Operation Choke Point: Is Kraken the first domino? | 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 let's give an AI money and see if it can like grow it into like a trillion dollars that's how you create something like Skynet and that's what's most exciting to me personally all right everyone welcome to another bell curve Roundup you got Michael's wanted to advance and we've shed the dead weight with piano being gone this week fellas

how you doing there we go there we go is he in Morocco again he's in Mexico he likes the ends wow tough life for you guys I know a lot of vacations all him man oh him I'm here every week weekend and week out to take it up um where you guys go that's a new background for you Michael where where are you um I'm 90 degrees to the right in the same room that I normally recorded So a whole new feel I like it totally new feel yeah yeah I like the feng shui yeah it's nice exactly that's our office yeah oh cool like the brick the brick is good um all right let's just uh let's get

into it because we we're recording like 30 minutes after the the announcement just came out about crack and having to discontinue their staking service so um it's been a tough week for the exchanges overall so a little while ago Nick Carter tweeted about a new uh operation choke point type thing and we can get into exactly what that means but you know basically earlier this week binance tweeted that they were going to suspend uh US dollar transfers um that you know Brian Armstrong also tweeted that they were quote hearing rumors that the SEC was likely to get rid of crypto staking in the US for retail customers and as of about 30 minutes ago so it's kind of a developing story uh we knew that there was a probe an SEC probe into Kraken and they

confirmed that they are at basically bringing to an end their their staking service for uh uh for e-stick on their platform I'll turn over to you guys I don't know what your what your thoughts are on all this high level so uh one point of clarification I believe and and once again moving in real time uh at least Brian Armstrong's tweet yesterday suggested that it was eth stating for retail customers only that institutional would still be allowed to stake uh I I think this is going to be the devil will be in the details right when we finally see what's the point that the SEC is particularly making around what and why they cannot continue forward with this retail staking operation

um I believe Kraken has their own liquid staking derivative LSD token that represents the the eth being states on the platform I I'm almost sure about that uh but I know that coinbase does in the form of CBE um my guess and this is me you know without a legal degree nor ever being a lawyer is that their view is that the creation of that token while staking which generates a yield either in the form of rebasing or increasing the amount of eth that you'll be able to withdraw when you reclaim that eth is the is the creation of the unregistered security and offering that to retail uh is probably something similar to what blockfi got hit with which was earn

accounts for retail where you're putting up crypto you're putting up digital Assets in return your those retail accounts are earning a yield by just having those assets in that account uh obviously it's very different because it's not rehypothecated and lent out to some nefarious characters as we saw in the case of block fi but this is something that looks and feels on the surface at least probably pretty similar to in the eyes of the SEC probably pretty similar to what those earned accounts uh were doing and also keep in mind the SEC already said no to coinbase being able to do the earned accounts themselves whereas other platforms like Gemini continued forward and offered that to retail so there's just going to

be a lot of stuff to unravel here um we're interested in waiting to see what the actual complaint is what happens with coinbase and at as of like 12 15 Pacific nothing has happened with coinbase other than Brian's tweet but I feel like there's going to be other shoes to fall here um so something that we're watching very very closely yeah I mean like not a whole lot unique to add to that it's kind of unclear what exactly is being targeted right now like they have apy percentages advertised on their website they have a lending program as well that's advertised on their website like it feels like there's probably a few things and I think the difference between you know Kraken witches today and coinbase which

might be next week and and the Brian tweet seem to kind of summarize that there wasn't any Outreach that had already happened kraken's small and a fine could potentially kill them and if the staking business isn't that large and I'm trying to find the data right now but I can't seem to pull it up my best recollection is that Kraken had hundreds of thousands of each staked versus coinbase with like probably Millions um you know that is a business that they're probably willing to seed if the fine would be existential slash kill them whereas you know if coinbase is you know they have 1.2 million cbes now they have you know probably Millions more

centralized State teeth as well like that is a core part of the the future story of coinbase I would expect there at least to be you know some pushback from them in the process of getting this settled but it's very unclear what what exactly is being targeted at the moment and and just to add on Twitter uh one twin point I believe in the filings for the last quarter coinbase's Revenue 11 of it was staking Revenue uh they didn't break it down between retail and institutional uh but you can imagine based off of how much institutional you can assume based on custodials 18 and then CBE which is retail which we know is about 1.1 million each right now you can assume that it's a probable probably a pretty significant portion of that 11

is to be retail so this is a direct shot at that Revenue stream and and tier 10K DB just uh just reported that it's a 30 million dollar fine so so it looks like it's kind of an open and shut case at the moment uh and it's just to clarify too why that that revenue is important to coinbase they you know it's important for Wall Street or how investors are valuing that business because you know they're very transaction based right now they're trading fee Revenue the you know most investors assume that's going to go lower and lower you know kind of a race to zero over time so what Brian wants to do is grow that subscription part of their business or the services and subscription part of their business which is largely being driven by staking right is that fair Wall Street Wall

Street loves sustained Revenue growth and the best way to do that is with effectively subscription revenue and the best way to have subscription revenue and in crypto is to have staking returns just because over time you know as obviously the dollar value goes up as the value of the tokens go up and likewise they go down as they go down but over time you can assume that the Lindy effect will take over people will build trust there'll be more use cases for the stating operations themselves and that will become sort of like a SAS almost like Revenue business so the market doesn't like this so you know this was announced about 30 or 45 minutes ago Market's trading down about four percent uh obviously I think people are already a little bit jittery just in general about how the regulatory

apparatus in the US was going to react to everything FTX I think you know if we're reading the markets correctly you should read uh this would suggest that like you know it could be headed in a bad direction do you guys think this is kind of like a canary in the coal mine type situation and there's more pain to cut more pain to come more shoes to fall the operation choke point stuff I'm less worried about where it's kind of like this uh Shadow cut off of the U.S banking system from crypto I'm less worried about that because crypto has been through that before and and there's actually very little there's very few amount of counterparties that need to directly interact with a bank and crypto at the same time um and we have stable coins now and so like we kind of know how to patch that

while things you know generally improve um but there's other stuff as well like I was trying to buy and I don't know if this is related to operation choke point or things like that I was trying to buy eth for one of my friends so you could participate in nft sale it's a rainbow and I bought a bunch of ether rainbow a bunch of times but at this point like my credit cards don't work my debit card doesn't work like the auth rates seem to be falling in terms of just being able to buy an on-ramp onto crypto and visa and MasterCard in the places that matter to retail and so those are the things which you know what probably slow the space meaningfully uh in in the the long term if that continues but we don't really expect that to be the long-term prognosis for for you know the banking

system and the credit card processors I think this is kind of like a temporary backlash against all the stuff that happened not even three months ago um so so not that surprised as well yeah one of the things that whenever we're failing doom and limb Vance and I'll be like all right what are the worst and worst case scenarios what are like some of the you know Black Swan event type stuff and um you know you can get you can go down rabbit holes let's say with with all that and every once in a while we'll do that one of the things that we were talking about earlier is is you know way stronger than than this frankly and I if this is really kind of like the biggest shot that they have and you can assume

right uh you know staking has been real proof of state has been live since September of last year it's taken six months to get to this point CBE I believe also launched probably around the exact same time as as the merge happened and proof of State went live it's it's taken a while to be able to get to this point and I would imagine that they've gone through a bunch of different you know different scenarios different paths you know to be able to get to a point of what seems to be the ultimate goal which is shutting down things that are you know misleading or nefarious uh for retail and I I'm not too concerned really if this is the biggest shot that they've got granted we

once again recording at the time when we are if there are bigger things to happen you know who knows uh but it does feel like if this path is true and I I you know maybe Brian doesn't know I would assume that to send out that tweet thread there's probably been some contact at some point and they're probably discussing it so like I'm sure that this is a conversation that's happened between the agency and all the different operators of these different platforms so far and I'm not really like that negative if this is if this is the worst thing mostly because like I'm ready for just about anything to happen uh but you know this this doesn't feel nearly that bad yeah just to put it in perspective as well great Point by

Michael um last cycle we didn't have stable coins um I remember when it was Bitcoin Ethan ethereum classic trading on coinbase like like yeah we have a lot to lose at this point because we've built a lot and the ecosystem is very robust but like we were like cavemen with like sticks and stones like even five years ago so you know we have yeah like three three years ago you know you build up 100x you get back 50x you know you build up another 100x like you like that's kind of how this industry has worked for as long as we can remember it so I agree with Michael like assume the worst case possible can happen it still really doesn't disrupt the trend of crypto taking over the world if it really is as powerful as we think it

is yeah I agree with that just by the way we keep using this phrase operation choke point just some background on that that was that was an operation that was launched by the doj uh back in 2013 or something like that where they sort of had this informal Blacklist right that was enforced against agencies that sort of the Obama Administration just didn't love a lot of them were pretty unsavory it was kind of like payday lenders which no one's really going to raise their hand and say hey like payday lenders but then you know there were ones that were more in the middle there were like firearms and fireworks and stuff like that and then there were some ones that I frankly I don't think would stand the test of time that well there's actually dating sites were on there I don't know if you saw that but that's a little bit

of a moral judgment uh you know pornography which is again kind of coming into the force so like it just just shows you that even in you know 10 years or whatever the uh you know the the wind the Overton window can shift on what's acceptable and what's not and I think it was it was actually ended up being a highly criticized operation because they went you know there's there's a way that you can do that right within the law right that has to go through Congress and you have to say hey this industry isn't conforming to laws or standards that we like but they kind of circumnavigated that then choked them off financially so I think it ended up actually having a pretty poor Legacy um although maybe the government people like it so the SEC letter just came out um and the key quote I think I've like

read this for five minutes two minutes at this point whether it's through staking as a service lending or other means crypto intermediaries when offering investment contracts in exchange for investors tokens need to provide the proper disclosures and safeguards required by our Securities laws that's that's Gary Gensler so it does look like they did Target the staking program that was offered to retail um and that was the source of the friction with the SEC um yeah can you guys just describe by the way I I don't but can you just describe why Gensler thinks that's uh uh that that staking product is like an investment contractor not a lawyer we're not we're not lawyers

we can't we can't discuss that I mean just like my very Rob like basic understanding um I would say whenever you're presenting something to retail consumers or retail investors I mean look at what happened when Gemini earn how many people actually realized that Gemini earn all the value that was going into that to get to four or five percent yield was actually going to one counterparty who's making loans out to institutions like three arrows Capital you know how do you how are you able to ensure reliability and safeguards for people who lost a ton of their money look at the window boss letter that was sent out you know the teachers that lost life savings or um you know there are actual risks in

this industry and if you're giving access to retail I I think that you have to you know put in the right safeguards put in the right disclosures do people read those probably not just in the same way that you really understand how wealthfront is giving you or how Robin Hood has given you three four percent on your your latent cash in those accounts I mean they're probably going off and buying T bills but you know I don't know if most people actually know that and and so I think there's that element to it I I also think at the same time lending is a very different product in a very different operation than staking and I wish there was a little bit more Nuance in being able to compare the two because yes there is the the opportunity to lose your state if one of the validators that

you're staked on you know slash get slashed or you know does a double spend or whatever whatever may happen to lose that value uh it doesn't feel frankly and maybe this is just like hindsight being so terrible right now uh it doesn't feel like there's that much of a risk as there was when you're doing opaque lending to other you know crypto institutions that you know may or may not be solvent it just feels very different and so to bucket ties them all into the same thing I think is is tough but it seems like that's the tack that they're taking so the the last thing that I'll kind of say on the the more negative front before because I think there actually is a positive spin to this uh I'm going to sort of determine like look for the Silver Linings here

but it's just you know if you zoom out and look at it like holistically from a high level it's it does kind of I understand that there needs to be safeguards uh safeguards for retail when you're offering stuff like this but take your you know put yourself in the shoes of an entrepreneur in this space who's trying to you know act in good faith and engage with the SEC and and build new products in crypto I mean it's never looked Bleaker to do that than in the US right now so like the business model of the US is like we are supposed to Foster Innovation here and then make sure we take a cut and we're industry leaders like that's that's our business model as a country and I don't know it's it's I'm sort of just reacting to this live but this just seems pretty counterintuitive it's

always give and take it's always back and forth It's always who's in office who's at the SEC what's their their tact and their positioning and those things change um but like this really is not the worst thing that could have happened no they're not like slightest like the worst case scenario is come up with are pretty insane um and so when you think of those this isn't that bad I don't think I want to scare anybody um no fun no fun no fun no fun pods but I I do think there is a dynamic to this which I've alluded to of um what is the maximum fine that Kraken could have taken if they fought this versus what are they willing to sell settle for and and just put this away and and keep going on about their normal

business but but to Mike to your point so one of the things you know we we have definitely been active in in talking with Regulators talking with policy makers um over the last couple of years we've been you know we're a member of the blockchain association we try to keep our our finger on on the pulse of what's Happening obviously it's been pretty negative over the last six months and nine months um but what really you know enables what you're talking about but also defends against the and provides the safeguards about you know what we're talking about here what the SEC is talking about here is clear rules if we had clear understandings of what was okay what was not okay how do you how do you build this how can you not build this you know what are the confines of you know your

your sandbox that you can develop in before it gets to be something that you release um what are the disclosure requirements for different types of it's like none of that exists right now and we're we're going back to Depression era laws in in many cases or case law from the last you know four or five decades ago to actually develop Concepts of what we can apply to 2020 technology and it just doesn't map so I agree I think it's not it's not a failing of the agency because they have you know only the tools in their toolkit to protect and and do that but it is a feeling of us not having clear understanding or clear laws to be able to move forward and Foster entrepreneurship I want to put out one more take that I'm I saw on Twitter this

is like I feel like I'm breaking news just having the Twitter feed up next to this but it's what happens when you get two two monitors how we live in big now um so so this is Mike selig who was uh at the cftc so he knows what he's talking about SEC views kraken's custodial staking product is the security Kraken allegedly pooled crypto customers crypto assets to provide Superior and more consistent yield to customers relative to non-custodial staking this is a key difference that's absent in the case of direct and liquid staking so like the devil is really in the details of a lot of this stuff and in the implementation of of not only like what assets you're staking but actually how you're staking them are you pooling them are you going direct do cuss like so uh

if CBE I remember they're basically minting in batches because everyone is pulling their assets to stake if you want that liquid state token it's like a lot of this is going to be case dependent on you know basically each exchange and each staking provider so it'll be interesting to watch maybe maybe that we can transition to like Silver Linings here in general which is you know outside of just uh staking services that are offered by exchanges I mean I would have to imagine that this is actually sort of positive for some of the liquid staking providers like Lido or rocket pool or or some of those guys I mean I know you know without commenting specifically on any of them I mean how do you how do you feel about kind of the the ecosystem for liquid staking that's outside of the exchange uh hemisphere I I think

um the stake has to go somewhere first of all and so it is a Tailwind for those types of competitors and we do hold Lido so just like full disclosure there I think it also is just underlining the importance of decentralization of these protocols like if you look just like Kraken staking is a lot different than coinbase taking you know some of these providers are much more decentralized than others and the the goal of getting to a finished product like ethereum where it isn't the core devs having to you know govern and change and modify things constantly to a product that's basically just autonomous allocate stake among validators has a reputation bootstrapping system like that's really where this Market is going

to go and I think that's you know one of the Silver Linings here is like decentralization is no longer just a meme like back in the bull market people centralized because they wanted to go faster and there wasn't really any benefit to decentralization because Regulators weren't knocking on their doors now people know that that is actually not the case like you need to decentralize or else you're going to die and really in the bowl in the bear Market things aren't moving that fast anyway so there's no benefit to being centralized other than additional risks to you so I think that's a silver lining one uh you know thought experiment just in playing back the the point that Vance made in the SEC letter but also talking about decentralization versus centralization is maybe we just moved to a model where you've got uh you know basically low veneer low thickness

applications that manage the customer relationship like a coinbase or a kraken and they plug into these decentralized protocols which are the actual protocols that are doing the staging doing the aggregating doing the creation of the the LSD uh the token receipt token um maybe that's the business model that they have and and for that ownership for that you know customer service relationship for that SLA you know capability they get some cut of the revenue that's generated by that operation but it does change obviously the business model you know coinbase isn't going to be able to charge 25 on top of Lido's 10 but it is going to be something where maybe that's the new model for them going forward and they have to plug into these decentralized protocols and the concept of a full stack financial application probably

gets disintermediated with Pro decentralization protocols filling in some of these gaps in the infrastructure layers but you know that that could be one model where you know everybody is appeased in this in this scenario yeah like like money transmitter licenses are the reason why everyone doesn't offer custodial wallets it's easier it's it's much faster to onboard consumers it's a better consumer experience generally but like the the fact that those money transmitter license rules exist pushed everyone to develop non-custodial wallets and really like that became the future of the space inadvertently and so like the regulations don't always designed as don't always work as they're designed but sometimes there are positive externalities to to how they work

um and I think that is a positive case as well I I still have so many friends who are like deep in you know the investing space they have pretty deep in the crypto space very knowledgeable they still will not touch metamask they still won't do it just because they don't trust it you know signing a transaction how do I store it what if my assets get taken and you read about all these phishing scams like there is an element of maintaining and owning the customer relationship and providing security and customer support is going to be a business model for a company in the future and that business model is only going to be routing you know those customer transactions to the relevant decentralized protocols that are underpinning you know these operations but I there is a business to be made on both ends

who do you think has the leverage in that scenario like let's say coinbase becomes kind of a front end to Lighthouse back end navigation or or coinbase wallet you know the the non-custodial players that are big it's kind of like metamask and coinbase and then there's like a huge drop off to third place but if it Trends in the direction that Michael's talking about where it's a very thin application layer and everything else is offered by decentralized services you know you look for who the middlemen could be and and you know uh metamask has uh Lido and are in rocket pool staking in-app now um I think coinbase probably gets to a point where they can't offer it by themselves and they see that market to

somebody else and and just kind of act as a middleman so so I think it's still those two players that have much of Leverage really how does I'm just thinking about this now how does Kraken unwind this product because they can't even I mean you can't even at all you can't even draw your teeth until Shane Shane withdraw it that's what I'm saying bankruptcy no it's like no no no no yeah it's a very small hole for them to cover but I I think you're gonna have to wait like the money is gone until Shanghai goes through and that looks like mid-march so fortunately it doesn't look like a multi-month thing but it's gonna be at least 30 days until people get their money back does this put more immediate uh cell pressure or withdrawal pressure

for e-staking I just don't believe that Meme honestly like if you look at the price points at which youth was staked basically everyone whose take teeth is underwater and so it's not like people are waiting for this you know windfall that you know finally is coming to them like they may have a little bit more liquidity they may sell the rewards but like selling their whole steak that doesn't seem likely I do think the retail with CBE you know think about that Persona you took your youth you staked it not in the normal way you stake it through a liquid staking token and and now you're going to receive the the course the underlying back that doesn't feel like an immediate I need to sell this case as well so I don't know we're not really Believers in that thesis I would say you want to talk

about another uh fund bankruptcy that is actually Unwound in a somewhat positive way that we've been talking about for a little while which is the dcg Genesis Gemini tie up uh that we've been that we've been sort of covering for a little while so this is actually a positive bit of news from this week which is now obviously uh pretty overshadowed but it looks like they've sort of settled on that actually um and basically the the deal is so you know dcg and creditors representing two billion dollars worth of claims against its bankrupt Genesis Lending division including Gemini reached agreement on a plan that includes dcg restructuring some 1.7 billion dollars of debt and other obligations owed to Genesis dcg would also contribute Equity interest in another unit Genesis global trading to the bankrupt lending arm so I actually

when I was reading about this I kind of forgot that uh there are two different Genesis there's the uh there's the sales and trading and derivatives part and then there's the the hold Co and the hold Co is the one that went bankrupt so some of this uh deck to equity conversion actually gives gives these creditors equity in the the trading and derivatives business uh so just something to I know I think it's positive but it's not like they're returning cash up front it's like you get like a hat a shoe like 15 and like please don't talk to us again what is the equity what is the equity in Genesis worth Genesis trading Genesis trading worth not not Genesis Global I had I you know they're gonna have to sell that

in bankruptcy or or put it through some sort of restructuring so it can emerge you're gonna need to get all the clients back on platform and start trading again you need to rebuild trust with everyone if you're somebody who's traded on there previously who had their money stuck in it are you now gonna like redeposit or like not withdraw your fund from from Genesis trading it just doesn't seem likely so assume that Gemini and Genesis uh were pushing as hard against each other as possible to come to a deal that was you know mutually agreeable but also compensated creditors um I've heard the it's like people get 80 cents back on the dollar number that does not feel close to to reality honestly but I'm glad it's you know over I feel sad for the creditors it kind of feels like you're paying back FTX

creditors with Alameda equity well that dude [Laughter] that's a little that's a little tough I I agree with you that I mean what someone could do I don't know how much is proprietary in like a in a business like the trading business of Genesis I don't know if there's a tech component to it but I guess you could I know someone could theoretically like Rebrand that um and like auction off the equity I don't I don't think so either yeah I know I'm trying to do a silver linings but I I agree I don't I think the Silver Linings is it's it's you know in the rear view it's done people have at least closure yeah they're not gonna get all their money back but yeah they don't have to be left kind of wondering what's

gonna happen yeah it removes one of the things that could fall and an uncertainty in the market which is nice yeah yeah I agree um so it turned out the winklevi they ended up kicking in 100 million dollars uh to that and uh dcg had to refinance the loan basically um so they're basically taking on new debt to pay for the old debt uh that that Genesis loaned them uh which Barry's not gonna like and then there was a conversion of uh preferred preferred stock in dcg or there was like a little fine print thing or another agreed upon subsidiary which I don't know what that could mean

um I mean it's got to be grayscale right I would guess to do to do some quick napkin math so they had a bunch of gbtc as collateral that they sold I think basically at the lows uh so that's 270 million dollars that was the figure that I saw last quoted it's actually no it's not more than that because they sold it they sold it to cash that's 270 million cash so they have a hundred of uh 100 million from Gemini so you're at 370. the whole is 900. um and so that's 33 right there um and then everything else is kind of like restructured that uh equity in a hold Co or bankrupt entity that's yet to be determined

80 is not the right number it's probably like 40 50 percent that would be my guess and that that seems to be where the the claims are trading to right now up up to 80 yeah I I don't I don't think it was ever like we expect to be able to get 80 back I think so it's getting something back Genesis claims were trading at 39 and like none of these claims ever really trade hands so like this is more of an indicative number than anything else but it feels like that's more of the real number than up to 80 which is just a funny qualifier in general there's a good all right here there's a pretty good quote I

don't know if you guys know who Aaron Brown is um but he writes for Bloomberg sometimes uh he's got a pretty good quote here this deal simplifies the situation and makes it likely that more value will be salvaged but the real problem is the value of the assets it's much smaller than the value of the liabilities and this doesn't change that merely simplifies the process of recognizing losses distributed distributes the remaining value and gets surviving parties on with their lives there'll still be plenty of lawsuits so I think it's kind of like it's removing a big risk from the market but yeah I I think that is still it did look like their liabilities was bigger than their assets so I I agree it is that's a good it's like a couple of gumballs and 15 bucks and yeah your neighbor's cat

yeah God like an old stuff yeah awesome it's been hanging over the fireplace oh sorry Genesis creditors at least look at least people can move on with their lives 40 is not nothing you want to talk a little bit about a16z in their unit swap governance debacle I don't think this is a debacle really I think this is just people being mad on the internet for sure it is people being met on the internet but just just to give background there was uh people are upset on Twitter basically in December there was a proposal made for uniswap to deploy onto BNB um and the reason that they did this they have a business license on their uniswap V3 and it's expiring in April so they're

trying to get ahead of that um basically after that business license expired you could just you know copy the code and there's a bunch of volume on BNB I think is the third largest chain by TBL so you know uniswap has had success in the past when they've expanded onto other chains and they wanted to mimic that so there was a temperature check uh which basically passed with with flying colors um about where and how to deploy uh so there were there were a couple of there were two different choices for which Bridge they were going to use one was layer zero and that's backed by a16z and Sequoia and then the other was Wormhole um so basically the the temperature check pass for wormhole a16z comes in they they said they didn't participate in the temperature check

because there was an issue with their custody solution uh but after that they basically uh voted it down and they changed they changed their vote um the kind of interesting thing here is that a16z is delegated a bunch of their uni to to a whole bunch of different groups but including like the student groups like Michigan and UPenn I think and they actually voted for uh Wormhole so kind of interesting overall um I'd be curious what do you guys think about this one point of clarification which maybe I I missed was it just the fact that they were choosing the bridge or was it the fact that they were going to be launching on BNB with a specific Bridge it was the it was the choice of the bridge

so they were they were mad that they didn't vote and then they were mad that they voted too much is that yeah that that's what I yeah I kind of had the same take like this is how governance tokens work so if you want more votes you just have to buy more tokens um and I think that was how these systems were designed and it seems to be working as intended I also don't fault them for voting against Wormhole I think that was like another part of the Saga where it's like oh they're they're like playing favoritism Wormhole got hacked for 300 million dollars uh like wouldn't be my first choice uh for a bridge to go somewhere um and so yeah I think this is kind of working how it's intended there's always

this Trope against VCS and how bad they are and they're not voting at all or they're voting too much like we we tried the Frog Nation experiment where like Daniel Estes and those guys were gonna like you know kick us out of town and you know build schools in rural Africa and like how dare we you know participate in the capital markets of crypto all of those people turned out to be frauds and blew up so like we're the good guys everyone else can kind of just deal with it like I don't really understand what the problem is it's capitalism in motion on chain this always happens whenever there's a vote that people don't like the outcome they find a way to justify it like you know around the when Trump won I mean people are literally like we gotta disband the Electoral College we're moving to Canada I don't

know to Canada we don't want you either laughs not to get political here but I'm in agreement with you eventually someone has to make decisions I think the thing with Dows that's a little bit frustrating sometimes is people are like well give it to the community but who says the community what's who are they as a stakeholder like who says they're qualified to make decisions you know like me personally I want decision making in the hands of the most qualified people and I get sometimes there are ulterior motives and interests but like you want dedicated qualified people making the biggest thing that I take away from this is that when you have direct token voting on specific issues you run into problems like this where whales can actually sway

the decision of these votes are they the most equipped are they the most educated to be able to make these decisions I mean I I do know that Andreessen has a pretty robust governance program as you were talking about they delegate a significant stake of their ownership two different other voters they also have people who are in-house that just focus on governance so like I would assume that they were pretty well educated on this decision but you know there are other governance models that are being utilized right now there's a few different institutions a few different protocols that have a representative democracy where the tokens actually vote people people into the decision making capabilities and then those people decide and make decisions the other one that we've seen and it hasn't really played out in in a robust way quite yet but optimism optimism has a two-chamber

voting mechanism where there are community members and then there are also token voters and you can make decisions based on both just like the U.S Honduras like the other thing too and and I know we're talking about you know ripping out this direct token voting but it does feel a little bit Antiquated for a protocol like uniswap to be still continuing to have this direct token voting mechanism because you do have the whale games that can play out as we just saw but it requires them to change it and and I think there's good experiments going on right now that have different governance models that are working probably a little bit better than here by the way the goal should be that you finish the protocol at some point and you don't have to govern it anymore like if it's a protocol it should generally end up in

that state like there is an end date for the ethereum roadmap well yeah but but also thinking about okay there's a new blockchain that comes up and it's not new but like let's just say there's new blockchain it's called BMB you've got three different bridges that you could choose from to be the canonical bridge to bridge between your existing chain and this new blockchain like there are there are always going to be business decisions that have to go on for these protocols yeah sure the core of uniswap especially of unismuff V3 V2 those are done you know you don't need to go and make minute changes to the code base but you do have to make business decisions as to like where you want to expand to how you want to expand there and so there I think there are always going to be some governance

questions maybe they get fewer and further between but I I think it goes back to the governance model if if you know if you want to change the governance model like that could be a good step in preventing this type of stuff from happening that that is the that is the challenge I mean it's I I guess if I had to well if I had to like steel man maybe why uh this we were kind of talking about this before air but I'd love to get your guys response here you know there was a kind of back and forth on Twitter people take these kind of crazy stances which is look a16z made an investment right they gave money and they got tokens in exchange um that's a super understood relationship even in equity world and usually when VCS get money they'll also have like some high level say usually in

the form of like a board seat right not always but like a lot of time they'll have a board seat then they'll have like some say not necessarily in like the day-to-day operations of a business but it's like comp for executives if you spend over a certain amount like really big kind of decisions get okayed by the board uh I guess if you had to Steel Man a response like the choice of vendor here between Wormhole versus um blanket on the other but like it it does that doesn't seem that doesn't mean that's totally not true picked up too I mean if you're making it just yeah if you're making a decision for instance if you're a startup and you're making a decision of like switching or making a major purchase from like a gcp or an AWS those are decisions that the board absolutely depends on and especially if

you're changing or if you're making you know what will be a major decision but I think the bigger question here is like okay who else if not the token holders would be making these decisions so in the example of a startup you've got the board to make board level decisions but then you've got the management team to basically make decisions on the day-to-day operations of the company if you're like choosing between who's going to be the the caterer for lunches that's something that the management team can can make decisions on you don't have to go to the board but who is the management team in this situation and who would be the ones that are making these decisions is my next question so if it's not totem holders like who who decides like who's the one that actually writes the code to put in one Bridge

versus the other so I like that it's not it's not a direct comparable I understand what you're saying but there is an element of like who's on first who's controlling this thing and like if the default is okay go to the Toten holders to vote for everything it it some of these decisions probably don't have to go that high but you know who else is is going to be there in lieu of those people choosing a bridge is such a big deal because it's literally the most dangerous part of anybody's stacking in crypto like that is something that let's say that they did choose wormhole and they got hacked for everything they lost like 300 million dollars again that would then be a decision that like if you just swap Labs made it people would be like going to their office

pissed off levels but if it's Community you know and everyone has a chance to vote and and recently has I think four and a half percent of the supply they vote 15 million 4.1 they vote 15 million and they delegate I think like you know the rest the other 26 million I believe there's like 30 percent of unit swap float out there that should be a fair fight if there is opposition they should be able to organize and if they don't like I I don't really have any sympathy for them like yes the big bad VCS voted there's enough tokens where you can go against them and win you just have to organize which in the case of a startup where VCS actually do have governance controls and you know legal representation rights in terms of their shares versus other shares the the

entire math on that equation is completely flipped which is that the investors and the founders usually own about 80 of the company you know when all is said and done and employees are somewhere in the like 10 to 20 percent and and maybe this is like fungible by plus or minus 10 but still like that's the rough math in this situation it's absolutely the reverse which is the The Venture firm owns four percent out of the 30 and the rest of the community and the rest of the owners and the rest of the team own the rest totally fair well and one thing that complicates this is it's not clear some in some of these dials I honestly don't know what's up with the uniswap foundation versus Labs but like it's unclear sometimes who that management team is like every Dow has sort of a different uh different answer

to that um one thing that I thought was kind of funny here actually uh is to your a16 they've got they've got a good delegate program they they delegate to a lot of college groups I'm not sure how aware people are of this way that these college groups actually have in voting on some of these things but I was talking to a buddy of mine who's kind of in the the Dow tooling and infrastructure space um and there's sort of a battle going on at Ave between these two these two service providers and he's like pull protocol is controlled by these college groups it's just I I actually kind of I think that's kind of awesome actually um we we talked to a college group out of UGA I was like super impressed by

what they were doing because I mean those guys are awesome anything like that UPenn Michigan blockchain to Berkeley yeah Stanford Stanford there's a lot of really awesome College groups that are doing a lot of good work on the governance side and you know like think about other reputable institutions or places that would be willing to vote and be delegated these tokens there's actually not that many and and you know the kids love web three and so it's it's a good fit yeah it really does come down to I think and this is why I'm I'm a pretty strong believer in having a representative democracy at a lot of these token governance uh discussions is because it takes someone who's incentivized with time to be able to actually dig deep and understand this stuff you know

Andreessen they're lucky enough they have a governance program and governance team to be able to get dig deep but if they didn't you know do you do everyone does everyone who's actually you know the one who's clicking The Ledger to make those decisions really fully educated on all the different trade-offs I don't know maybe I'm sure other funds it's not the case but when you have a blockchain group especially like a university student group they're gonna be spending time debating this this is going to be like a problem that they work on at the at their last meeting like which which way should we vote like this becomes so much bigger for them and they're going to be so much deeper and involved in it because of that I I think it's it's awesome to have that program but to Vance's Point like we need to

find other institutions not just you know blockchain groups at universities that could provide that love level of service to these protocols I would love I would love to see a lot of large companies in the U.S participate in governance you know run validators for eth like there's there's kind of like low touch ways that you can get involved with crypto that don't involve you pivoting the whole organization to see what's going on um and so I'm hopeful that that plays out we've certainly heard Whispers of it but you know nothing official has happened quite yet just just the last thing to kind of kind of touch on here one thing that sort of always rubs me the wrong way in these discussions about like the community I feel like what's Loosely being advocated for with that people who like care a lot about the community and the community's

perspective is almost like a majority rules which you know devolves really quickly into like a Mob Rules type thing and that's I mean you there are examples of protocols being beholden to their community in pretty negative ways also um so it's just it's like it's a very positive thing about the space that like people want to get involved with this stuff but it's also it's it's kind of unclear to me what the responsibilities of the community are as like a stakeholder like I just don't get what their responsibilities are to be honest with you also governing things is very hard like you even governing like a small company is hard um and when you throw in all these different variables nobody said it was going to be easy and a lot of these

governance processes are designed to prevent you know not just like fast and easy facilitation of day-to-day operations but the worst case outcomes happening and so like you know you should kind of view governance's function first and foremost is like preventing the worst from happening and it going off the rails which you know I think Wormhole is somewhat representative of that you know it's give and take it's nothing's perfect so I'd love to get your thought this is another kind of interesting debacle going on and not that that was necessarily a debacle going on in governance but uh Stargate um there's something kind of interesting happening there so they're doing a they're basically reissuing their token Supply because of uh an investment that Alameda made so

basically Stargate kind of came out a little while ago they were pretty there was a lot of hype around their launch um and Alameda purchased about 10 of the total STG Supply from the community sale Sam and Co promise that they wouldn't sell the the tokens for at least three years but you know they're not in control of those wallets anymore so you know for like kind of a low cap and low liquidity coin like Stargate having 10 of your supply in a rogue wallet is kind of risky and there's people started talking governance about what to do about that and there was a proposal to basically just reissue the tokens um you know so that the 10 apply that was allocated to Alameda would just sit in a multi-sig until the community

decides what to do with it on the one hand I see where they're coming from but on the other hand guys that come on like that does not fly I I don't think I mean what's your thought on this you know who's gonna really care about this John J Ray III yeah that's what I was thinking John Jay Ray wants those tokens you can just read it like it's all like Robin Hood is saying should we just delete the tokens that are in Sam's you know brokerage account like no you can't do that those are now subject to a bankruptcy process so well not only not only that just like the there are a few things that you can change about the monetary or about the

supply or token model that a protocol goes out with one of them and it has to be done very carefully and not very often is changing the monetary policy and if you're gonna go through and change Supply or you're going to change distribution the second that you start making really big changes like deleting 10 of the token Supply guess what everybody's now just willing to believe that you can do that willy-nilly or print a hundred percent more tokens or print 400 more tokens and and so that you know is is more of like the sacrilege you know sacred cow that you cannot touch or if you're going to do it it has to be done in a very careful way slowly and methodically this this feels reactionary and I think it's actually

would do more harm if it goes through than you know the benefit of having 10 owned by John Jay Ray did you guys ever read those are John tokens those are not your tokens you know what this reminded me of did you guys ever read that bill Browder book red notice in redness this reminded me of what they do in Russia they just like you can buy stock in Russia and then it's like oop the board issued uh you know 90 new shares to this other company so you're completely deluded or they'll just go into the the record offices and change your stuff so you don't own the certificates like you can't even listen we don't have we don't have rules around this yet and I know you know they're they're made out to be the bad guys in our industry but this is the reason why

the SEC exists because we have efficient and secure Capital markets more so than any other place in the entire world which is why we have the financial center of the entire world and and the security of those financial markets is based around a lot of very carefully thought out rules and regulations one of the things that was floated towards the end of last year that I I don't know where it stands is probably probably on hold for now but one of the things that I thought would have been one of the most positive uh um advances for our entire industry is whenever you're releasing a token There are rules and there are safeguards around how many tokens are going to be minted into into perpetuity what the what the lockup schedule is there has to be disclosures around insiders when they're selling in

the exact same way that if you know that one of the CEOs of a publicly traded company is dumping their stock and and they're not even allowed to because they have a 10 b51 plan like There are rules in place for for a particular reason and and so I think if we can get there with tokens that would be amazing it would help build Security in our Capital markets but yeah I mean this is this would be a great example that I'm sure the SEC would love to make an example of did you say that Sam had the tokens and he promised not to sell them for three years or they were an investor I'm not actually sure if it was a contract or not because I've heard the former that there was actually no like smart contract lockup it was actually it was it's controlled by a pinky swear

secret handshake password [Laughter] tokens okay yeah can I ask you guys how did why did Alameda win deals with these people like they you know now I know the Sheen has been lifted and we see Caroline Ellison but they they don't even seem like they would be as an entrepreneur like meeting with that team why did people want to take money from them oh they were they were the hottest not the hottest but like you know they were King makers they could create ecosystems like you know they were going to go off and do Aptos and mistin the same way they did Solana and everyone was kind of like lined up to get their share of like the winnings from that it's pretty gross

but you know people really thought that they were the Messiahs of crypto people were giving them billions of dollars of credit lafa gave them two billion you know dcg gave them up to I think four or five or six billion like there were no questions asked was it listen listen I think you know they were constantly referred to as the smartest guys in the room uh coincidentally the name of the book about Enron but I do think it it is the storyline kind of went like this it was they're gonna offer us probably a 2X valuation then we'd be able to get from you know Discerning VCS who are actually uh understanding these markets so we're going to take the money what they've

also told us is that they're gonna put 10 times the amount that they invest in our protocol into you know the liquidity pool they're gonna bootstrap you know uh our ecosystem whatever the investment was in they would be participatory with capital after the investment and then it was also sort of like a wink wink nudge nudge hey we've got connections to FTX you want to get listed great we can do that so it it was it was sort of like a it depended on the investment and depended on what they were building but there were diff there are definitely multiple ways that they would be able to at least promote themselves when when trying to get into deals makes sense they would also set the floor on ecosystems so like if you were launching a DEX on Aptos or like an RPC info provider on Aptos like they would

like at least 20 million and so they were kind of like this like permissionless liquidity pool for for Venture Investments as well in the strange way as long as you gave them tokens which was you know obviously part and parcel of of the fraud yeah all right um so yeah maybe Stargate time to rethink that a little bit uh I want to talk about spark a little bit um which is a new chain that that maker is releasing um so it's a it's a fork of V3 but it's a new lending protocol that's set to launch in April of this year uh one of the advantages there is that they have a line of credit from macro called die direct deposit module to d3m they do not need to pay liquidity providers so basically you can borrow at the die savings rate which because of Marquee

conditions is currently super cheap it's about one percent um the the other cool thing is they're integrating uh you know they've got some sort of partnership with element Finance right which is the that's the protocol that strips out variable versus fixed uh lending rates so you could borrow it a fixed you fixed rate if you want and they're kind of building out a a yield curve kind of seems like a pretty ambitious exciting exciting plan um it's kind of that defy Trinity I mean you're starting to see some of these big protocols converge right now you've got a curve that's offering a stable coin go the Ave stable coin kind of a launch this year as well um and so all you see the business models of all three of some of these big D5 protocols converging on one another

I'm not sure I have a super differentiated take but it does seem pretty interesting and curious what you guys think I I think it's kind of I agree with like the D5 super app stuff I I and I think the carrot here is t-bill yield you start a stable coin you Prince had sample stablecoin you have coin chairs coinbase and two other people get into bidding war over who gets to put it where and you collect half of the yield by giving it to them so like especially in a bear Market where people need Runway and revenue not surprising to see these these things converge but it's like it's kind of like the lending and the stable coin super apps are now all Head to Head the rest of the market really hasn't taken on the super app stuff I think in time we're gonna see

like a perps and options super app as well just like those two categories kind of rely on each other for hedging and other stuff but there isn't that same draw of like you know create a stable coin give it to give it to you know coinbase like that that option doesn't exist for them but it but it's interesting the I think part of uh part of the reason they did this as well is that the the strategy for maker was to get dye integrated and the leading D5 protocols and I think now that you have I think they felt a little bit threatened by that or that that strategy wasn't necessarily working out like if Ave suddenly has its own stable coin and if curve you know like they're the ones who kind of set liquidity for different Stables like if they have their own it's

kind of a clear conflict of interest there I think they saw like their kind of strategy and Direction being walled off by you know entities that they thought were going to be distribution but ended up being direct competitors the the other thing that I'd add is and this isn't you know a comment on spark in particular or frankly like any of these Concepts in particular but one of the one of the consistent conversations that at least I'm having we're having right now with Founders is there's a lot of people who are still playing for this like November 2021 landscape of opportunity set that I I just don't feel like is going to be there going in to the Future at least in in like the short to medium term maybe in the long term it comes back but like are you ready to like Brave the desert for the next two

to three years and and I do think that there has to be some change of Direction change of pace like looking at maker for instance you know working on the coin chairs concept or at least entertaining that proposal uh looking at the um the usdc coinbase deal like you know they they're changing their Direction actively um and I kind of wish that some of these major other protocols were at least thinking outside the box um and and we've had conversations with a number of our portfolio companies who are just like throwing up some crazy ideas which is like thank you okay this is good like yeah it's it's a little bit nuts but like I understand where you're coming from like the energy at the same time like maybe it'll work I love the energy like you gotta you gotta start

playing for a different market and and you can't continue to assume that just because everything's been blown back up blown up that it's going to come back and I don't think it's going to come back uh in the same way I think it'll come back it'll come back in a different way but you have to be able to understand like that new direction that things are going to happen happen and so you know generally when I hear about like you know the the next like yield aggregator the next like here's a concept where we're taking this protocol on that protocol and doing this in the same way that we were we're working on it for nine months we're so excited to launch it it's like I I feel like it's a little too late um and yeah it's more of a broad comment but I just wish wish we had more of the

crazy ideas that you know got us into D5 into the first place and you know now we're going to be able to pull it into what whatever the future of defy holds I have a you know that that what you're talking about that sort of switch in perspective for Founders it's a tough I it's a tough thing I get it totally it's it's the hardest problem set has shifted from I have more money than I know what to do with everyone's throwing money at me um to like the hardest problem being hiring because there's so much growth that you're trying to go out there and capture it and now you have to do a complete 180 and be like there's there's not much growth to be had and I'm probably gonna have to do scrappier things that I thought I was going to have to do uh it's a tough mental hurdle

to kind of to get and then you have to signal that to your to your team as well I I also think we have more startups today in crypto than we've probably ever had just by virtue of the last funding cycle and so you have large amounts of people trying to figure this out at the same time but like it is kind of the point like entrepreneurship is hard it's very unlikely that you will succeed um and it's just like only crazy people that really try it like doing a startup is an act of desperation it's not like oh this is my next gig oh I just raised 25 million dollars ooh I'm gonna just hang out for 10 years and slowly build this thing like you kind of have to be crazy to start one of these things to start with and it's the low Serv operators as a

result and so like people just need to be more Nimble more Scrappy uh and and just like waiting is not really a strategy or or playing to a past that isn't coming back is not going to work uh and and that that you know the best entrepreneurs are the ones that can navigate that we're starting to see some of them who can like start to put pieces together even like ahead of us having a conversation with them but like it's almost time for us to start having conversations with people who are still playing for that 2021 Vision so we've uh made some hearts recently from without naming any specific companies but like some of the big companies of this last this last cycle and it's something that we've observed here I'm wondering if you guys also see this in your in some of your Port codes but I think one

challenge that a lot of entrepreneurs in this space is faced with is building for the market that exists today versus the one that you think might exist in five years um there's actually a third which is what I'm talking about which is hoping for the previous Market which you know how to build for to come back and waiting for that to to come back and but absolutely you know it's it's uh and and this is kind of the hardest part I think which is to put something forward that's not either present or past and and is forward-looking you have to make an opinion you have to have an opinion and make decisions which means that you have to have you know basically a perspective

that cuts you off from certain things that could be happening right now and you're putting you know your entire reputation your company on the table to say this is the direction that things are going and we're making it bet that things are going to go in that direction like I I was at an offsite for a portfolio company two days ago and you know one of the questions was like how do you evaluate like Risk uh when you're when you're evaluating companies and and you know there's basically like three different types of risk there's Market risk which is like are you building the right thing for the market or our customers actually like receptive to it and that's more just like operational stuff then there's execution which is like purely operational stuff like you have the right team in place do you have the resourcing to be able to get there

but the biggest one is timing risk which is are you going to be at the right place at the right time when whatever it is that you're building which is future state is ready to be received by whatever Market state is actually you know ready to receive it and the only variable that you can really control and you do have some control over which Market you're going after but the only variable you can really control is like how long you're in the market to be able to like have these lines intersect and and that's the hardest part and and so I think you know that's where really really good Founders have a stance they have an opinion and they go after it and then they play for that great good Founders who you know maybe aren't world class or like here's where

I think we are right now and I think we can build this and I think we're moving in this direction and maybe they're Nimble enough to be able to to move with the market um but it is it is an exceedingly hard proposition for most Founders to be able to do really tough to be clear like we do think that you know Dex volumes will will hit their all-time high and far surpass it we think the tvl will reach a trillion at some point we think that on-chain volumes will overtake centralized exchange volumes I think what isn't coming back and and you know those will produce very large winners for the categories you know the categories that you know the people who are winning those categories will be very very large what's not coming back is everyone thinking that like the 50th largest player is is going to be a

really big outcome and so like that is you know D5 is coming back crypto's coming back all of that stuff we believe but what's not coming back is the long tail froth of people thinking that the Tams are unbounded and that like everyone can participate in you know if I get this small cap token it's going to be as large as you just swap one day like that's just not happening one one last yeah you you used to be able you used to be able to get you know a top five opportunity and if you were one of the top five in that market you were still a big enough outcome to have Venture steel returns now it's one maybe two think of there's a good core layer here think of centralized exchanges right now it's it's coinbase and in binance there was bit tracks there was

liqui there was you know the dozens of centralized exchanges that Michael and I used to use in our personal accounts before we started framework full transparency but like those are all dead you know those turned out to not be Venture scale opportunities where coinbase and finance really are we're seeing the same thing today in in basically every other category so they're funny that's exactly the framework that I have for media as well I've always been like I think there are three I think there's like room for like three big Brands and then maybe like a long tail of smaller substance yeah yeah I know exactly I mean also think think about like Tech media back in the in the like 2010 through 2020 you had TechCrunch you had end Gadget you had uh a Business Insider was a big player like you had

Tech memes but like you had all of these massive you know huge that started basically as blogs that became media properties and I think TechCrunch is still you know like kitten like they're doing well um but like who else really from like that era of those Tech media Publications it's it's tough for found it like the other thing too is like Founders the the people honestly the people who are the single solo Founders have always blown my mind I don't know how like my it's a really difficult thing to do like I think usually people when it works uh there's like a balance there um and hopefully you get one person that like knows when to turn it on and one person to like like oh like pull the

reins back a little bit like let's like just live to fight another day type thing uh it's uh usually that's not the same part it's very rare that that is the same person like It's just tough thing to do yep when we see pitches it's not it's definitely not a red flag but it's definitely a question as to like why and how and and frankly like how are you going to solve it yeah because no one has every single uh set of skills and that's why co-founding crews are really important because they need to provide balance and so it's like okay you're the solo founder you created this that's great you know first job day one who you're bringing on is co-founder yeah right uh the last thing I'll say about the founders is the recent cohort a lot of them are newer to crypto

and so they don't have that fundamental conviction of like crypto is going to take over the world and here's how a lot of people are like you know it's web3 and like we're trying to like build this thing we don't know if it's going to work and blah blah blah like there's no shortage of capital there's no shortage of resources or or people to build these startups there is a shortage of conviction into Michael's point being able to say here's how the future is going to play out here's how we're going to build it here's how we're going to stay alive for long enough for that to work and here's how all of our competitors failed and what we're going to do differently than them like that is probably the most impressive thing that you can bring to the table as a Founder when when you pitch us but like the

general like we're gonna like you know do this and that it's just not working anymore well and and the only point in clarification that I'd have which is Vance's last point is like here's all how all of our competition dies what is baked into that is here's why we will be the number one in our category because that's the only outcome that you can be playing for now it's not number two it's not I mean maybe number two in a huge Market but like it's not gonna be number four it's not gonna be number five those are not going to be returnable investment so no one you know who who is a legit investor is going to take those shots yeah false head um that that's why things like World coin are also appealing it's like okay identity is like this kind of nebulous unsolved problem they're like

we have this super audacious Vision to put these literal orbs everywhere on the planet scan your eyeballs get your ID like there is a real path for us to be the number one competitor in this category like look at that you kind of need to see the future but at least it's an audacious Vision with a lot of conviction um and and uh it is I don't know a lot of the time it is the same amount of difficulty building something you know relatively small versus something large and super audacious um you know totally um just just a book on this the subject of maker uh this is the thing that I've always like his this is this this fits into roon's end game somehow so this is going to be a sub-dao or has the potential to be a

sub-dao that's what uh you know spark is gonna be um and then basically you can you can it's wholly owned by maker but there's going to be yield farming for its uh the tokens I'm not gonna lie I still I really struggle with with the end game for maker um maybe it's interesting but uh we'll see I I'm I didn't mean to like bring up this subject in the context of major because I actually do think that they're a great example of like thinking outside the box and like real world assets and like putting things on chain that you would have never thought about and like doing deals with with coinbase being number one in the category being number one in the category helps um but you know it it that that actually

is a counter example to my points um but you know just it did Peak my my thought around something that I've been thinking about recently but yeah I mean it roon has a plan you know to your point Mike who knows what the plan is or how it's going to play out and whether or not it's going to continue to work but but like at least there's a plan and at least there's an opinion that's been made right and at least there's a like a a resourcing to live long enough where it will matter yeah like that's kind of the whole make or end game to me it's like we need to get Revenue we need to get East we need to stake it we need to get yields and whatever happens with crypto assume the worst case scenario like we're still going to be alive

that's powerful I I do want to talk about infinity pools because they're they're pretty I've spent like a couple hours this week trying to wrap my head around them I talked to the founder actually did you guys dig into this at all I saw your Tweet and I like right before we hopped on I started like perusing the website I'm I'm so curious because we've we've gone down so many different ideas on infinite liquidity um and uh I'm very curious to learn like the core premise of infinity pools is you're leveraging the univ3 lp tokens to generate liquidity for for this leverage we actually know a couple of startups who built this before and have had real problems bootstrapping people actually lending out their V3 positions it's just like it's very hard

um such that like to such an extent that they actually pivoted away from this model so I'm curious to see whether this is something new or whether this is something that's kind of older and rehashed the thing that wasn't coincidental was like the 50 people on Twitter tweeting at the same time that like infinity pools are the next big thing it's like oh okay yep propaganda propaganda like here it comes I don't know we'll see we'll see well there's a one of our our analysts on their Xerox research podcast they interviewed the founder today so I'll hear from him about the mechanism but all right they're more technical uh than nine uh last like funny thing actually just a little preview to web 2 did you guys see this barred failure from alphabet I didn't see that oh my God what was it

a 100 billion dollar mistake 100 billion dollar mistake you can't make this stuff up so they so Google or alphabet debuted their response to chat gbt which is an AI called Bard in the commercial that they released the AI came up with an incorrect answer it actually took the market three days to figure this out but when it did it tanked like 11 it was like eight percent one day and then it just keeps going literally went from like a 1.3 trillion dollar company to a 1.2 trillion dollar company I mean you kind of have this this view of like big technology companies is fading gradually but that's really not the case like they get carried out all of a sudden and it's just a complete

disaster I'm not sure if that's what's gonna happen here I'm not sure like how hard it is to copy something like chat gbt but this is not a good initial sign yeah I mean independent of Bard independent of like all this stuff not to like reinvigorate a nice uh deep uh Rabbit Hole here one of the debates that I've been having with like some of my traditional Venture friends and and investing in traditional stuff which means lo and behold they invest in AI is what is basically like where is the value crew and I I find this to be kind of like a fascinating thought experiment if you're if you've just created chat GPT does the value true to the API call that you're making where the application is

paying Microsoft or open AI to be able to use chat GPT or whatever you know gpt4 concept they come out with next and then the UI and the stand on top of that is the sales productivity tool the uh you know software development Suite that is automated like there is an element here of like the the bigger or the big ones are just going to keep getting bigger and you know Baidu is going to have some chat DBT competitor obviously Microsoft now has open AI Google has probably been working on Bard for years and like oops they stumbled but like I'm sure they'll be able to figure it out like all the majors are going to be able to have this massive engine and I think it's going to reinvigorate growth for a lot of those

companies but does that accrue to startups in the same way that every other technology Paradigm has I I'm hard pressed to see that you know maybe you're able to to like we're talking about with like the thin app on top of the D5 protocol maybe you're able to sell like a SAS business that has really sweet UI u-wax for like the developer tool of the future where like 99 of your develop your software is written by an AI but like that just means that you're a UI on top of an API that's making calls to one of these engines so I I'm I'm curious to see how it plays out but that's my default stance right now I went to a talk about AI in San Francisco um and what struck me the most was kind of how nebulous the the applications of

AI outside of these large companies were to Michael's point like there was a panel of three or four people and they really couldn't describe like a single startup that could you know build a real business out of this other than things like data labeling and offering their data to the large you know conglomerates who actually have the lower level modules like I do think we could potentially be in like a crypto style hype cycle for AI where not much happens other than just gradual improvements to these products that already exists like am I excited to use Bing now yeah I I guess you could say that like chat gbt plus Bing is is kind of interesting and I guess getting suggestions rather than just web pages like helps me but like what what are the long-term ramifications of that the ad

Market changes like we we've already tortured the ad Market to death to get blood out of a stone like there really isn't much else there so I don't know if I'm an AI bear I would say that AI is going to make everyone more productive it's going to make companies run more efficiently more leaner uh more surpluses and then where does that go I think into kind of creating the next types of social networks and money and games that are on chain I do think that that eventually happens my wild card is that eventually one of these Dallas turns over their governance to an AI and just has it like goal seek for profit like to earlier discussion do we want all these like you know the peanut Galloway voting on things or do we want like the super smart AI That's goal seeking to get more youth deploying

makers capital I would probably choose the latter then we just got to invest in that baby and sit on our hands step four profit like like here's the thing who cares about some AI that does like chat responses that's broke that that AI has no money versus you know like let's give an AI money and see if it can like grow it into like a trillion dollars that's how you create something like Skynet and that's what's most exciting to me personally I think that's a good place to end it fellas uh this has been a fun one let's uh raise a glass to Skynet we'll see you guys next week foreign [Music]