Unlocking DeFi Value and Values: new token & organizational designs built to win

Transcript

Hello, excuse hello everyone. I am Alex. I am a core contributor to Aeradrome and I am here to talk a little bit about unlocking value in DeFi. So let's start by talking about the promise of DeFi. The reason why we were all originally drawn to this space, decentralization distills traditionally complex products and services and even entire organizations into trustless code bases. And in doing so, it eliminates the value extraction layer of intermediaries. It flattens the relationship between the users and the

systems that they use. But it's not just more efficient. It delivers an experience that is better than what the biggest, most complex businesses and institutions with all of their weight and scale can provide. And in reducing institutional level scale to code free of the value extraction of intermediaries, it can deliver uncommon value to the commons. An open and fair economic system enforced by transparent and immutable code.

But let's be real, the promise has not yet been realized. The truth is that most decentralized models have reproduced or even amplified the value extraction issues of traditional firms. And instead of tokens being used as tools to unlock new and open systems, they are too often being used to further centralize control and value capture. Let's take a closer look at the token.

the core technology at the heart of decentralizing these systems. The vast majority of D5 protocols ask you to buy their token, hold their token and believe in the usefulness of that token and then they give you absolutely nothing for it. Buy our token, eat unlocks and emissions, get nothing. This is too often the norm. In fact, only about 10% of the top 50 DeFi tokens provide any onchain value whatsoever to users and few tokens promise any sort of value acrruel or even immutable onchain

utility. So the question is where does all the value go? And to understand what's happening, we need to zoom out first and look at why firms, which are businesses, organizations, cooperatives exist in the first place. They exist because organizing production requires coordination. After all, someone needs to bring together capital, labor, technology, and customers. And historically, whoever orchestrates that coordination captures the value between what customer pays uh what the customers pay and what the product produces.

This has always been true from horses to railroads to airlines. Each technological shift has created even more surplus. And while everybody benefits from innovation, insiders really benefit. And we can be clear, they've earned it, right? They took on the risk and the effort of coordination. But the digital age has accelerated this process dramatically. If a product can be distilled down into code, margins approach near infinity. Firms that manage digital products and services capture an enormous surplus for themselves with near zero marginal

costs. And these returns at scale have led to near monopolies. Facebook, Google, Amazon, they all command all the tools of coordination. Identity, payment systems, marketplaces, now even money itself. But this is where it gets really interesting. In platform economies, there's what I call the alignment trilmma. You've got three parties fundamentally. You've got the teams, the users, and the equity owners. As platforms mature and power concentrates, teams inevitably extract more value for

themselves. user experience degrades to exactly whatever the market will tolerate. And this in shitification of things, it's not a bug. This is a feature of centralized coordination. And the numbers here are actually quite staggering. The Magnificent 7 have been growing at about 20% annually. The rest of the S&P about 6%. And it's not just the investors that feel this. Actual businesses get squeezed. Customer acquisition costs for retail co uh re retail companies on Instagram have gone from $13 a decade ago to about $250 today. So this impacts everyone.

But what if all the tools of coordination could themselves be distilled down into code? This is the profound insight of blockchainbased decentralization. If the coordination itself can be autonomous, if it can be governed by transparent and immutable code, something fundamental changes. The need for centralized team lessens. The importance of users increase and an organization's primary competitive advantage becomes how much of the value it generates is it distributing to its users. The only real moat that you have left in this world is maximal value

distribution. So in a world where software becomes cheaper and easier to build, where switching costs uh approach zero, where coordination is governed by transparent and immutable code, any value not recycled to participants basically becomes a bounty a competitor can use to undercut you. And this is how DeFi was supposed to beat incumbents. Commoditize the levers of the organization.

Eliminate the middlemen. Give users not just better rates but actual ownership. Create peer-to-peer marketplaces and autonomous organizations where value flows to participants and not to executives. So what's actually happened here? Tokens, the technological bedrock of decentralized coordination, became tools not for unlocking weightless firms, but for even more extreme centralization and excess. Insiders enriching insiders enriching insiders.

Even the tokens that supposedly held governance rights turned out to have very little real power. They're dumped by teams on their holders at best best case scenario to fund development. Uh at worst to fund beachfront real estate and raves at conferences like these. And the result is that teams either get too rich to care or too poor to function and users they just get hosed. They're paying the bill.

So let's look at the actual token distribution of some major D5 protocols. Uniswap gave a 15% airdrop to users. 99% of the remaining supply went to insiders and affiliates. The 60% labeled community includes a 45% controlled by the unis swap foundation which is majority governed by insiders and not users. Starknet was even worse. They aird dropped about 7% to users while planning to release 9 to 10x that amount over 3 years. And the real kicker is this is after they raised

a quarter of a billion. Now we're seeing excuses from protocols and VCs saying all of this was just merely an artifact of a hostile regulatory regime. Right? We've heard this maybe so, but it's also a pretty convenient excuse from those who profited massively off of this. And nobody seems in a big hurry to change course. And the data here, I think, really tells the story. Aggregate holder revenues across the top 20 D5 protocols divided by the market caps.

It's pitiful. We're talking about decentralized protocols with worse economics than anything you would find in literally any other industry. But here's the thing, this is not just morally questionable, it's strategically stupid. It it means DeFi isn't out competing incumbents. There's no reason to use any of this stuff outside of speculation. The yields are worse than DeFi or TRDFI. the user experience is worse and the only real advantages are regulatory arbitrage or gambling on token prices.

But there is another way and it starts with understanding that decentralized systems that actually work share a few core values. First is you have to maximize value to users and not the team. Otherwise somebody else will and they will win. Founders of decentralized systems should have no privilege control over how value flows to others because if they do their primary incentive is to do what is good for them and not for users. It's got to be one pot for everybody. One set of incentives fully aligned.

Second, have a token that fully manages and captures value. If you have a token, I know this is crazy. It needs a use. And that use needs to actually be valuable to people. Um, when I say use, I mean real onchain immutable utility that helps the system function and grow. And when I say value, I don't mean governance theater. I mean real onchain value flows. When this happens, people actually now have real non-speculative use cases for the token. And that's how you know you have something real.

Third, cultivate stakeholdership without any slack. The best owners of an organization are people with skin in the game, those who are contributing value to the system today and are incentivized to care about that system's future. The makeup of these people will change over time, and decentralized systems must prioritize folding in new players who stand to benefit over enshrining early participants whose only remaining task at this point is to sell out.

Fourth, do things only decentralized systems can do. If you don't have a central organization, treasury or owner ownership structure, you don't have a lot of their constraints and that means you can out compete them. You can have real time issuance programs that actually grow the protocol instead of merely enriching insiders. You can have programmatic buybacks that compound growth. You can have autonomous wallets with real power without corporate overhead. And you can have open contributorship funnels where new teams are adding tooling and earn fee shares from day one.

And now let's just get specific about Dex's real quick because this is where we've actually applied the model. I'm going to take a sip of water. UniS swap envisioned a two-sided marketplace. Liquidity providers and traders. simple, elegant, but fundamentally broken as we saw with the Sushi Swap vampire attack. Because without the third leg, token holders who capitalize value, LPs leave a lot of money on the table, leaving Uniswap vulnerable to competing models.

Just think about this. When volume drops, Vebbased X's see liquidity evaporate. LPS leave for yields elsewhere. Less liquidity means worse prices, which means even less volume. It's a death spiral. The metadex breaks this by adding a third stakeholder. Lockers direct new tokens to LPs in exchange for their contribution. And what these tokens represent is a maximal claim on future protocol growth. It's a much more robust reward. Now when volume is low, emissions of those tokens maintain yields and liquidity. So when volume is high, that liquidity can

dominate any competition. It's a simple differentiation that is made possible only in building from first principles. Any shortcut here and failure is all but certain. And we've already seen so many versions of this. So what did we fundamentally do different here? First, we had no team festing tokens. We had no token sales. We had no hidden value leaks to equity holders. Aerome launched with a airdrop to the community partners and team. And since then, the team has had no special claim to protocol revenue. LPS and token

lockers get the most value they can possibly get out of a DEX and traders thus get the best execution. We've left no room for a competitor to outmaneuver us. There's no greater amount that you can give than distributing 100% of everything now and in the future. Second, our token actually does something. It means different things to different users. D5 protocols benefit from holding V arrow in different ways than say Coinbase Ventures does. But in all cases, these players share in the systems revenues in proportion to their contributions.

This additional function gives people a reason to opt in and stay in the platform and not sell into speculative runs. And yes, metadexes constantly emit new tokens to LPs, but this is a realtime reward for realtime contribution. We require holders to lock and participate to receive revenue distributions as incentives, but we also make sure that people can exit via VE NFT marketplaces. In this way, participants self- select into our system for the long term because they have something tangible to gain. This creates a razor sharp, highly loyal stakeholder group over time. And

that's why you see 98% of our locked supply is perpetually max locked for four years. These tokens are not vesting. People want to keep it maximally locked. and the team is just a locker like any other who has to participate in the same way. Number four is we also have things like the public good wallet um who has no beneficiaries whatsoever that merely votes to support ecosystem good pools and compounds everything it gains back into buying arrow locking it right off of the open market. We have wholly onchain corporate management. You can

get real time accounting and real-time clarity on growth decisions. There's no invisible entity who doesn't need to issue any sort of public report. The Fed can permissionlessly tweak issuance to make sure that any holder is getting more in growth than it gives up in dilution. And to wrap things up, what I'll share is that this model does not only apply to dexes. Any protocol that can generate onchain revenue, distribute governance rights, emit tokens programmatically, and align stakeholders around growth can implement these principles. Imagine a

lending protocol where 100% of the interest goes to depositors and governance uh token holders. Baking apps that offer you wholesale rates on your loans. Decentralized social networks where content creators and curators capture all of the revenue of those platforms. Protocols that follow this playbook will be the ones that actually disrupt traditional firms because they are actually doing something different. And the ones who don't will be steamrolled by the ones who do. Better models win. We believe that we have built one and it's delivering millions and real yield each week. Anyone

delivering less is vulnerable and we've just gotten started. So, thank you [Applause] any question? Uh thank you for presentation. Um just to understand more um if I have liquidity I want to in choosing to where to provide it for example to unis swap or to your protocol why should I choose your protocol if I am completely rational and want to have higher yields.

Yeah. Uh uh because essentially we are emitting tokens that represent all current and future value that the decks can generate. We can reward uh LPS at a higher rate than unis swap. Unis swap is capped. They can give you the amount of fees being generated today right now in this moment. we can give you a consistent stream of rewards that reflects the total productive capacity not uh not only of the decks but of additional revenue new streams that you add over time. So that means on average if you are providing liquidity on a metadex like aerodrome or drrome you are able to earn more.

Thank you very much. If you have any question, don't hesitate after. Sorry, we don't have time anymore.