uh greatly, but it's not servicing much else and it's not very transparent. And we all remember what happened on like October 10th uh when that liquidity was needed, it was gone.

Um, so there there are trade-offs like there are niches. Um, but I think uh continuing to build upon the economics of permissionless dexes, right? Continuing to internalize, verticalize more value, use it to reward liquidity providers, ensure that that liquidity is constant. Um, it is available, it is transparent, it is permissionless. the networks of effects of this will continue to grow. Which is by the way right why um uh folks like OKX like Coinbase are directly integrating dexes into their core products um and now distributing this infrastructure. So, um I always think the contrast for like a

onchain order book or uh even some of the prop AMMs um or even some of the like KYC pool stuff is well just go on a centralized exchange. They're great. They are great at doing a lot of those things if that's what you're looking for. So, um what we need to do is build something better on chain. I think we're doing it. That's why centralized exchanges are integrating and distributing these products and that as the industry continues to grow that will be where most of the economic activity is created.

>> I'm curious uh I think you make a great point um that we're seeing centralized exchanges route orders to dexes. I think that's uh a trend we'll continue to see grow. I'm curious if you have an opinion there on whether we see Binance make that move. uh in broad fashion like in 2026 or if they kind of um try to hold on to like their kind kind of crown or mantle longer. >> Yeah. Um I mean I think we've already seen them do a bit of this right in um how they've integrated in with Pancake Swap, right? And uh Binance Alpha and things like that. I think it's clear that there's like a very close relationship between Pancake and and

Binance. Um but yeah, I mean I think they'll do it as long as there's a net benefit to them. And I do think as permissionless uh distribution of assets continues, it's harder and harder for any centralized entity to keep up with it because the life cycle and number of tokens is just going to keep uh the life cycles are going to keep getting shorter and shorter and the number is going to keep going up and up and so why would you leave any money on the table and not distributing that to your customers charging some sort of fee and things like that? So yeah, I mean Binance was probably, you know, earlier to some degree of integrating between these two than than Mini. Whether or not they go

for sort of the full stack integration, uh we'll see. But I would I would I think it's inevitable for kind of any um forward- facing uh consumer crypto company to distribute coin uh sorry, DeFi products generally. >> Yeah, I agree with both of you guys on that. I think it makes sense. um with the Coinbase app integration, how has have the flows been different to what I don't know if you guys do this. So I guess like I should have first asked if you look into the data of what you get for your front end, what you get through like API or contract integrations and what you get for the base app. Is that different? And you could do dynamic fees for that as well. Is that something you

guys are considering? >> Yeah. Yeah. So I mean that's the whole idea behind having this sort of dynamic fee and payment for order flow is that um uh you know most dexes I believe is pretty standard in the industry. It's like 10 to 20% via the front end. Everything else is aggregator programmatic um sort of stuff hitting uh the contracts or routers directly. It's a it's a pretty big split. Um and then if you go into where those flows are coming from something like fee rebates or dynamic uh fees you know associated with that ensures that of that 80% the programmatic stuff you can win more and

more right and so yeah we would want to win uh every single trade originating from a Coinbase every single trade originating from a Robin Hood every single trade originating from the base app um just by giving them the best And our system allows us to do that by the way without fragmenting liquidity. And this is a big difference right between uh our sort of modular approach to building the AMM versus um you know the hook style in UniV4 because if you wanted to build a UNV4 AMM that does something similar you could do that with hooks but now you're talking about bootstrapping that pool itself. If that's a Rap Eth USDC pool, if it's a

creator coin pool, it's competing against the other pools with that. So, how do you get that pool to maintain that? We can do it basically without fragmenting liquidity. We can modular um adapt the mechanisms of dynamic fees. can modular uh plug in new uh flow providers like Coinbase or Robin Hood directly in there and we will just win on execution and execution alone and it's not a bad deal for LPS because it's non-toxic flow. >> I think that makes sense. I imagine a lot of crypto is going to be moving towards this both on the AMM side or I guess the deck side as well as on other

um protocol. Danny, unless you have something as a followup, I'm going to Do you have anything as a follow-up? >> Go ahead. No, no. >> Uh, Alex, one thing that I think is on I guess liquid investors minds about Arrow, and we won't approach it from that angle, but is the emissions. And you guys also recognize that the emissions can be a little bit difficult. You have something that is changing with Metadex 03. So, I guess like you can run over that a little bit, but in general, was emissions like a necessary evil initially that you're going to taper off of completely eventually, or is it more so that we'll always need them, but

eventually we're going to be making revenues that will just emissions won't matter anymore? Is that the viewpoint? >> Yeah. So, I think it's super interesting because um in my mind, emissions uh haven't been much of a factor for some time. So, let's just take a look at Q4, right? In Q4, um on Aer Drrome, more revenue came back to the token than was emitted. Um uh so that would be, you know, a net gain for uh everybody. And that's even assuming you're not doing a calculus of how much was removed from circulation

via locks. That was just a pure net gain. Uh more in than out within uh Metadex O2. And the current inflation rate, right, is about 10%. This is not a massive inflation rate um uh on an annualized basis. So you've got a net uh more in than out. You've got a relatively reasonable inflation rate. And the question is always like for me so what are we benchmarking against because the ratio of emissions to revenue on most protocols is infinite right until a few weeks ago on unis swap it was infinite for years. Um and uh now that we actually have data on unis swap

and we think about the 20 million uni tokens that labs is going to need to spend in the next year sell um it's about $120 million and the current bath testing on the fee switch says it will only bring in about 20 million. So like our historical like um emissions to rev ratio is about like 1.5. So we're beating unis swap today on our historical. We were net positive which unis swap doesn't look like it'll be likely able to do in the next year. So I would say even within the current form of the protocol we've got the best dex economics period. Um and the big upgrade though as you mentioned is that we are

internalizing all of these new revenue streams. So things like MEV, things like aggregation, things like compounding, um all of these different streams, value streams that Dexes leak, um and we like estimate, you know, the cumulative market size of all these revenue streams to be in the billions. Um launch payments, you know, stuff that traditionally goes to centralized exchanges. Um, and so that means more value in while we can dynamically adjust emissions out to ensure we're never basically pushing out um any more than is needed. And so in our uh bath testing, right, just the revan air engines combined uh represents like a 2.8x net increase over what in Q4 was

already a positive economic uh output from the protocol. if we bring that net close to 3x much better. But then you also have the um addition of the momentum fund which is going to be buying back um tokens um market aare. It's going to be burning those tokens. So it's actually going to be removing supply entirely and that pushes the estimate on those back testing closer to like uh four or 5x uh net improvement for for token uh [snorts] folks. And that's before you even think about the expansion into the additional four-fifths of EVM uh fees that we don't compete for right now. So I I would

always say, you know, if you're worried about any of these, I would say first, what are you comping against? Like who do you think's got a better uh sort of argument here? But then B, you know, uh you know, today is pretty good, right? And then, you know, with these improvements, it's only going to get better. >> I think that makes sense. But I guess like the only thing in my mind here is if you're doing 10% inflation a year is that how do you count because for Okay, so from what I understand, I've I've studied the aerodyome trma as much as I can. So you have the LPS token holders

and you want to make sure that both of these benefit because historically either token holders don't get any benefits or LPS well LPS in either case get kind of abandoned. Um you're rewarding LPS with the arrow token. How do you decide on that? Is that a set that you like per pool are you guys going to start adjusting that such that like do do you get what I'm trying to say? in my like it's always been kind of confusing to me how you guys exactly and think okay LPS need exactly 8% we're going to be giving them exactly 8%. Is that the math that you're doing or is there >> that that is what the um air engine will be able to do, right? So air stands for adaptive emissions rate. So on a

poolby-pool basis, it will be able to calculate um a premium over fees um and ensure that we are only emitting um more than what you would get on a feebased. So we will ensure that we can always give you more than unis swap at 100% fees. definitely more than unis swap at 75% fees but never much more than needed. Never a scenario where we're emitting like 2x more, 3x more, 4x more. So that's what allows you to bring down the economic out while still ensuring that you are rewarding uh LPS at the highest rate which means that liquidity is there. So then when the flows come um obviously the dynamic fees are ensuring

we're like capturing as much value from it as possible. So yeah, that's a big part of it. But even like uh I'll just do a quick plug because um uh Dan, our uh CFO did a presentation at the New York event and um he walked through sort of the back testing because if you look at even the past year, if you're just thinking about a liquid token um holder, uh the protocol has been uh net much more value coming in then you've ate cost in emissions even with emissions having been over the course of that year much higher than 10%. So with these upgrades like it is very very possible that the the protocol is not just net profitable but net like deflationary uh

from a liquid token standpoint. >> Where do you see like from the new initiatives the new products expanding to new ecosystems like when we think about like net positive protocol economics where do you see you know the most potential for kind of like net profit growth for the protocol in these in these areas? Yeah, I mean I think um the two biggest ones uh would be launch payments, right? So that's uh things like our ignition launches, right? Because we know that um it feels like eternity ago, I guess the big debate about centralized exchanges, how much they were charging for listings, right? But we know we market sized that it's probably about a billion

dollars. you know, centralized exchanges have made taking like 10% plus of token supplies and um uh you know, basically extracting that value from from the project. So like launch payments if you can disrupt that business model and you can internalize it into an AMM is a huge one and that is why I think you see you know a bunch of folks like Uniswap with their new CCA and other folks continuing to experiment around this. Um but the other is NEV. Um that is also uh you know hundreds and hundreds of millions each year that AMMs leak that value to sequencers. They don't have to. You can internalize those. So I think those two things combined in terms of net new

revenue streams. But uh every dollar we capture, every percent we capture on a network we do not currently serve is incremental dollars to us. And again, I think that's why it's so interesting to think about the fact that like Curve has been everywhere for a while. Fluid's been everywhere for a while. Uh unis swap's been everywhere for a while. Um who actually has like a credible growth story, right? Um an additional market to go win plus a right to win and proving that every new market we enter, you know, we will gain um significant share of. And so I think those two streams in terms of net new revenue in will probably be the biggest. But probably the biggest is just going and winning

more of the uh total addressable market. >> Yeah, that makes sense. And also as you get stuff like launch for example, you don't have to emit tokens to launch. So that's also adding additional I guess additional additional >> every every new revenue stream does not depend on emissions. >> Yeah, >> it adds it adds more utility and value to the emissions, right? But it it is all incremental. Um so it is just increasing the net um by which we can reward. And that is why you know I always think like the sushi swap example is one we've kept in our heads forever because if you give LPS more they will

move on a dime. And so you can never and UNIS swap commissioned their own research on this from Gauntlet that talked about the effects of cutting LP rewards. So, we've done everything to design our system in ways that increase LP rewards and never decrease them because we think if you decrease them, what Gauntlet said, you get a reverse flywheel effect. And the lifeblood of any decks is do you have the liquidity that traders can access because they won't care if they're on Coinbase and it hits us, if they're on a wallet and it hits us, an aggregator and it hits us, or somewhere else. They're just looking for the best rate. So attract enough liquidity to always give it to them. You

win and you win very very quickly. >> Yeah. Seems like the like cuz the AMM I noticed that last time I said trlema I didn't say all three of them but like that AMM trma is um I agree that you guys have probably the best solution and that the others just don't have a solution. It's kind of like okay well one of the sides has to struggle. >> Yeah it's uh uh robbing Peter to PayPal. It's it's a really hard thing. It's it's a fixed um uh set of stakeholders. Um and I don't think there's any solution beyond kind of maximally passing on value between them which allows them to each act in their rational self-interest

such that um everybody does better. And actually at the event the other plug I'll put in is watch uh Jonas from Wintermute Ventures talk on this because they are obviously you know one of the world's top traders and uh he describes the way in which you know we just act in our rational self-interest and that got us so interested in why is it always like hitting a drone which turned them into a token operator a locker right they went out bought and now participate on that side and again only in their self-interest there and that's a sort of like uh flywheel reinforcement that you can only get if you are solving for all three simultaneously.

>> Yeah, I think that makes sense. Um Danny, do you have anything else or shall we wrap up? >> No, I thought that was great. Uh great conversation, Alexander. Glad to have you on again. >> Alex, thanks for coming on. This was great. I'm happy we got to kind of grill you on the the emissions side because I've always wondered how you guys are thinking about it, but clearly there is like an expansion plan into new products that will just add net new revenue without emissions, which I think makes sense. >> Yeah. No, I [clears throat] love the grilling. Uh my dad told me uh every now and then he'll listen to a podcast I'm on and he's like, "I don't always know what they're you guys are talking about." He's like, "But sometimes it seems like people don't ask you hard questions." And I'm like, that's that's

probably actually fair. So, yeah, bring me on, grill me anytime. I I love it. >> Yeah, thank you for coming on. Um, and I guess thank you to our listeners for, um, tuning in to the first live stream of the year. Um, Danny, do we have to do you want to also say goodbye? Do we have to say anything else for the wrap-up? No we're >> I don't think we have any shout outs to give other than to the listeners. Thank you guys [clears throat] for showing up. Appreciate Alex from Drum Labs. Um the new arrow >> I forgot to ask something. Uh Alex, people will get upset at me if I don't ask this. What is the timeline for Metadex? What [clears throat] are we looking at?

>> Good question. Q2 uh development is actively underway. Um any builders in the space know usually the biggest dependency is audits. So that's why I don't want to get more specific but uh we are very very focused on as early in Q2 as the things in our control can uh can go. >> Okay, that makes sense. Perfect. Um Alex, thanks again for coming on. Danny, thanks for co-hosting. Listeners, thank you for listening. Goodbye.

Thanks for tuning in, y'all.