OpenSea’s BLURred Vision, Tech’s New Paradigm & MEV Talk | Roundup

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode welcome back to another uh Roundup edition of bell curve you got Michael's one and two you know Advance fellas welcome back to the show happy to be here pleasure to be here got Yano and all his HD Glory over there 5K thank you Michael one more time yeah every four I see I'm I'm you're

getting all of me right now I'm afraid to sit in that scene I I don't think I'm good looking yeah I actually don't like I'm going back to like the old school zoom camera it's a lot you don't need to turn on the background blur it's just blurry in general yeah yeah we're building out that there's a nice little plant in the background there the Studio's coming we got there pretty nicely yeah a couple plans for sure that's a fun size plan [Laughter] if you hold that just right it actually looks big enough yeah you watering that every day actually we when we moved into the office we got like six real plants and we've killed them all so now mandatory no no real plants a lot of block works one of our

portfolio companies sent us two potted bulbs uh for for the holidays um I proceeded to water it hasn't sprouted anything yet Vance also hasn't opened the box you don't got that magic touch yeah no don't have the green thumb it's been it's been raining a lot in San Francisco there's not much sunlight yeah those are dead for sure all right um let's let's start with markets this week it's been a big week for uh markets especially in crypto so just looking at like kind of the majors like in the last seven days Bitcoin is up 7.5 percent eth is up uh uh three percent Souls up one point seven percent but on the month

it's it's much better bitcoin's up 16 eth is up eight percent and Seoul is actually just about even um so it's basically been the first uh positive price action in a little while um I know a lot of people are ascribing this to the news about binance and their uh settlement their settle settlement or their The Wall Street Journal basically came out and said there's just going to be civil penalties I don't think this is necessarily confirmed yet um but what's your what is your guys thoughts on on why markets have been so positive this week so the CPI came in hot right and then labor jobs was pretty hot and then I think we got something today the PPI which was way hotter than people think or thought it would be so it's like not the best setup but at the same time you just have all this mean

reversion you have what seems to be a little bit more liquidity in the General Market and so you know you look at things like the tenure which is one of our main you know things that we look at it still has not repeats despite the terminal rates and and generally what the FED you're saying they're going to do being much more aggressive than last year so it's interesting there's a bunch of different signals but crypto is just so beaten down last year that it's not exactly surprising to see it catch a little bit of a bid just generally seems like we're grinding up in this range I I would say totally agree with all that um the other thing that I would say is that our perspective is that markets move about six months before uh economic data becomes reality like people are

going to always try to front run the change they're going to try and see you know when's the bottom forming and the um the specific data to crypto is a lot of de-risking of what had been rumored for a long time which is all the changes that we saw this week in terms of regulatory action um you know there was sort of this like consternation that Kraken was being taken down okay they have to pay a 30 million dollar fee you know shell of their their staking business for you to retail customers in the US but it's not a death blow um the custody Rule and the proposed change from the SEC came out yesterday yeah it's definitely not great but it's also something that you know we'll have

to deal with and it's not you know it's basically a realization of all the things that could have happened happening and realizing that all the bad stuff is what it is and it's out there in the public now and so I think that de-risking is a big thing and to your point Mike the chief strategy officer of Finance uh and interview I think yesterday or maybe the day before said that they are planning to pay all civil penalties and that's going to be the end of it in terms of the finance issues with the doj potentially SEC and that de-risking I think is a huge Catalyst as well but you know up until about 24 hours ago crypto is down uh yeah January was a great month but crypto was up over the last few days

crypto was down but in the last 24 hours crypto's up so just moves wildly with you know the whims of all the different news and and stuff that's coming out it's just funny because the markets basically had to digest a lot of contradictory information so at the same time that you got the sort of binance risk being taken off the market which it's not official yet but it looks like it's just gonna be looks like it's just gonna be a fine that they that they plan to pay you had you know some pretty hostile uh you know announcements coming out of the SEC how big is the the QC sort of change and actually can you guys just explain what that is like who is that relevant for like maybe specifically as it pertains to rias and also even if you could just do a Refresh on what it means to be a

qualified custodian and that sort of thing yeah so so we are a registered investment advisor with the SEC anyone who and there's a couple of different exemptions if you're true Venture Capital firm and you only invest in corporate equity uh you can have an exemption to be an Ria with the SEC most funds even like traditional web 2 Funds because they want to dabble in liquid equities or or hold you know Securities of companies that have gone public they have become rras as well crypto firms have to become rias as soon as you pass the 150 million dollar AUM threshold so most firms that you know today are RIS what that comes with is we are you know regulated by the SEC and and that comes

with a lot of oversight controls regulations compliance that we have to abide by part of that includes the necessity that we have to keep all of our digital assets at qualified custodians and to be a QC there's a couple different ways that you can get there first is you can be a bank most banks don't custody crypto assets or if they do it's just Bitcoin you could be a Trust Company um and I I don't know all the details but effectively you can be a National Trust or state trust as well as you can be a state bank and you can have a banking Charter but all of these different types of designations make you a qualified custodian so what we use is

Anchorage as well as coinbase Prime and coinbase Prime is a separate subsidiary of coinbase Incorporated where they are a trust company and they believe that even with these new changes they will continue to be a qualified custodian and and we pay them to custody all the digital assets that are tradable and frankly that they support encourage the same thing and what this new rule proposes is that there's just going to be higher levels of requirements for uh for you know qualified custodians that you know previously weren't in in place and um it's 470 Pages we haven't really dug into it it just came out about 24 hours ago but basically it's it's just going

to put higher levels of requirements for qualified custodians which means it doesn't really change our day-to-day business whatsoever is as long as there's qualified custodian that can custody our assets we're going to use them it may limit the scope limit the field in terms of who is a QC that we can we can actually work with Anchorage supports most assets coinbase Prime supports a lot of other assets and if they continue to be you know in in the qualified custodian status then we're just going to continue to use them it made it difficult for other firms to be able to actually become qualified custodians but um yeah it I think really like it it was a lot of requirements a lot of you know stuff that goes into what is a QC and how you become a QC but really doesn't

change our day-to-day that much yeah and just just to be clear as well this is just a proposal at this stage there was a vote from the SEC it was four to one Hester purse was the only one that dissented but right now it's basically it's open for common in two weeks and just because this has been proposed doesn't necessarily mean that it's going to become fact but it's just it seems like it's just sort of a it's a tactic right to make it just that much harder for U.S firms to invest in crypto because even even if coinbase and fireblocks and some of the other custodians out there get this you know become qualified custodians they can't support every asset right that rias might want to invest in so then it just puts firms that hold these liquid assets on their balance sheet in a kind of a

weird position so so one point of glorification is that fireblocks is not a qualified custodian you know that's that's an MPC custody solution there's also a number of assets that we have that are tradable that are not supported by qualified custodians just because they you know might have different token models or or mechanics that aren't supported by an Anchorage or coinbase crime quite yet so we we actually do use firebots in the case that we have digital assets that were we're not able to custody places but frankly like what this means is that you're just gonna have to have a higher level higher bar to become a QC um and yeah I think the reading between the daily reading of the tea leaves is that there's just a lot of consternation with Regulators right now and trying to

figure out ways of cutting off investment and cutting off access and cutting off you know basically capital for crypto and uh you know chokepoint is the is the phrase that's been been batted around and this is one of those if this uh if you got what's the registration that you guys have to file are you an Ria or register yeah okay so if an Ria has to custody assets at a QC but a QC can't custody Mo like the long tail of tokens does this then reduce the capital that flows into the long tail of tokens not everyone is going to want to take that that same amount of risk and and not everyone is set up to you know there's ways to comply with this rule that are you know kind of

strange like you can find a foreign financial institution that's equivalent of a QC but you know what if that means putting your assets in a custodian in Brazil or London like that's not going to fly for the largest firms on the planet but for the crypto firms who are willing to go to links to to get there you know they will do that and so it's going to make it just harder for for the institutional money to really come in and Dabble with things at a deep level one of the things that I think is actually pretty interesting um we have a couple of friends who are traditional web 2 investors you know there's always this question of like where do you custody your assets nobody really thinks about that when it comes to web 2 like shares uh and what most firms actually do is that they have a

safe in the middle of their office and that's where they keep literally the share certificates of all the Investments that they've made that that's how they custody their assets it's self-custody you know there's no bank that's going to take you know private company at series a XYZ and you have to maintain those records you have to maintain those books and you have to view them somewhere and like this is I I'd say you know because we're registered in most Venture firms in the web 2 status are just not Ria so they they do have an intense status um but it is interesting to think about like where do you tested your assets where do firms actually custody their assets if you're an Ria you have a higher bar and you know that means the

SEC is gonna be checking on it but it's a lot better than what I think most firms do which is like if there's a fire if there's water damage do you lose Equity ownership yeah the uh the other like the macro stuff that you were talking about there before bands as well because the the other data point that people are paying attention to is retail sales which came in that was like a super hot number that was like three percent or something like that month over month over the 1.9 expected so basically like if you don't pay a lot of attention to this data it's kind of like good economic news is bad news because the more good economic news that comes in the more it theoretically means to the fed and Powell that they have leeway to kind of hike rates like they've been very clear that they don't

want necessarily like hot a hot economy right now so it is it is kind of weird like I there definitely are some uh some kind of overhangs like it almost seems like the economic data is starting to pick up a little bit faster than the FED might want and there definitely are these weird regulatory overhangs as well but the market is kind of like starting to shrug that off or power through it which like a small part of my brain is like maybe that's actually kind of bullish right like markets love to climb like walls of worry but at the same time maybe this is just um I don't know sort of a small bounce and like mean reversion from a horrendous year here's how I think about it like I know that inflation is going down like a lot

of our friends are trying to negotiate decreases in their rent I know people who are buying a used car who got it very very cheap you know like all the layoffs that are around us like the labor market doesn't seem that strong like the lived experience that I have is telling me that yeah sure like CPI is high right now but the large component was shelter and maybe this is just a Bay Area thing but the the real estate market here is is really uh weak right now and it feels the same way in in places like Chicago and New York and Miami especially so it seems like the prices are going down like it like I just don't buy this like wage price spiral inflation's going back up to 10 and so I think that's kind of what people are subconsciously thinking

through and then the fact that you know the tenure is not repeating when the terminal rate is so much higher the rest of the market seems to agree with that stance and everything is front run rate Cuts recessions you know risk assets falling apart you know the first one's in are generally the first ones out and I think you're also seeing that so I don't know it's it's kind of not surprising to me in general even though the the data is a little bit mixed at the moment um speaking of broader Trends I think Michael you can start to do a little bit of an initial Victory lap on your call of tech transitioning from uh from growth into into value you kind of drop this in our chat but uh Brad gerstner tweeted something out so Brad Gerson is

one of the founders at altimeter he was the run that kind of wrote that shareholder letter to meta that got a little bit of Attraction but he had a tweet about twilio so he said twilio Q4 efficiency migrating from a growth company to a profitable Growth Company cutting perks including sabbaticals new org structure 17 rif and accelerated path to profits plus a one billion dollar buyback CEO personally buying 10 million dollars um also like the one of the interesting ones to look at is Elliott management which took a board seat kind of quietly back in uh for Salesforce a month back and uh Jason I have a friend who who works at Salesforce and it has been like a complete sea change at night and day difference so I you're very

directionally correct on that one so far so good on that 2023 prediction um I I think you can kind of assess the macro which is you know the twilio's and the sales forces a lot of the in meta too so Brad was the one that coined that um you know that that sea change at meta seems like they're actually following through with just about every single thing that he said they're doing a nine billion dollar buyback I believe and and it's sort of a question as to where they get that Capital the way they get that capital is by reducing Force you know rif uh and anecdotally we have friends at meta we have friends at Salesforce both companies are gearing up for two potentially three more rafs this year like it's just going to be The Purge of

I think a lot of the bloat that we saw over over the last three years and you know a lot of what this kind of stems from is okay are tech companies able to hit earnings are you know are they going to be the canaries in the coal mine of this like hard landing potential that we're seeing in reality I think that they're doing fine you know they they've they haven't really missed earnings to like a large extent they've definitely kind of pulled back a little bit of their guidance but I think this is an opportunity for them to right size the ship and figure out you know where they're going and have high profitability be the Benchmark that they're evaluated against in 2023 which is completely opposite from the high growth that they were evaluated over the

last three years uh so I I find it to be like patently interesting it's also going to change the Dynamics of the tech industry it's going to change the damage of you know anybody who's living anywhere near the tech industry like the Bay Area you just start to see these these Mass reductions in force it's tough to find a job in Tech right now and you know it's going to continue to be that way for a while but I think that this is going to be the opportunity that Tech has to be able to actually build you know world-class businesses and return value to shareholders it's going to be really interesting to watch what's the deal you think with these like staggered riffs because like like I thought the thing you're supposed to do is do cons cut once cut deep so that people aren't afraid for their jobs

anymore it seems like they're these staggered like seven percent reductions which don't make a lot of sense to me well actually I think it it should be exactly as you described in the latter example there which is let's find out who's actually working let's find out who's performing let's find out who actually needs to be in their jobs and if you you rock the boat a little bit and then you say hey another one's coming another 12 another 10 another five percent is coming who wants it who wants to be you know part of the continued Force who wants to go to business school who wants to get out of the company who wants to go off and find a startup I I think it's actually the right call to do these in standard form uh just because you find out who the high performers are Tesla's logging

keystrokes of workers now at uh at HQ I mean I don't know about you Michael but if my keystrokes were logged when we were at Netflix like it would show me doing good work probably 60 70 of the time but listen there's a lot of just like downtime at these technology companies totally I mean listen like my my boss at snap I first meeting I had with him you know step into his office and figure out what I'm doing this his perspective was like listen get your job done hit your kpis hit your goals every quarter if we're ever in the same meeting something has gone wrong think of me as the chairman you're the CEO of whatever you own and like that's it I don't care if you come to work I

don't care if you do this but just like hit your goals I think if you have like that that mentality of you know ownership but not management I it can work for certain people but yeah there are definitely days where you know I was off doing other things um and you don't need to if you if you hit those goals I mean crypto was pumping in 2017. somebody had to load those bags up with Litecoin SRP army xrp army baby yeah I mean everyone it was just so fun I mean that's just a that's gonna go down as a Hallmark of 2021 I feel like it's the like day in the life of The Tick Tock

product manager or whatever so painful those are not aging gracefully you know it feels like technology has largely taken the medicine of a lot of rate increases and just people getting a little bit softer on the asset class in general it seems pretty great like imagine if all of these businesses are super efficient and keep scaling that was kind of the bargain that we at least sold people from the start and it's nice to see it getting fulfilled there's a uh you know this it's funny there's like a monger there's a just because Charlie Munger is out in force uh this week but I actually love Charlie Munger by the way like he's got a great Almanac and I like Buffett and Munger never read that yeah he's got some sayings that are you're like yeah it's like kind of folksy wisdom sort of saying I mean

listen he is the person that coined you showed me the incentive I'll show you the outcome so like give him credit where credit is you but at the same time he's 94. he has no idea doesn't matter as soon as you hit over 90. nothing Burger having a 99 year old comment on technology why is he doing this like who which part of his team is like you know what new tech that the kids are playing with like let me just stay out of it I don't I've been out of the game for 30 years you know no is he still oh yeah yeah oh yeah he's

he's still number two at Bircher I would love to be a fly on the wall during those uh discussions they have imagine how long a conversation between the two of those guys you literally can conversation must take your saying look how slowly yeah actually it's a 99 year old and a 95 year old my grandma was like 95 I went to see my grandma before she passed a couple years ago and she's like I think she was 94 95 and she didn't know obviously what like Uber or SnapChat or any of that stuff was and I was like all right Grandma I'm gonna call an Uber and she's like well like what's uber and I was like and I showed it to her on my phone she's like oh that's so cool like show me all these apps I showed her I was using snap this is like five years

ago or four years so it was like Snapchat back when Snapchat was cool yeah don't throw me on the bus we're still using snap and like uber and all these things things she just looks at me she goes but doesn't that mean someone's always tracking you yes currently like wow we have given up on the whole track but that was the first thing it's actually the business model yeah yeah you know you are the product all privacy for efficiency grandma that's right I mean yeah like hats off to them for making an investment in apple but like that's the closest that they've gotten to Tech in in five decades so what are you gonna do I mean it doesn't really it's I agree it's kind of a nothing Burger in general uh also

also it wasn't even Warren or Charlie that made the investment in apple you know that it was like their Lieutenant who basically founded the table and was like we have to do this and that's been their number one investment in history Berkshire Hathaway paddling torn syrup and and caffeine to kids most money made on most money made on iPhones and the reason he did it too is because the that's when Apple launched their huge buyback program it wasn't even like a bet on the tech it was just the BuyBacks exactly yeah you talk more okay so the overview is that blur is it's a it's an nft Marketplace in aggregator and it launched its own token on Wednesday or did uh an airdrop uh so it dropped to over 33 000 unique wallets

um there's a lot of volatility that followed bid games and bids came in around five dollars uh they dipped as low as 50 cents and then they settled uh just under a dollar I think that's puts blur at about a 300 million dollar market cap and you've had two points haven't fully polluted so this is exactly the topic that I was gonna bring up which is how do you guys stand on market cap versus fully diluted oh my God there's only one right answer please all it's alluded is that fully got it you've got to say it's a 2.7 yeah yeah sure yeah exactly there's circulating Supply and then there's market cap but yeah fdv and market cap and the same thing 100 it's also usually a sign when people start saying like fully diluted is a meme like don't worry

about that it's like oh yeah you're about you would like that wouldn't you diluted yeah I mean listen people are launching tokens they're trading nfts like it's 2021 there's dog coins there's AI coins it's kind of a pandemonium right now the burn on eath is gigantic there's 4 500 Ethan revert today I think openc the main story is open sea just like fumbling the bag they just they got to figure it out if they don't figure something out soon they're just gonna get run over I mean most of the people that I know that trade nfts are trading them on blur it feels like that's become I don't know people yeah I don't know many people who use openc anymore no it's become the primary market for Price

Discovery and once you lose price Discovery as an exchange it's extremely hard to get it back like bittrex used to be the main venue for all coin price Discovery and then there was like a three month period where binance launched and it just never came back like that that can very easily happen to a lot of exchanges especially that you know don't have the the huge Pro Traders like openc is now I would say like long tail retail for the most part and like last or in 2021 I remember one of our LPS was reaching out to us to get openc secondary we're like we didn't invest he was like yeah I know but like can you get any it's like no like what even at 13 and a half billion the last valuation so it just goes to show you how kind of far

they've Fallen blur seems expensive but I don't know I would say it's probably the number one nft marketplace right now it is the number one nft Marketplace but at the same time nfts like you don't have the same aggregation of liquidity problem as you do with fungible assets where I I see the future of nfts actually being traded in like more of a bespoke way where you're going to have individual marketplaces for individuals vertical assistant places verticalized marketplaces right now all we're talking about is like pfps and that that's really all that blur has but I think the future especially with like ecosystem tokens or like utility tokens for with nfts that's going to get traded in a different venue than blur or open C so I

I see the fragmentation actually happening a lot quicker in nfts blur definitely has you know the eye in the sun right now but I I don't know I mean at two 2.7 billion fully diluted there's also a lot of incentives driving a lot of this exactly there's like another season of air drops there's you know this strategy works until it doesn't and we've seen things like X2 Y2 and looks rare all kind of like begin the the start of this playbook in a very positive way and and now they're you know a couple hundred million fully diluted so what what do you think okay here's a question where do you think blur versus open Z volume will be in six months from now once the air drops are done what is it I don't know what they are

both right now it's two to one right now blur to open C I would say probably 50 blur and then open C has double their volume so yeah you know but volume isn't really uh the best proxy here because blur doesn't have these massive fees point five percent openc is 2.5 right I mean you can Finance the same amount of you can Finance 5x to the amount of wash trading on blur versus open c for the same dollar value fees so you're always going to have that I think you're always going to have people who are incentivized to wash trade like look at dydx there's still so much wash trading

there even though the incentives are pretty stale at this point and probably gonna end soon so it's kind of hard to tell what's going on with the royalties debate right now is blur do blur and Open Seas come at it from different positions I actually don't know where they settled on this I think blur was like no royalties openc was royalty I I don't know the I know they approached it differently yeah I think blur has the ability to have royalties uh but it's not something that's forced I don't know what you guys think about royalties like I I'm personally on the boat that like if you create such a valuable like a value enough collection then you can demand that but like I don't think royalties yeah I kind of Select like there's a

there's a big um one of the things that I don't think is well understood in the nft community is there's a huge power law when it comes to content creation it's like we were talking about in the context of VC it exists in like sales and Engineering or whatever but like content there's an extreme power loss so I think I know this isn't the answer that people want to hear but it's like the top you know point one percent or probably less probably like point one percent of creators will be able to command that and the rest I don't think there's going to be a royalty listen royalties are just a new business model if you have the ability to command a royalty you should take it yeah if you don't and that's not your business model you shouldn't have one yeah you're also going to see a bunch of roll ups that

like are only royalties like you can't trade nfts without that and like you're seeing even some of that stuff play out in Kanto right now but you know if you if you can demand them you should but you should also set up your project so that you you know mechanically can collect them most people are just complaining that their nfds are trading on blur and guess what nobody cares yeah uh it's been interesting to watch um what that's done for youth issuance as well um which is it's like yeah I mean like I don't know yeah it's been down only and I can share my screen I mean anyone can kind of look at this it's the ultrasound yeah I mean

it's it's pretty significantly negative yeah and it's I mean even with blur and I know that caused a lot of activity I mean this is still fractions of what it a photo would be during a during a bull market so I mean basically is that like 700 for a couple hours when blur airdrop was happening like that's just you know yeah it's unheard of can we debate this though for a second like this this feels like I know eth people going crazy because like boom burning a lot number go up but this feels really not good for a network that needs to be used like if the network can't be really used but every time there's like a big event like this why is that a good thing it depends on where you're using the network

are you using it on optimism arbitrum or or mainnet and if you're using mainnet like the blur airdrop was happening then yes gas fees base fees are going to be higher if you're using it on any other you know layer two layer 3 app chain whatever it is I I think and you're leveraging the eth base layer you know it's still on ethereum but you're not going to experience those fees last time I went to go you know we obviously State synthetics last time I went to real claim fees it was 27 cents you historically that's been like 12 13 so I I generally think like most of the activity is going to aggregate around player twos and those are going to feed into into mainnet and that's just going

to be the model that most people end up using the other model too and we're starting to see this with games running your own uh supernet subnet and having most of the activity be based on something that doesn't actually directly go down into the main net most of the activity is going to aggregate on these subnet supernets where it's run by validators that are you know the game ecosystem itself and those validators are going to be you know something that goes down eventually and confirms with mainnet but it's not going to be something that you actually have to pay a fee to use yeah it's it's interesting so I guess the if you almost think about like the customers or the clients of eth it'll be like kind of the probably the bigger

apps like I mean I guess eventually even something like uniswap would migrate to an L2 or something like that but um but I guess it really becomes like the l2s or the big clients because if you know eth is unusable right if if ultimately like given a blur airdrop like this uh basically makes it super expensive to operate I mean on ultrasound.money you can look at what the biggest burns are and it's most of the main apps but you know up there is arbitrum yeah nope and optimism yeah the other interesting approach that Hayden was talking about on Twitter Hayden Adams the founder of uniswap is basically like having different application specific

eip15559 curves and this is how Solana does it where like if you're an nft Marketplace your transactions are being processed alongside all the other nft marketplaces and so like uh you know clogging that specific slot doesn't clog the slot for like D5 that's kind of just like another interesting way of doing it people are going to start to figure this stuff out but I think eth is kind of trying to do this step-by-step dance of having enough fees on the base layer to secure all the other l2s and meanwhile kind of like slowly dripping more users and more flow and more defined nfts towards these l2s as use cases and then having them take over the you know basically paying for security at some point in this transition and so it's never going to be

like fully clean but I'm super impressed at how high the burn is and how much usage there is and I think that was like one of the main things that people told us was not going to happen in the bear Market it was like it was going to be like 100 youth burn per day and that just hasn't played out at all 100 and it does seem like I know uh Vance one of your uh predictions at the beginning of the year was that it's going to take a little while longer for the zks than than people think but it does seem like like there's a lot of progress happening on you know uh arbitrum and optimism with everything that they're doing with with bedrock there's a whole like layer three like and kind of roll app uh narrative that's taking hold and um shout out to David Hoffman who did a

bunch of great interviews from uh whatever the I forget the names like Star Wars sessions but there were you know seven or eight uh specific interviews that he did from the conference they just had in Tel Aviv that I thought was really good seems like that ecosystem is alive and thriving so listen there's like five different people who've launched the first ZK evm today evm yeah yeah matter of lives yeah everyone's got the first congrats everybody it's polygon matter labs and Ezekiel sync the same thing as matter labs uh uh I forget I think they reassed didn't they Rebrand was it don't know congrats congrats to them anyways like there is no more scaling problem we have more block space than we know what

to do with at this point yeah yeah I agree with that so does that so how would you guys feel like with that said Vance I mean are you guys interested in like or seeing any interesting applications I know you guys are interested in the gaming space in general but like apps that are is the next like Frontier kind of apps that are being built on that leverage these this L2 block space Oh Yeah like pixels is a game that's scaling and doing really well and and the luffium has got a lot of people in beta and just needs to hook it up to the chain so like those are the two that we're kind of looking at in terms of the standard barriers of you know what games could be successful you also have things like shrapnel that are you know still in development but you know getting closer

to launch and games are taking longer than we expect but I don't know it it feels like it has to be games like last cycle we were looking for a use case and like we accidentally found defy we're not going to find something out of left field this time like like what would it be you know like it doesn't really make sense to think about it that way it's more so like how do we apply the existing technology these consumer verticals and it just has to be games like music nfts not enough people content doesn't make sense yet Commerce like really not there yet on the merchant side it has to be games yeah social crypto social crypto like awesome to see for our caster and lens doing what they're doing but I think they have like 10 or 20 or 30 000 users

it might be like I don't even know what the expression would be after beating a dead horse but whatever it is is what I'm gonna say which is like we still have a metamask problem like we still have the issue of like oh you want to use this app like here download this thing called metamask put it into Chrome put some value into it actually access it sign a message like that stuff is still an impediment to growth and as soon as somebody solves the metamask problem it will be hockey stick growth but until then I I would not expect there to be any sort of application Discovery frankly like one of the reasons why we love games is because most of the games and most of the game developers understand this

exact issue which is that they also have a metamask problem how do they get people to sign up username password email password whatever it is like sign up log in build a custodial wallet like actually create a wallet on the back end that has all the assets that the user has don't even tell them that there's a wallet on the back end until they until they ask for it and then say Oh by the way like we've been logging all these roads we've been like keeping all your assets we everything is in this asset Vault but now you can actually use it like that's the model that most people understand and frankly the one of the reasons why why games are exciting to us is just because game developers understand this really really well they're like I I can put zero blocks in

between a user getting to me and using my game they've been doing it for decades so I'm most excited about that um let's let's talk for a little bit about uh the new product that flashbots just launched um so flashbots I think this was announced yesterday but they just announced uh any a new protocol called Mev share um it's a permissionless and private matchmaking protocol between users and Searchers uh which you know by their own this is kind of a summary of the blog post that they release but it has the following benefits so for users or wallets or applications it receives the Mev that their transaction creates so it's kind of a way to redistribute some of that Mev that their transactions

create back to users for Searchers um this is it's it's kind of like private order flow that they're getting so they're extracting Meb from transactions that they otherwise wouldn't have access to uh and Builders again just kind of more additional order flow that they wouldn't you know necessarily have access to um uh I'll pause I can go into kind of more technical detail but I'm curious if you guys have any have any takes on on the Mev share is this live yet or when is this going live I don't uh I don't think it's live yet they just announced it this week as solution I mean to kind of like at a high level I think there's two approaches here for wallet monetization there's there's the map approach which is we're going to Route everything through stuff like uniswap

um which creates this externality of Mev and then you can go monetize that or and that's what's called a user has the last look type of transaction where the user clicks and and they can actually get it you know executed autonomously so it's the first one the second one is called payment for order flow which is a market maker last look where the market maker prices it there's no slippage it doesn't go through an amm there's no Mev externality and that order flow is monetized and so like those are the two approaches which are coming to the market basically right now and like flashbots was kind of V1 and like Suave is going to be V2 for like MAV monetization and wallet monetization and things like that I think both are interesting I think you're going to get better monetization

as a wallet through something like payment for order flow because you're monetizing more of the transaction in a more efficient way and and frankly you know it's going to be a little bit more competitive just pricing wise versus things like flashbots or or Suave so that's kind of how we're placing our bets but it's cool to see a lot of this stuff moving this direction I am somewhat bearish on on Mev in general just because like the apps used to be so poorly designed and like people would take advantage of them and it feels like we're moving away from that both in like the sense of paying forward or flow and also just like optimizing existing smart contracts for Less Mev so we'll see but you know this is one of the stories that's playing out this and and probably more so next year as well

it's a it's kind of a different place in the value chain as well to like the Mev value chain to extract that that value um so like if you think about where that transaction originates it's it's literally with the the wallet right the user is make has some kind of intent to do some sort of transaction like a swap or something like that and they place that through their wallet so that wall maker kind of has a natural Advantage because they have the information first and then all the way at the other end of the chain you have the validator so I'm a little biased because I just did like a a long episode on this earlier this was that was the bell curve episode this week but they were taught there there is a possibility I think you can have block space Mev sort of auctions and then

order flow Meb auctions like I think they can actually coexist in the same way that you have a market for like buying Apartments versus renting apartments but I the question is like where is more value going to get extracted and this is also a private uh order flow uh you know solution as well which is I mean maybe this is definitional but like what is the difference between what you're describing in payment for order flow like for all intents and purposes so this is where I'm like this is where I'm really reaching out like um eventually it's it's the ability to settle so like there it's possible that like you can buy some order flow and uh you know that gives you some information

like it's helpful for me to think about this in terms of like let's say I'm Citadel Securities and I just bought a bunch of order flow from Robin Hood they they have a different position in in the market structure right where they can actually internalize some of that order flow these market makers won't have the ability to do that so the way they could profit off that order flow they might need to actually buy space the block space as well so that they can actually order the transactions so that's why there could be two separate markets just a question of which Market is bigger in my mind right like it's paying for it floating gonna be 90 of the market and like you're only monetizing Mev 10 of the time yeah because like they are competitive right like if you enforce one standard

for the most of the market Mev is just going to be a lot smaller and paying forward or flow has the advantage of better pricing and better monetization for wallets Mev doesn't really like that kind of seems like you know V1 technology so we'll see we'll see there's also a uh this is act this was pointed out natash I think you get you guys led the the round for for D flow with multi-coin really sharp guy uh but he pointed out too that there's a they're really specific laws around you know the SEC has about like offering best execution for retail Traders and in crypto we're just like oh yeah well we'll give them like shitty execution but we'll kick back like 80 of the rewards to the users and as he's like

not gonna like that not strictly speaking totally legal no no like you're kind of like you know you're not like front running or back running but someone is doing that and then you're monetizing on their behalf versus something that is a auction of known market makers where you're quoted an exact price and you'll get that price that fits with basically all of the existing SEC regulations around how these things are supposed to be served like if you're a wallet and you're like don't worry what's your business model or oh yeah we're monetizing Mev like you're gonna have to speak to somebody at some point about that I mean not to say that this is exactly the same thing but and also going back to the QC commentary it's not hard for us to do this but

every single quarter we have to put together a best execution report that eventually will you know be discoverable by the SEC as a registered investment advisor we have to make sure that we are going through the process we're not giving any Kickbacks we're not paying any fees in addition to what we necessarily need to and we're getting best execution with any of the trades that we're making and that's something that we have to put together our chief compliance officer you know does as a registered investment advisor imagine you know while it's being under the same guidance being under the same requirements like if you're doing an OTC trade or something you're like I head up this guy trust me he gives really good prices on uh

I mean it matters what your counterparty is it matters the communication you know like are we talking to coinbase OTC are we talking to Falcon X like who whoever the counterparty is is something that we have to log but then we also have to do a report on what was the average trading price for that day or that hour you know did we actually trade at you know whatever it is five dollars and like the average trading price was five dollars and ten cents like yep okay looks like you got close to did you trade it if it was average trading price of 510 was it like two dollars and three dollar kickback so you know we have to report all that yeah imagine your your user fat fingers something and you're like yes I just monetized all of that meth

what no like the cftc and the SEC are eventually going to look at the wallets because there are a lot of where most of the flow originates and they're gonna ask how are you treating your users acceptable answers include payment for order flow where everyone has a fair shot at an auction non-acceptable answers include we're monetizing MAV and when people fat bigger things it goes back to not best execution venues it goes back to Yana and his grandmother if if you're not paying for it you're probably the product oh yeah bigly your your grandma would have seen right through Matt Vienna wait so they're monetizing you so they're not giving you best execution yeah

oh what but then what do you think because you know my like super five-year-old brain version of Mev is like value has to get extracted from the transactions that are getting created like a lot of what we're doing is just routing and settling transactions like that's what financial markets are mechanically and their fees that get extracted along the way like my like that's kind of where I bucket Mev in like in my brain so like I'm curious how do you guys see Mev kind of evolving like what are some of the interesting products or strategies that you've sort of seen I mean the elimination of Mev is probably the most interesting one where you just move to like a fundamentally different model there's also different verticals in every Mev there's like the

D5 Mev that's associated with that there's also like the the gas auctions with all the Goombas that are trying to get after like the nfts like that's a different type of map and that's monetized differently like there hasn't been that much exploration on that side so like interested in seeing how that generally manifests but I think we're getting to a point where Mev a probably isn't the best execution for users and and B puts people who monetize it in a strange position like there's a reason why you haven't heard of the biggest Searchers in muv they're trying to keep that under wraps and they're trying to basically not be known at all even though it's one of the most profitable corners of crypto you know and and like the there was like a congressional report which happened to

include Mev like people know about this and and it's like generally one of those things where you know days in the life of a turkey like Mev seems like a great business model until it gets you in a lot of trouble um and I think just eliminating it is probably the safest path for most of these wallets yeah only thing I'd add is the best way to get rid of it is to define a Marketplace for it and let it compete itself away and if you can I I would actually lump like the definition and I know we talked about this before but like traditional Mev you know is one thing but like maximum extractable value like that concept also includes payment for order flow which I think can get you best execution like there is still a business model around payment for order flow as

Citadel Securities can attest to and on that matter as well like you can't have sandwich attacking your users that just doesn't look that good no it doesn't if you're putting if you're putting up that order flow and that block space up for auction that's a totally different outcome than like sandwich attacks on unit swap just a different ecosystem well there are also like tricky weight right like Citadel see the meme about um Citadel front running you was like right and wrong at the same time because the this is again a super simplified version of it but Citadel is not like buying access to trades that come from Robin Hood and then trading against those people but it is it does understand that order flow is very

correlated so if there are a bunch of buy orders coming from for gme then you know that there's about to be a bunch of buy orders for AMC and then you can so you the people who say hey no send it all this is in front running like you're technically right but they're also wrong in principle because you're you're just fund running a different group of people uh with your Alpha the other reason why Citadel is buying that order flow and and this is you know like obviously they have a business model where they can monetize it but it's also getting you immediate execution on Robinhood like there is a consumer advantage to actually having you know someone buying and bidding on that order flow yeah it makes it better consumer experience do I care if my Apple buy goes in at like 109.10 versus 11 cents like not really

yeah you know I'm playing for a different ball game but they do and if they can make that execution happen then that's great yeah it's just I mean mev's kind of been happening on in Trad five Mark I think this is why all the hft firms like it was like one day like none of these guys were involved in the next day they were all like you know super deep in all in all these ecosystems I think it was just easy pattern matching they were like oh yeah we do this like every day and this is all like legal and here uh so I think there's that was part of the reason why like these guys all got deeply involved I'm also in some of the alt ones you know how much money did Citadel make last year 16 billion [Music] yeah billion dollars of profit and that's net

of fees yeah winning Ken Griffin Ken Griffin does it dude thanks for watching over game Ken yeah yeah honestly honestly honestly he can have the Constitution I don't care yeah as long as he takes over again and make sure it doesn't explode is that confirmed did he did he take a big position in silvergate 5.5 yeah Citadel Black Rock there's like a few other big foreign like Citadel I mean silver did not dead eight billion dollars of bank run still survived yeah Legends dude they're great I I love silvergate I will say I um yeah

I host other Roundup with Mark yusco who uh I have a lot of respect I've always got some out there ideas sometimes some theories that we don't necessarily agree on but uh but I will say the predictive power of this particular uh this particular theory of his was like they're gonna find a way to like blow it up and then when it's all down they're all gonna take big stakes and it is like Citadel and BlackRock they all took stakes in the crypto Banks and there is a there is a a very uh possible future where the on the on-ramping to crypto this would be like a bad sacrifice to make but like the on-ramping to cryptos owned by uh like tradfy I think they end up winning that on ramp it probably

should be that way that's fine just let us create ustc bring them into the fight yeah that's actually a good thing portion them out coins okay cool now you have skin in the game all right let's go silver Dia token yeah yeah interesting none of those guys wanted to buy crypto at the all-time high so I'm glad they're here yeah yeah they are hi fellas I think that was basically all the stories this week anything else you guys wanted to chat about I mean as we're talking about I feel like a lot happened this week but at the same time not that much happened

just another week another day in the bear yeah another day I I do think um over 2K I think people are gonna be like but are we about to do this I was about I was literally about to say you know the the most like Common Thread that I've seen so far on Twitter there's been a couple people talking about it in the last 24 hours it's like Max Payne is not like you know losing all your crypto it's Max Payne is losing all your crypto but also watching it pump oh yeah I think I think there's gonna be a bit of a fomo bit here yeah people are starting to lose their minds this isn't supposed to be happening same thing

happened with covid remember everyone was so pissed that we were rallying because like it was a health pandemic and we shouldn't we shouldn't be doing that guess what all the epidemiologists guess what Advanced is bullish I don't think there's been a second where I haven't been bullish well this uh tonight we were with one of our portfolio companies we're hosting at poker night there's 110 people rsvpds it's gonna be a pretty big uh how do you so will everyone play oh yeah I'm picturing like uh casino night in the office kind of vibe like uh people gonna get dressed up because it's gonna be like a whole Affair yeah uh one

of one of the people at the company who's co-hosting it with us said I'm walking in Like Larry Bird who's coming in second [Laughter] guys going all in on the third hand losing all this money I'm literally a gambler I'm literally going to take time I'm going to take his Jordans I'm gonna make him bet his Jordans and I'm gonna take him you're an inspiring leader Michael not only am I gonna Crush you I'm taking your sneakers have like a COO a framework or like a no we we got like a number three guy um who's who's kind of utility player yeah we also have a general counsel a

Chief Financial Officer or chief compliance officer like we we definitely got people but I don't know much Flex on them uh an investment firm is not really structured like a typical company obviously obviously yeah yeah it's different all right all right guys cool all right this was a fun one cheers fellas thank you