Bankless - 23 - Investing in DeFi | Joey Krug

Episode Date: July 27, 2020

Episode: #23 July 27, 2020 ----- Tools from our sponsors to go bankless: Rocket Dollar - tax shelter your crypto ($50 w/ "BANKLESS") (Read this on IRAs and 401ks) Ramp - the fiat onramp for DeFi (mention Bankless!) Monolith - holy grail of bankless Visa cards Aave - money lego for lending & borrowing ---- Joey Krug was doing DeFi before they called it DeFi. He's the co-founder of Augur, an investor at Pantera, an early supporter of Ethereum.  What did we cover? Ethereum, Oracles, DeFi, Bitcoin, Chainlink, Ampleforth, Memes, Risk, Triple Point Asset, YFI, Scaling...what didn't we cover! After the convo, Joey said we asked the best questions of any podcast he's been on. Maybe it felt that way because we we're speaking the same language: this DeFi is eating the world.  This is Investing in DeFi with Joey Krug.  We cover: Joey's investment thesis for crypto How to invest in DeFi Yield farming a gimmick? Is AMPL for real? DeFi oracles (and ChainLink!) Excited about Augur v2? A 100 Gwei world Is ETH a triple point asset? BTC or ETH? The next DeFi hack Join us next Monday for a fresh episode! ----- Resources discussed: (Listen) ETH as a triple point asset - ep 4 (Link) Ampleforth geyser (Link) Augur V2 release (Link) Matic network (scaling Ethereum) ----- Episode Actions: Sign up for Bankless to get an Augur V2 tactic (Aug 4th) Watch Ampleforth episode on Meet the Nation Give us a five-star review on iTunes! (we need 100) Also...subscribe to Bankless YouTube to watch State of the Nation every Tuesday. ----- Subscribe to podcast on iTunes | Spotify | YouTube | RSS Feed Leave a review on iTunes Share the episode with someone you know! ----- Don't stop at the podcast! Subscribe to the Bankless newsletter program Watch Bankless shows and tutorials on YouTube Visit official Bankless website for resources Follow Bankless on Twitter Follow Ryan on Twitter Follow David on Twitter ----- Not financial or tax advice. This podcast is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions.  Do your own research.

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, how are you doing today, sir? Doing just fantastic, Ryan. We had Joey Krug on the Bankless podcast. For those that don't know, Joey is the founder of the Auger Protocol, but even before that, Joey was a member of the bankless community before the bankless community was a community. And so it was really exciting to get him on the podcast because not only is he a builder in the

DFI space, but not only is he a DFI builder, but he's just totally multidisciplinary. Since he's been so close to the action, he's been able to gather a bunch of different perspectives as to what it is, what it means to be part of the bankless world. And so getting him on to talk about these various things, talking about oracles, talking about about defy, talking about tokens versus equity and what's going on with liquidity mining was a really valuable conversation. And we really hit just a wide variety of subjects from someone who's really close to all of the action. To me, this was an incredibly concise conversation. Like, we hit on so many different topics and he had very concise mental models for each of them. It was just

incredible from that perspective. And we, of course, asked him about the triple point asset thesis, which we are two for two on guests giving the general thumbs up on the triple point asset thesis for ether. So, you know, big fan of that. So thanks for the thumbs up, Joey. Yeah, absolutely. He also talked about, we talked about Ampleforth too, which is something that Pantera, which is his investment firm invested in. And he used this term Hayek money, which is super interesting. We got into discussion about like what is money in crypto and whether Ampleforth can be a good collateral for defy. That was a very interesting threat of conversation that I think listeners will enjoy. Yeah, the Ampleforth world is getting a lot of traction and a lot of attention.

Definitely also from the bankless podcast, but from also the greater crypto world. So I'm definitely excited to watch that story play out and see how unique and different a currency can come into fruition or not. It's an experiment, so we will see. By the way, do you know what he meant by Hayek money? Something, I'm assuming, closer to Austrian money. Is that right? Yeah, totally. And Hayek has this great quote. The bankless Twitter handle tweeted it out the other day, which is, this is Hayek. He says, I don't believe we shall ever have a good money again before we take the thing out of the hands of government. We can't take it violently out of the hands of government. All we can do is by some sly, roundabout way, introduce something they can't stop, something government can't stop. Hayek was talking about a privately issued form of money that's issued in a sly, roundabout way that governments can't stop.

To me, that is what bankless is doing, what crypto is doing with Bitcoin, with ether, and even maybe, maybe with Ampleforth. I don't know. I think listeners can be the judge of that in this conversation. Yeah, I think that's a good metaphor for what's happening in Defi at large, right? So we also talked about the YFI token, the GIFI. token and it's one of these crazy things that's really complicated even for for my standards like i usually get i understand what's going on in defy but this this this yf i token broke through that

barrier i no longer understand but i do know that there's a lot of real stuff happening there there's real economic activity with real value being created and you know if it's if it's blowing by me who spends all of my time trying to follow this space like it's absolutely going to blow by everyone inside of any sort of government or, you know, authority. And so all of this crazy defy yield farming stuff is just like way too chaotic and way too complicated for any like a party or authority to even like be able to comprehend or follow or do anything about. Absolutely. That's kind of what makes this the most exciting place to be, like in general, right? So we're in crypto, which I think is the most exciting, I guess technology, social experiment.

that's happening right now in the world. And then within that, within crypto, we are in kind of the bankless community, the defy community. And that's the locus for everything. That's, you know, the center. That's the epicenter of what's going on. So you are in the right place if you are tuning into bankless on a weekly basis. And we're just excited to share this interview with Joey.

Yeah. And that was a little bit of a tangent that touched on a number of different subjects. But that reflects what this conversation would. with Joey was like we touched on a little bit of everything, you know, just trying to retain our grip on comprehension on what's going on in this space. Yeah. So before we begin, let's talk about our sponsors. As we all go westward, we need to get our values into the crypto world, but hopefully escape the tyranny of centralized rent-seeking institutions. And that's where Monolith can help you get your value into the crypto world while skipping over the crypto banks. Monolith, coming soon to

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fiat into the system, moving from that old world to the new crypto world. What you have to do is create an account with an exchange, you have to wire funds. That's also holding your app back. if you are a defy developer and are building something on a network like Ethereum. What that means is in the Fiat process, your users drop off when they're signing up, and you're limiting your market to the hardcore crypto people. But what if you could make it super easy to on-ramp to your application using a Fiat on-ramp? Ramp is that. It is a delightfully easy, a Fiat on-ramp.

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interview with Joey Kroog of Auger and Pantera. Bankless Nation, we are incredibly excited to introduce you to Joey Kroog. Joey is a defy OG. He was the one who tried to build a D-Fi protocol on Bitcoin in the early days, ultimately switched to Ethereum. He's a co-founder of Auger, and he's currently an investor of Pantera. He's got his hands in a lot of different things these days, a lot of irons in the fire. And Joey, we are super excited to have you on bankless, sir. Welcome. Awesome. Thanks for having me. So, Joey, I think in this conversation, we really want to talk to you about your model for things, kind of your mental model for crypto. You've been in the space for a while. You've seen a lot of transitions and transformations. You've seen some things play out. You've seen

other things not play out. So we want to understand your model for how you think about investing in the space in particular and just how the space might emerge. You know, token maximalists. Are you a Web3 guy, you know, fat protocol, fat money? There's all of these different kind of categories that we could fit you under. We want to see sort of how you think about the world of crypto. So maybe could you start by telling us a little bit about, I guess, Pantera's specialty? So maybe give some background on the firm where you're working, the investment fund that you're working at and some background on that specialty. And then we can dig into some of the other investment thesis areas that you're looking at these days. Yeah. So at Pantera,

You know, of course, as you know, we focus just solely on the cryptocurrency and blockchain space. And we're looking at mostly seed and series A stage companies. So we invest, you know, pretty early on. And I guess there's a wide range of things that we help people with. But, you know, the short version of it is we help them with strategy. If they need help with that, we help them with hiring. We help them with, you know, go to market and connections. If they ever decide they want to sell the company, you know, we help them.

with that. Really just helping the founders out with whatever they need to help with. Some people don't need a lot of help. Other companies need more help. And that's pretty much it. You know, it's a simple business, but there's just always, you know, the devils and the details. So what's Pantera's ideal product, right? So when you guys receive a pitch, what are you guys really looking for?

because I know you guys aren't just investors in like just tokens, right? You guys, Pantera also has invested in wire, which is an infrastructure company, but you guys also have plenty of tokens on your balance sheet, if I understand things correctly. So when you guys are receiving a pitch, like what are you really looking for? What's like the golden product that you want to invest in? Yeah, I mean, I think I think the most important thing, you know, like the coolest thing that somebody could pitch me is some idea that has some traction. You know, I think any sort of signs of traction is always the best thing.

And then, you know, a little less generic than that, I think we're looking at anything that's sort of in Defi somehow or helps make that vision possible. So if you look at a company like Wire, you know, they're helping make that vision possible because they're making it easier to on ramp into this ecosystem. And so that's sort of the range of companies is all the way from actual application, you know, somebody building some Defi protocol, which has an app on top, all the way to. companies working on scalability all the way to via en ramps. It sort of spans the range, but it's all trying to, anything that really helps to fill that core thesis of, you know, we think similar to the internet finance is going to be decentralized. So would you say, Joey, that is the core thesis then that, you know, what we're moving towards is an open financial system and that crypto is basically the internet of money. We've created this new thing

called digital scarcity with Bitcoin, and that's evolved in various ways with Bitcoin and with Ethereum. But the overarching movement here and the big thing that people who are in crypto are investing in is kind of a new money system for the world. Would you agree with that? Or do you have sort of a different take? Yeah, I would definitely agree with that. I think this sort of innovation of, you know, letting people create and participate in their own financial markets is a huge innovation. Yeah, I consider it to be one. It's, you know, maybe not as important as a printing press, but it's up there. So, Joey, has that thesis kind of changed over the years, or have you guys been pretty consistent? I remember in 2017, there was a lot of talk around investment funds

around this vision of Web 3, which was a bit more like the decentralized internet vision of the world, that we were going to have a decentralized version of Facebook and Twitter, and that those things would become protocols, and that crypto and blockchain was the platform to do it. It seems to me that the money protocol thesis, the open finance thesis, is a little bit different from that. Have you always held on the open finance thesis? that that's the thing we're doing in crypto?

Or do you see elements of Web3 possibly being true? Yes. I mean, I guess there's the answer for Pantera and there's the answer for me. I think on Pantera side, it's sort of always held that thesis without necessarily knowing that it's held it. So what I mean by that is, you know, when Dan started Pantera in 2013, there was really basically just Bitcoin. I mean, you had stuff like Lightcoin, but, you know, people didn't really take that too

seriously. It was more just Bitcoin. And, you know, Bitcoin was kind of the original open finance protocol. You know, sending money is very important as well. I think for myself, you know, I didn't really hold the decentralized finance thesis until I came across Ethereum. So this would be, well, I came across it in like late 2013, but kind of didn't really pay attention to it. I really formed that thesis for myself around late 2014 when I decided to, to build auger on Ethereum.

And how would you describe that thesis at the time? And how is it evolved? Or is it basically the same thesis? It's basically the same thesis. I've always obviously learned a lot more. And there's a lot more nuances to it now. But, you know, even back then the idea was sort of, okay, Bitcoin gave us money. It's global no limit in terms of how large a transaction you can do.

And well, back at the time, very low fees. And I'm sure we'll talk about that, you know, later. in this in this conversation. But with Ethereum, I saw the same thing, but it let you do other things with the money. And it let you kind of do all these other sorts of things using smart contracts. And so I thought, okay, that's really powerful. You know, Defi wasn't really a term back then.

But the core concepts in like the description of it was, you know, I don't remember if anybody actually even said decentralized finance back in late 2014. but we definitely use the same description, which is global no limit, low fee way of doing financial transactions. Would you say even, Joey, that's what ICOs basically were. They were a defy protocol primitive for fundraising? Yeah, you could sort of consider it that. You know, it's probably the least interesting primitive, right?

You know, taking people's money is kind of the least interesting one. But yeah, it definitely was. So Joey, you mentioned that you guys are a pretty early stage investment firm and that you also look for teams with some signs of traction. But in the early stage, especially in crypto, where so many things are kind of up in the air and undefined and really unknown, how do you evaluate or predict value capture or upside exposure in the early stage? Like, how do you really know what projects or teams or products are really going to be able to actually capture value and appreciate in value over time? Yes. I think my answer to that is it's all just about

whether it's a positive EV bet. And so, you know, when I think about, you know, when I wrote one of the first checks into zero X, I remember, you know, I'd been talking to Will off and on for like six months at that point. And I thought decentralized exchanges was going to be something that was big. At the time I met them, the only people who'd ever really tried anything were EtherX. And either Ether Delta was really small or I forget if it had even been created.

at that point. This is kind of like mid-2016. And I just remember talking to him and talking to his co-founder, Amir and thinking, okay, these guys are going to, they're going to build something. Now, whether the thing they build works or not, you know, I'm not, I'm not 100% certain, but I think they're going to build it and they're going to get it in the market. And I do think decentralized exchanges are the future. So that's why I decided to invest. It's all about whether it's sort of a positive e-feed bet. Another really quick example that we just did maybe a couple of years ago is we invested into Ampleforth. We led their seed round. And that one was sort of like the idea as an experiment. You know, it's a very wacky idea. And we sort of just did it because it was a

fair valuation very early. We knew they'd build something and get it into market. And so I think when you're investing really early, there's kind of two elements. There's Canada. that people get a product into market, and then can they evangelize that product? And you don't really know for sure, but you're sort of trying to get like an insight into the person, whether they'll be able to actually do that. Well, congratulations on the Ampleforth investment, because in the last like month or two, that has definitely worked out for you guys. And I think we definitely want to circle back around to Ampleforth later, because I also find it absolutely captivating. But before that, I kind of want to talk about tokens versus equity and how Pantara's or yours mental models about

these things have changed over the last two to three years. Tokens in DFI are very hot right now. And equity in crypto kind of seems to be this like maybe I'm just biased, but like more of an afterthought about like how to access upside potential. So over the history of Pantara, how has the tokens versus equity debate kind of progress over time. You know, we've sort of always thought that there's value in both. You know, when Pantara launched or just had a Bitcoin index fund. And then in 2014, the first venture fund came out. And then in 2017, we launched these funds to invest in ICOs. And then we have like a liquid strategy's funds

we launched in late 2017. And, you know, the answer that we always tell, you know, potential investors is you should have exposure to both. I guess the way I think about it, though, is, you know, tokens, you generally have a faster path to liquidity. Not always so. You know, we did a bunch of investments in 2017 and not all of them are liquid yet. And, you know, it's definitely a bit more democratic. I'd say a token is. I like it that it's much more direct, you know, even if there is a cash flow, it's just distributed straight to the token holders. There's no like fancy dividend process. It's just kind of all automated and, you know, it's open finance. I like that. I like So Joey, maybe it would be good to kind of dig more into tokens for a minute because there's been kind of a progression, right? In 2017, it felt like, if you use this term before, it felt like we had a lot of futility tokens, like tokens that really didn't do all that much. They were supposed to be used inside of the platform, but they didn't have any real governance functionality. A lot of the tokens were like,

had projects behind them that hadn't even shipped to Mainnet. What's different now? So we've talked often on bankless about these tokens progressing from like into governance tokens and then eventually becoming capital assets. Is that real? Are we in a more healthy state when we think about the economics and value accrual mechanisms of tokens today, defy tokens today than we were in 2017? Definitely, definitely, because when things are going live today, when the token is going live, there's usually some product that's already live. People are building kind of smaller things that have a simpler MVP where they get something live into the market that's functional. You know, Curve is, well, their token hasn't gone live yet, but Curve is a great example of this where, you know, it has a ton of traction at its core, very simple product. and they just got it right out into the market.

And the same case is kind of true for a lot of these defy tokens we're seeing recently. Balancer is another one. The iron, you know, YFI token. These are all products that went live fairly recently and also have a token that, you know, gets you fees and also incentivizes you to do something. And that's just way different than what it was in 2017, where most of the projects, you know, didn't have a good reason for why they needed a token. and often the project itself wasn't live.

This yield farming stuff, I mean, some skeptics, some critics will say it's just kind of a gimmick, right? We're just juicing yields and maybe the yields don't match the risk that users, liquidity providers are taking on by actually participating in these things. do you think it's and it you know proponents we've had dan ellitzer on the podcast for instance you know he'd say look this is this is how defy is actually going to beat centralized crypto banks right this provides a real incentive towards usage of the protocol it's a great distribution mechanism to the community what's your take on yield farming in particular is it more gimmick or is it is this a real mechanism that's healthy for the open financial system

You know, I think so people kind of draw comparisons to two things in the legacy world with this. You know, they talk about exchange tokens where they created these tokens that encourage people to trade on them. And then they draw comparisons also to companies like Jet.com. When they did like a contest to get referrals or users, they actually gave away stock in the company. And actually, the interesting parallel here is that those outcomes are very different. For Jet, it worked very well. They had a really positive outcome. They got thousands of users, and it was a good value.

For the exchange tokens, however, most of those, you know, the liquidity was fake. People were just trading with themselves, and they were just trying to mine the token, but there was no real liquidity there. I think for liquidity farming, it's, you know, definitely it's part gimmick, but there's also some part reality here, too, because what's different is these aren't order book-based exchanges. They're ones where you have to contribute funds into a pool, into a smart contract to provide liquidity. And so what's different is the liquidity is not actually fake. Now, sure, a lot of liquidity, the only reason it's there is because it's getting this yield farm token.

But the underlying liquidity is still real. And that's a huge difference and actually really, really meaningful, I think. So the underlying liquidity is real. And you can verify that all on chain as opposed to essentially what you're doing with a, exchange token, like a BNB, for instance, is you have to trust Binance for BNB to actually fairly report on their exchange volumes. Not only do you have to trust Binance to do that, you also have to trust, you know, CZ and friends to actually burn the tokens and not change the rules on you midstream. Is that right? Yeah, the exchange token example I was thinking

about was even the ones where they had like liquidity mining. I don't think Biance does that. But there were other ones where they actually said, we'll give you more tokens if you trade on our exchange really frequently. Maybe Binance did that. I don't think they did. But yeah, that's the idea. And with Binance tokens, with something like B&B, also people think of these things because they are managed by centralized entities. I mean, these start to look a little bit like pseudo-securities, right? Others say, no, it's this kind of a loyalty token similar to airline miles.

But when you start burning tokens based on profits, based on revenue, based on earnings, that starts to look a little security like, especially because it's managed by a centralized entity. What do you think about that? And are these defy governance tokens different? Yeah, it's a good question. And, you know, I'm not, I'm not sure to be honest. I think, or to be frank, I guess, you know, I'm not an attorney.

But I think if you look at the defy ones, you know, the one thing that's different is they weren't really issued by a central issuer per se. And so what I mean by that is, you know, if you look at like the iron one is a really good example of this, you know, sure, somebody wrote the first smart contract that did it all. But when you mine those tokens, you're actually having to do something. So you're having to put in work to get the token. And it's not like, you know, the Andre guy, it's not like he's giving you the tokens from like his personal wallet or something. You know, they're in these pools and you actually have to do work to get the token, which I think makes a big distinction. You know, even even if the token does have cash flow. There's a big distinction there because you're having to do a lot of work to get it.

And, and, you know, he's not, he's not going and taking the tokens and offering to buy them back from you or taking some cash flow he has and using it to give the token holders. You know, it's all happening on chain. Okay. So can we dig into that? Because a lot of, this stuff evolves so quickly, Joey, right? So Dave and I were just talking, like, he went away for the weekend, last weekend for a hike and a camping trip and came back and now there's this now I know nothing it's all gone it's all gone so can we talk about that so you were talking about a token called yf i right and maybe you can get into what that actually is and and how that came on the scene and how that evolved because i think it's a great example of how how these open finance systems work to

capital. Yeah. So YFI is something that's so complicated. I'm sure I will, you know, botch part of the explanation here. So, so forgive me for that. But, you know, the core, the core concept is, so there are these things called like Y tokens or yield tokens. And a lot of the curve liquidity pools actually use them. So the Y tokens, they allocate your money across different stable coins and across different lending protocols to get you the best yield. Now, What happened is somebody said, the people who made the Y tokens basically said, you know, what would be interesting is if you took those Y tokens and then you used them for something else. So they created like these pools on balancer and these pools on curve, where if you basically

took the curve tokens, then deposit them into a balancer pool. And then you take the LP tokens from that balancer pool and deposit them into like this YFI system, you'll actually basically mine additional YFI. In YFI, like long term, it should be like fee generating. It should get you fees from all these different things that take place in the iron ecosystem. It uses use for governance. There's already votes happening on certain governance proposals right now. And, you know, if you want, you can even take your level farther and you can stake the YFI token that you just mined and use that to get those transaction fees.

And so it's pretty complicated. they have a few blog posts on their site that explain it. And I actually remember coming across it this weekend with one of my friends sent me a link to it. And at first I thought it was kind of funny because it was like, you know, we took like this and then we wrapped it in that and then we wrapped it in this and then we put it over here and that. And when I first started, I just started laughing. I was like, this person has a really good sense of humor. And then like I couldn't I wasn't sure like is it is it half serious half half a poking fun at everyone else? Is it full serious? Is it full just poking fun everybody? I don't know. It's really interesting and it was really cool to see though.

Yeah. So what you're basically describing is that this guy, Andre, who's a developer of this protocol aggregator, right? He put together a distribution of Wi-Fi tokens that would allow the community to govern over. all of the parameters across these various defy tokens, right? Including like issue its parameters. And I saw last weekend, the community actually voted. I'm not sure, you know, they can unvote this. They can change it. But they voted to hold YFI tokens to like a fixed cap of 30,000 or something, right?

But the interesting thing about this is he didn't, he didn't generate or print any tokens for himself or for his or for his team. The only way to actually get these tokens. is to earn them. Now, you can also buy them on exchanges like uniswap at this point, because nothing can stop you. This is the permissionless open finance. But that's pretty innovative, right? Instead of having any backers or any founding whatsoever or any sort of team distribution, he just put it straight to the community. Yeah. Yeah, it's really interesting and really surprising to see. Yeah, I thought that was super cool.

Based on your understanding of how this system works, it's the most complicated system we've seen in Defi, like, by a long shot. Do you think all the components that make up this YFI token and the curve liquidity mining system are necessary? Or, like, how much of this is really kind of just, you know, just crossing a bunch of wires just for the sake of it? Like, is every single component of the system actually useful and actually providing value to the system as a whole? Yeah, it's a good question. And the answer is it's hard to know per se. Like, the short answer is there's not enough data yet in terms of like where fees will flow and how money's going to flow through these systems to know whether all these steps are actually accruing value or whether some of them are unnecessary. A while ago we were talking about the BNB token and the burn model.

And there's been some debate in the defy ecosystem about like a dividend model versus. is a buy back and burn model. Maker being the token that is most synonymous with a buyback and burn model, also B&B. And then compound and balancer are theorized to be a dividend model. But I guess we don't really know that for sure in the future. Do you have an opinion on which model you prefer and what are the pros and cons of each? Yeah. So I think there's what do I prefer from an academic standpoint?

And then what do I prefer in reality, you know, ignoring reason and rationality? So in an academic standpoint, I prefer a burn. It's more efficient in every manner. It's more tax efficient because unless you actually want to sell your position, it's already happening. You're not realizing gains on some distribution. That's one reason why companies do stock buybacks. It's pretty simple and straightforward.

From a practical standpoint, though, I don't like it. And the reason I like just straight up distributions better is they usually require staking to get the distribution. And so most people aren't kind of stake. And so for the people who do, they're basically getting a higher return because most people are just kind of too lazy to bother doing it. It's easier for most people to comprehend and understand. A lot of people still, even in traditional world, don't understand the economics of stock buybacks, even people who are otherwise, you know, very, very intelligent. And then, and then the last piece is that I think there's sort of, they're sort of like,

and this one's really not a rational economist one. It's just like a practical reality. There's sort of perverse incentives to doing buyback and burn. Because unless the price of the token goes up by exactly, you know, how much was burnt, it can kind of lead to it being lower on on sites like coin market cap. And so, you know, if you look at something like Ampleforth, you know, the reason why it's, it's grown so fast is because it's distributing new tokens and the supply just keeps going up.

And that's how it keeps like scaling the charts of coin market cap. And so there's like these practical reasons that, you know, don't make rational sense, but in reality, I think they matter. So the one thing that's always concerned me about the burn model is that it seems to be more, less salient. And it seems to be that the value of like the MKR token really depends on the shared perception of the value of Maker Dow. Because in the event where, you know, there's an MKR minting, there's nothing to back the cash flows, right? Or there are no cash flows to back MKR. There's just this perceiving.

value that in the future there will be more burning. And so I've, of the burn model, while I agree, it's more fun and more crypto economic and more novel, it also seems to be like a balanced on a very thin line and it could fall off based on the fact that like, okay, all the previous burnings don't actually really matter. It only matters for future burnings. But I guess that is no different from the dividend model. Am I tracking on something here? Yeah, that's right. And, And in effect, you know, in theory, in like economic theory, you know, you could, you could monetize your burn by selling off a little bit of your position whenever a burn happens. But like that's like a thing that people don't like to do in practice. You know, it's, it's weird to do that.

It's even weird to do for me to want to do that. And like, I understand how it mathematically works, but it still feels weird. Fair enough. Okay. What projects and or products on Ethereum or DFI are you searching for? Like, what do you want to have someone, like, come in with a pitch deck for? What are you looking to be built into defy? Yeah, that's a good question.

So I think, I think there's more room to innovate on, on dexes. So I think one thing that would be very interesting would be, like, somebody took zero X mesh and then made a decks that ran on something like Madic, on something like a Madic style kind of plasma side chain. And so you got the benefits of off-chain orders with really fast and cheap on-chain settlement. I think that would be very interesting and sort of would replicate the experience of a centralized exchange, but it would be decentralized. You know, I've always thought it would be cool to see decentralized poker. We invested in virtue poker a while back.

I think they're supposed to be launching soon. We'll see on that. And then I do think, you know, we touched on Web 3 a little bit earlier. I've always been more excited about decentralized finance, but I think there's some stuff that kind of crosses between the two. So like, you know, we're an investor in origin, which is building a sharing economy protocol. I'd love to see people build apps on top of that where they're creating like decentralized versions of Airbnb and things like that. I think it could be very, very interesting. But the short answer is, yeah, as an investor, you know, we listen to the market, you know.

So whatever interesting stuff people are creating, we're always interesting. in it. You know, we don't have a list of ideas and we're not like checking it off to see if somebody is building one of those. And if not, we don't invest money in you. You know, we, we, we want to see whatever people think, whatever entrepreneurs think is worth spending their, their, you know, lives on. All right, guys, we're going to pause the interview real quick and just talk about a few of our fantastic bankless sponsors. AVE is a borrowing and lending protocol on Ethereum. So what that means is that you can deposit your assets into Avey. and then take out a collateralized loan or simply deposit just to earn an interest rate.

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wallet works. So check it out. I want to tell you about another bankless tool that I personally use. It's fantastic. This one is for our U.S. listeners. It's called Rocket Dollar. So if you have an IRA or a 401k, the problem is it's jailed inside of your brokerage. So your Fidelity account, your Schwab account, that means you don't have good access to crypto. The only crypto that you can buy is in a trust form and it's marked up like 5x, 6x, 8x the price. You're getting ripped off.

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outside of an Ethereum, for instance, into the system so that a decision can be made of some sort. I want to talk about oracles a little bit. Obviously, we want to get to Auger. That is a potential Oracle solution. But first, Joey, how do you think about oracles? Like, how should we think about them. Is the model, you know, decentralized versus centralized permission versus permissionless? Is it, you know, there are fast oracles and there are slow ones? Is there, uh, do you think of it as a model where some have better settlement guarantees than others? So how do you think of oracles? Yeah, I think, I think about them basically in the sense of the question to ask is what's, what's the trust model, you know, or as you said, what are the settlement guarantees that you get

here. And are the guarantees because, you know, somebody is, is a nice person, is the guarantee because you're paying somebody a small amount of fees and, you know, it's still in their incentive to cheat you, but you hope the small amount kind of outweighs that incentive over a long period of time? Or is it, you know, you know, pretty rigorous like game theory incentives where, you know, like the math works out such that it's sort of like attacking the Oracle will be the equivalent of a 51% attacking a chain or something over a very long period of time. And I think those are the sorts of models that people have come up with. How about reputation, Joey?

So Hasib has made the comment that reputation is maybe underrated as a source of legitimate Oracle data. So if I'm ESPN, I'm going to report on the score after a game because if, if I don't, no one will trust me as ESPN in the future. Yeah, so that's true. That's sort of the same thing as like you can sort of model that as like an economic stake, right? So like ESPN has, you know, their entire business reputation is riding on that.

You know, if ESPN decides to be a liar, that's not good for them because ESPN sells that data to other people too. You know, they sell it to sports books that are trying to pay out markets and things like that. There is one issue with that, though, which is centralized services tend to actually accidentally give incorrect data. This is something we found out with Auger, because people sometimes create an auger market. It's like, what will the outcome of this question be according to this certain source? And there's a lot of sources that people might view as reputable that actually have inconsistencies, like their data is not available at a certain time, or the data is

misaligned, especially things like with price data or historical price data, sites like Yahoo finance are incredibly unreliable. There's a lot of interesting stuff that I didn't know about sources that I previously viewed as being reputable, just based off what I've seen with augur markets. That's fascinating. And so diving more into oracles right now, so one solution that's, I feel like, has taken the defy community by storm is chain link. So it seems like a lot. I don't have estimates. In fact, I'd be super interested to see this, but a lot of defy protocols are using ChainLink as their source of truth for price data. What's your, what's your take on ChainLink? And I'm recalling a tweet from back in 2019 where I think Robert Leshner said

something like, we're, you know, we're thinking about using Link as our Oracle system, ChainLink, that is. and you replied and you said don't do it like we'll pull millions out of compound if you do you had some serious reservations about chain link at the time do you still have those reservations and what's your take on chain link right now yeah so so when i tweeted that you know it's kind of like i was just like you know that's that's you know exactly what i what i would have done at that at that point in time um you know and so it was almost easier just to kind of just tweet out of one-liner than it was to like peeing rob and have like a serious long conversation about it. And I always like just being kind of upfront and interact anyway. So I thought, why not tweet it?

I didn't imagine that that tweet would get that much like people replying to it and stuff. But so my view of chain link then, you know, was well, the kind of like the stuff that they do for oracles back then was was pretty centralized. You know, they say it's decentralized, but you know, you're selecting from a handful of different nodes that are just providing the result. You could take an average of those notes if you want, but back then, you know, it wasn't really backed by any economic security. I'm not sure the status of whether these are live yet or not, but I know ChainLink's been working on two other versions of the Chainlink Oracle, one that uses Intel SGX and one that uses this new protocol that they published with the, I think a professor, I think at Cornell or something called ZECO. And those are actually pretty interesting to me.

The SGX one is actually pretty good, you know, for certain use cases. If you're comfortable with the guarantees SGX gives you. And then the Deco one is actually pretty solid if you have like a URL-based source and you want to get that data on-chain in a secure way. like the deco one, it's actually very, very, very secure, like in my mind. The risk there is that it's the same risk, though, which is that, like, the source data isn't available or the source gives inconsistent results or there's various things where, like, it's just not going to work.

But for, like, use cases where you want to just get price data, you know, it's actually probably pretty good. I don't know if that's live or not yet, though. So my opinion of Chainlink kind of like, it just follows that decision tree, which is, like, If they have one of those two things live, I think it's probably pretty solid. If not, you know, myself, I wouldn't use it until one of those two components are live. So you like the tech if they're making the upgrades that you mentioned. I'm not trying to get you at, you know, the chain link Marines upset at you, Joey.

So like, but I was wondering about link the asset because it has gone absolutely exponential. And a lot of people, I think, in the space, don't understand clearly why. Is there some value accrual mechanism that is linked to the success of chain link and link the asset? Do you have a take on that? Yeah, I mean, I think the main one is it's a utility token where I think you need it to pay for certain things on the network or whatever. I don't like there's any fees distributed to link holders per se, though, or even if they are. you know, they wouldn't be very large because doing a chain link or a quarter request is fairly cheap. So, you know, regardless of whichever one of those is the case, you know, the vast majority

of the value is just pure speculative value. You know, I know, like 4chan is super interested in chain link. They're also interested in ample fourth. And so I think that's why you have a lot of the value is not because like somebody sat down and done it as kind of cash flow on chain link and decided that's worth $8 billion. Right. But because, you know, it's a meme and people want to buy some and say that they're a link marine. And so, yeah, that's kind of, you know, the value is in its memetic value versus being

something like super rigorous. That's not true for a lot of other currencies. Right. And that's, it's so bizarre. The memetic value, we had Ben Hunt on the podcast from Epsilon Theory. And, you know, he talks a lot about narratives. you call something like, in crypto, we call them memes, right? And how those fundamentally set the price of markets, the actual narratives.

Is that something that's investable? Like, does Pantara look at that sort of thing? Like, what's the next narrative that's emerging? You know, what's 4chan talking about? Where are these communities of link Marines, you know, communities of Marines and Twitter armies focusing on? Do you guys invest in things like that? You know, it's really tough to invest in things like that.

You know, I wish I could tell you we bought a bunch of chain link when it was at a 100 million market cap. But, you know, unfortunately we didn't. And I think it's tough to invest in memes because, you know, you don't really know where they could go, right? In the sense of like, if, say, 80% of your portfolio was a diversified portfolio of memes, you can't do a discount of cash flow on them. And so it's sort of like, you know, it could be.

a bubble and it could pop and, you know, who knows what's going to happen. And so that's, that's why it's hard to invest in things like that from, from like an investor, you know, standpoint where you have like LPs and things like that. If you're a retail investor, it's much easier to put, you know, a few thousand bucks into it as a flyer and see what happens. Going back to the topic of oracles, the Oracle problem is described as getting off-chain data onto the chain, right? And so, that means that, you know, these chains need to have some sort of system that brings knowledge that they can't have internally from outside the chain into the chain so that the economic activity inside the chain can leverage that information in order to have further economic

activity. However, on-chain Dexes, like Uniswap and Balancer, offer an on-chain oracle based on the economic activity that's happening natively on the chain, which is really interesting because it requires no outside trusted source of information because the information that emerges out of the uniswopper balancer trading pairs offers an Oracle for pricing coming natively from the chain. Is it dangerous or worrisome that in the future, this offers a solution to the Oracle problem because we don't need anything that's outside of the chain.

We can deliver it ourselves. But that's very self-referential, right? Is that dangerous? Do we need to have something outside of the chain providing outside data to Ethereum? Or can we just produce it internally in a safe environment? Have you thought about this? Yeah, I have a good amount. So Auger actually uses Uniswap V2 as an Oracle for the price of rep versus die.

And the reason is, the short reason is basically you can't really have a self-referential Algar market where there's no resolution source and it's on a price because if you say like what's the price of rep on this date, there's a thousand different answers depending on which site tracker you use, how they calculate things, even like which exchange. It all varies. So you have to have a very specific source. But if you say what's the price of rep according to quay market cap, well, if coin market caps down, your market's invalid. And we need a price always for the price of rep and first die. And so what we use is we use Uniswap to do it.

And what's really cool about the Uniswap Oracle is you can basically say, give me the time weighted price over a certain time period. And it's not a volume weighted price because volume is very easy to manipulate or make fake volume. But whatever the prices on Uniswap at a certain time is actually pretty real. So for instance, if the price of Ether on Uniswap versus Die is $250. dollars and it stays that way for like two minutes, you know it's pretty real because if it was invalid, somebody would have arbed against the price. And so you can use that to create a pretty accurate Oracle in my view. So Joey, let's talk a little bit more about Auger because we want

to understand how that kind of fits into the other Oracle solutions. It's interesting to me that you described Auger is an Oracle in itself, but it also uses other oracles. in defy like the uniswap v2 oracle i'd imagine it could use you know even uh sources from a chain link as a as a reference point too how does auger fit in to the other oracles that are live today in defy is a little bit different does it offer different security guarantees yeah it offers different security guarantees so so what auger offers is it's pretty rigorous economic security And so it's the concept that like people who are reporting on some event on Augard, you know, shouldn't have a financial incentive to steal your money. Versus like, you know, if I'm just creating a site that's like Joe's oracle shop.com and I provide price feeds for people.

And then all of a sudden there's 500 grand that's going to be decided based on the outcome of my price feed. I can easily just cheat everyone and make more money from doing that. But with rep, you have to stake wrap in these subsequent dispute rounds. And you would basically have to burn millions of dollars to falsify a market result. So it provides different economic guarantees. But the fallback or the drawback is as much slower. You know, Auger takes, I think V2 will take on average, you know, a day or two to pay out a market. Now it's improving.

V1 took like four to six weeks. and I think as Auger gets more users, there's no reason you couldn't, in theory, dial down the time it takes for a market to resolve. You know, you can envision someday where these dispute rounds are very fast and they happen like on 30-minute time horizons so the average market resolves in an hour or so,

which would put it on par with like a slower, you know, centralized that insight or something like that. So it's possible to make it fast. It's just, you know, today when the amount of people using it is fairly small, and it's on Ethereum which still, like, has a bunch of gas for price issues at the moment, you know, it would probably be insecure to make it too fast. But the fastest algorithm resolution is ever going to get, in my opinion, is probably like, you know, 30 minutes style time horizons. It's not going to give you results every 60 seconds because it just wouldn't be secure because

it relies on humans. So, Joey, we talk a lot about settlement guarantees on bankless, and particularly around settlement guarantees of systems like Ethereum or various assets on top of it and Bitcoin, that sort of thing. I think what it sounds like you're saying is that Auger is offers far stronger settlement guarantees than most oracles. But the tradeoff is it's slower. So right now, you know, it would take a couple of days, you know, in the future, possibly if you get the liquidity in the usage, that sort of thing, maybe it's possible to get to an hour or half an hour. But that's not great for a use case like an instant price feed, right? Which is what a lot of things in DFI are using oracles for right now.

What is it a good use case for? It's got to be something that's super high stakes and that there's a high incentive to essentially cheat or bribe. What are those types of use case that you envision when auger is fully formed? Yeah. Yeah, so you can envision it being used for things like, well, I'll tell you what we've kind of built around it, but I think the more high-level version is, you know, if you envision it being used for things like, say, somebody has an options protocol and there's, you know, categories of options that expire once a month or something like that. Yeah, that's long enough where if it takes, you know, a little bit of time to do the payout, it's fine as long as it's very secure. maybe you don't want to rely on, you know, another Oracle for that. But if you're doing something like DYDX where you're trading perpetuals really fast,

you know, Auger's not good for that. You might be able to use Uniswap, but, you know, depends on what asset you're trading, whether it's probably secure or not. And so if you look at the good use cases for Auger, though, specifically, tends to be things like betting on real world defense. So things where, you know, you're asking like, will SpaceX launch this rocket? successfully or not or, you know, which team is going to win this, this game. And for those sorts of

events, you know, you could see large amounts of money being bet on them. And you need to do the payout right. You don't want to trust some random oracle where some guy can just change the results to whatever he wants. He needs to be pretty rigorously secure because there's a, there's a pot of money relying upon that result. So, Joey, we have Auger v2 rolling out in just a week. How do you feel about that. Are you excited? Are you nervous? Are you worried something may you go wrong? What's what's your take on Augur v2 coming? Yeah, I'm really excited for it. You know, we we listen to tons of user feedback from V1 and you know, almost everything somebody complained about is is fixed in that. So I'm really excited for that. You know, it's it's much easier to use making orders is off-chain so those don't

cost. Yeah, I'd say a lot of the user experience issues have been fixed. There's really two that haven't, which is like the UI is a trading new I. It's not a baddie new I. And it's still pretty expensive on Ethereum. I'm a little worried about that piece. You know, gas prices have went up to over the past few days. I've seen them up to 150 Guay at one point, which is very expensive. So Auger v2 couldn't have been made at the time Auger V1 was, because In Auger V2, there's a bunch of new money Legos that has been leveraged by the Auger V2 protocol. Can you kind of go through some of the developments that have happened in the Ethereum space and how that's allowed you to build out Auger V2?

Definitely. So, you know, the first big one was the launch of a multi-collateral die. And so trading takes place in dye in Auger V2 instead of ether, which is a big, you know, thing users had an issue with is if you're betting on something that takes place, place in six months, you know, you want to have no volatility in the underlying asset when doing that. Most people do. There's a small group of people who disagree with that.

The next one is zero X. So all orders are broadcast off chain over this peer-to-peer network. And so that means that when you place an order on the orderbook, it doesn't cost you any money now, which is a big deal because on V1, that costs, you know, four or five dollars, which is pretty crazy. The next one that it uses is, of course, uniswap for that one price feed. And the last thing it uses is the GSN, which is this gas station network that lets you basically do transactions in Dye, where the underlying user doesn't need to own Ether in their wallet.

So it makes it a bit easier for a user who's new to crypto because they just need to get Dye instead of Ether and Die. Why die rather than USTC? Oh, yeah. So the reason the auger uses dye is because it's really the only, it's the most essentialized stable coin, I guess is the way I would describe it. Right. So we just watched USDA get blacklisted from a particular dress. So maybe some particular market in Auger v2, which the authorities don't agree with might leverage the ability to blacklist or whitelist USC from a particular auger market. That's the fear, correct? Yeah, or that like, yes, yeah, basically the fears that somebody would try to censor something. And, yeah, Dye doesn't really have that issue. Auger is trying to be a very strongly censorship-resistant platform. So it's only as censorship-resistant as its weakest link.

And so any time that you can patch and improve censorship resistance, it adds to the censorship resistance of Auger as a whole. Yep. Yeah, that's exactly right. So one thing about Auger that I've always paid attention to is the debate between, you know, peer to, I guess it's not a debate, but like the model of peer to peer trading like the zero X model versus peer to contract like the Uniswap model. And so Auger, because it uses zero X, it's a peer to peer trading platform because you're trading with one specific other party. Whereas some of the massive growth that we've seen in the defy space comes from a peer to contract model where, you know, this is. compound, this is uniswap, this is balancer, where you don't need to find a specific counterparty to be able to access liquidity. And we've seen liquidity coming from the peer to contract model just absolutely explode. So is auger locked into a peer to peer zero X model, or is there a

potential for a peer to contract a liquidity model for these future auger market markets? Yeah, so auger is very, it's very modular. So, you know, I'm aware of that there's some people actually, I think working on making a peer-to-contract model for Auger, where it uses the same markets. You're basically buying what's known as complete sets. So you're buying like yes and no in a market. And then you could trade those on something like Balancer. So that's something people are working on. So Joey, Auger, one, didn't, I think, take off the way a lot of people thought it would or hoped it would.

There's still some volume there, but it's not a tremendous amount of, value of volume relative to other things like you know collateralized lending is taken off and recently decentralized exchanges are taking off why do you think that is is it just a kind of a lack of of liquidity but that's kind of a chicken and the egg problem right is like how do you incent liquidity just curious your thoughts and if you think v2 will have a different trajectory yeah I think I think a lot of it was just too hard to use. You know, when V1 launched, it actually did a few million dollars in volume in the first week. And in the first week, you actually had to download this thing called the Auger app.

And it took hours to sync it. It took, you know, eight or nine hours to even get into the app. And so, you know, when you look at that and you look at kind of the level of traction it got, if you look at the traction in isolation, it looks very, very, very small. If you look at the traction and adjust it for how much of a pain it was to use, I think it was actually, you know, pretty good. And so what we focused on is, is making it easier to use. So V1, you know, it took hours to run V2 loads in a few seconds right in your browser using IPFS. And there's, you know, a hundred other improvements like a list off. But, but the idea is that

it's much easier to use. I think to really get a lot of liquidity, though, we need on-change. like settlement to be fast and cheap. And, you know, right now with Ethereum gas prices are so high, you know, it could cost a crazy amount of money to do an auger trade when it goes live. And so maybe the first users will see what us be people who are looking to bet, you know, very large amounts. Because if your trade costs $50, you need to be betting pretty large for Auger to be, you know, cheaper and better than your alternative. That's something that we're looking to fix, though, with V3. Yeah. Can we talk about that? that. So it's not just Auger, right? All defy protocols are now living in a hundred

gway gas price world. What do we do about that? What does Ethereum do about that? Does Ethereum become just kind of a settlement layer for larger economic transactions? Or are you seeing ways that we can scale Ethereum today and particularly defy on Ethereum today? Yeah. I mean, I think the lowest hanging fruit is there's, you know, this EIP that I always forget the name of, but it's for improving the gas price auctions. And I think you get a lot of efficiency just out of doing that. Because at the moment, the way it kind of works is like, you know, everyone just kind of fights this gas battle where everybody adds a few way

to their transaction to get in. And if everybody does that, the amount you need goes drastically up to. There's more efficient ways of architecting that. And I know there's an EIP to fix that. I think longer term, though, you know, we need a real solution to skillability. The long run solution is something like ETH 2.0. but that's, you know, still a ways off from being fully production ready.

I think the lower-hanging fruit to do now is things like these optimistic roll-up solutions and things like plasma-style solutions like what Matic network is doing. I think, you know, for AGRV-3, we're looking at using Matic as a scalability solution. So we would throw trading on like a Matic plasma side chain

and, you know, you could have transactions for a few pennies that settled in a couple of, couple seconds. You know, that's like a huge improvement. Their main net just went live. It's probably the one project I talk a lot about in the space, even though, like, I didn't invest in them early on or anything. I just think it's really, really cool and their team's really good. But Joey, does that wreck composability, right? So doesn't Defi have to kind of coordinate on the roll-up solution it's going to use or else, you know,

it's hard to actually compose transactions across these various protocols. calls. How do we solve that coordination problem? Yeah, so it definitely makes it, it definitely makes it harder. And I don't, I don't really have a great answer for that. You know, I think, I think part of it is just convincing people to, to migrate to something. So like, for us, you know, I think we would basically say, let's, let's get a version of zero X running on Maddo. Let's make it so zero X token holders can still stake in market making and earn all their fees and stuff. and maybe there's a parallel version of it over there.

For stuff where it's harder to make a parallel version, you probably just wouldn't. So an example of this is MakerDow. You know, there's no need to make a version of Maker on Madic. But what you can do is you can just bridge die over. So you're just using the same dye, but onmatic. And so it's complex. And the answer for each DAP or protocol is a different answer. You know, stuff like Uniswap, I don't know how you bridge that over.

Because if you bridge it, you lose the liquidity. That's a tougher problem. And so, I don't know the answer to that one. Don't you think all these protocols are going to be fighting for main chain space, though, not necessarily want to move? Because, I mean, main chain is Manhattan. And everyone wants to be in Manhattan, right? Well, yeah, I guess it depends on what you're doing, right?

You know, if you're racing cars, you probably don't want to want to be in Manhattan. You probably want to be at the track. True. And, you know, there's certain things, right? So, like, when we think about Auger, we want reporting to be on main chain, certainly because that's the part that's most security critical. But if people want to trade on an event that expires in two days, you know, it's probably fine for them to use Maddoch for that.

And so that's kind of how you think about it is you want to be in Manhattan or the main chain, as you said, when security is super critical. And then for other things where it's less important, you know, like, I think the incentives behind Maddoch work out if there's only a couple days worth of auger markets trading on there at any point in time. If all of rep and everything was on there, you know, it probably wouldn't be the incentive compatible. And so that's, that's kind of the mindset, which I think about it. I want to turn the conversation to something that you, Joy, have talked about mentioned a few times so far, and that's Ampleforth. Ampleforth,

disclaimer is a sponsor of the bankless YouTube channel. But it's also something that's kind of captivated me as somebody who's interested in experiments that can only be done on a crypto blockchain platform. So can you perhaps illustrate for us what the Pantera's thesis for Amplforth is and how has that changed at all in the last few months? And let's talk about what your thesis is around Ampleforth. Yeah. So, you know, I first met Evan.

He was running this company that basically it made really good pizza and they'd deliver it to you. That was kind of the company. It was actually the best pizza that I'd ever. had in San Francisco. And he'd gotten into crypto. This was like 2017. And, you know, it was just really, really interested in it.

And we'd just been talking back and forth a bunch about a bunch of different ideas. And he'd somehow gotten interested in the stable coins. I forget, I forget how. But anyway, so we started talking about stable coins. We started talking about Hayek money. I forget if he'd seen a paper where I sent it to him. But either way, got really interested in it. And we started kind of helping them, like, build this fairly complex system.

And then at one point, Evan came back and he's like, you know, what if we just take the MVP piece, like the Hyac money piece and just launch that first and see what happens? And I remember it because it was a, there wasn't really a board, but there was like a group of a couple investors, Paul, myself, Evan, and maybe one or two other people in a room. and he, I remember he proposed that and we were like, you know, I don't know, it seems interesting. Why not? You know, just see what happens. It'd be an interesting experiment. And so he ran with that and has been, you know, doing a really good job ever since.

And, you know, it launched a bit over a year ago. And then he tried to figure out, like, how do we build a community around this? And it really started growing really fast after they added this geyser thing where he basically you stake, you put your ampils in uniswap because they wanted to boost liquidity for the token. You put your amples in uniswap. And then exchange for that, you wrap them in this other contract, which basically gives you additional ampals in exchange for doing so. And after that point, that was a bit over a month ago. It started to grow really fast. So where do you see ample, the ample currency, fit into defy? Right. So what niche does it fill? Yeah. So I think it's almost like,

you know, it's almost like a Bitcoin, it's sort of like Bitcoin in that sense, right? So there's like two types of assets in the space, in my opinion, it's the highest level, which is you have ones that are like cash flow generating or will someday, and then you have ones that aren't that are more just kind of like a synthetic commodity. And, you know, Bitcoin's in that second category. I think ample fourth is as well. And so it's really just trying to be this kind of alternative, interesting asset that you might buy a little bit of. because you think it's interesting and you think it's not really correlated to anything else.

So long term, it's sort of like you don't really want to say Bitcoin competitor, but it's also not trying to be a stable coin. It's kind of this amorphous thing that's it's like the closest thing I remember to Bitcoin when I first got involved in 2011. It sort of feels like that. It's just like weird thing that it's really tough to describe and explain what it is. I mean, you can explain literally what it is. Like it's a stable, it's a currency that when the price goes up, 50%, it prints roughly 50% more tokens.

And when it goes down 20%, it decreases the supply by 20%. That's literally what it is. But what it will be used for and how that evolves. I'm sort of as clueless as I was when I came across Bitcoin in 2011, you know, for the answer to that part. Right. And it's basically up to the market to actually define. and what Ampleforth actually will be, right? So just like you said, like we can explain technically what it is.

However, it's really what it actually manifests as will be up to the free market and up to just some sort of organic adoption over time. Yep. So, Joey, this is like the memius investment. It seems like maybe Pantera has made. Like, I don't know the other, but we were talking earlier about the technical trade. We were talking about narratives earlier. Yeah.

That's a, Mimi is a highly technical term. But of course, Bitcoin is very much a meme. At least we tend to think it is. Now, it's bootstrapped itself based on the scarcity meme of 21 million to actually be a useful store of value money. And it's, it's done that through several cycles. And now it's, it's highly liquid. So it has utility because it's just a good store value and just a good money at this point.

But the core of Bitcoin is really this 21 million meme. It seems to me like Ample is doing somewhat of the same thing. So you guys are investing in memes, it seems, right, Joey? Yeah, I mean, we haven't done too many of them. But yeah, yeah, this is one of them. One of the questions I had, I know David has done a deeper exploration of Ampleforth than I have, but one of the questions I had is to do with distribution of the token. So Bitcoin had this, I guess,

immaculate conception, as people call it, with proof of work and distributed through a crypto kind of anarchist sort of group. Ampleforth is coming at it from a different direction. Now, there is the geyser, and that is distributing through, you know, defy early adopters and Uniswap, and I think that is a very, very interesting mechanism. However, a large portion of it is also owned by venture capitalists, the team, and a foundation. So it's, you know, Bitcoiners, would say there's a pre-mine there. Is that going to be an impediment to adoption? Yeah, I mean, I don't think so. You know, if you look at Ethereum, there was technically a pre-mine, but, you know, it's still one of the most valuable assets in the space. And I think

there's, you know, there's a few chunks, just like investors. But I know the investors, you know, they don't own nearly as much as you would like in a seed stage startup, you know, I think you know, like we would own 20% if this is a regular startup. You know, we don't own anything near that. And then for the sort of foundations piece, you know, that's meant to be, you know, either like spent or given away over time, you know, 10 years from now, Foundation probably doesn't own any, I would imagine. And so, yeah, I think it's, I think it's people might be upset about it, I guess.

Some people are very anti-premise, but they're probably not the people who would be interested in something like this at all in the first place. anyway. So I don't think there'll be too much of an impediment. Moving this conversation to Ether, our all-beloved asset, I want to ask about your investment thesis with Ether, but first, I also want to ask if you are familiar with the triple-point asset thesis for Ether, and if you agree with that or not. I haven't seen it. What's the TLDR? The TLDR is that there are three asset superclasses, commodity assets, transformable consumable assets, and then, excuse me, there are store of value assets,

commodity transformable assets, and that's like wheat or energy, and then also capital assets, which are dividend paying. And, you know, some assets in the world can be multiple of these things, like gold is a great store of value, but it is also a commodity. It's used in industry. A piece of real estate pays rent, so it's a capital asset, but it's also a store of value. And the triple point asset, the triple point is a reference to chemistry where if you get the pressure, temperature, if you get those things perfectly balanced, you can get a substance to be a liquid, a gas, and a solid all at the same time. And the thesis is that ether is the only asset that can be all three asset superclasses all at once. And we haven't ever seen any asset be able to do that

at all. And so the valuation of ether is going to be some combination of all three asset superclasses all at once. So A, does that resonate with you? And B, how would you describe your investment thesis behind Ether if it's not the triple point asset thesis? Got it. That makes a lot of sense. I hadn't heard about that before, but it makes sense. I think my investment thesis on Ether is, you know, sort of like if you can invest in the World Wide Web early on, and it had an economic layer, that's sort of the equivalent here, but you're doing it for finance. And so when I think about how Ether will accrue value, I sort of envision, okay, 20 years down the line, if most of the world's financial transactions settle on Ethereum at some point, that's a huge amount of value.

And regardless of how specifically it monetizes, whether it's because of, you know, ether itself is locked up as collateral in many cases, whether it's because it's just transaction fees of people using the system, whether it's, you know, whatever it is, that core concept of this is the platform for decentralized finance, full stop. It's just so powerful that, you know, if this stuff works, it's going to accrue a huge amount of value long run. And so that's why I own it. Joey, are you more bullish on ether or Bitcoin right now? Yeah, I'm more bullish on Ether on a relative basis. You know, I think if you look at 2017, Bitcoin Dominion,

went from like 90% to 37 or something. We're currently at just under 62%. And so I think there's more room in this bull market for Bitcoin dominance to continue to slide. How soon do you think that'll happen? Well, I think we're in the early innings of it. You know, I saw somebody on Twitter tweet, you know, do you think we're in a defy bull market in what stage and like the options were like, it's early, we're in the middle, we're in the end, or the top just happened.

And a bunch of people said the top just happens. Like there's no way that's the case in my opinion. This is just the very, very early endings of the next bull cycle. And I think I think we could see a lot higher prices. You know, sometime mid to late next year is I think when it will really start popping off because that's when a lot of these scalability solutions will be live. Now, not everyone's going to be using them day one, but they'll see the idea or the potential for this stuff to scale

and that it works in production. and I think, you know, it just takes a little bit of retail buying pressure or interest to combine those two things and you have something really interesting as a result. You speak to institutional investors, Joey. So maybe just to tee this up, I very much agree with that idea that we are in the very early stages of defy and particularly in asset growth in defy. And, you know, part of the reason for that, I think, is the people. who are using defy today, they're not the retail investors who previously bought ICOs because they saw something on MSNBC or because their friend texted them a hot tip. The people who are using Defy protocols are people who have been in Ethereum for a while and stuck around after the bear

market. It's like a very, you know, crypto-native local community. We have not yet seen an inflow of new users. And it seems to me that institutional investors, retail right now is kind of sluble. leaping on defy at the moment. Is that your take when you talk to institutions or even just your pulse on retail right now that nobody knows about it besides these crazy, you know, Ethereum insiders who stuck around after the 95% crash? No, so I think, I think that's true. The traction we're seeing today is due to the people who stuck around after the crash.

That's how every bull market starts. It's how the one in 2016 started as well. And so I think that's natural. And then I think if you look at people outside of the space, they're starting to get a little interested again. You know, like there's certain metrics you can use. Like one metric is, you know, when you get emails from people, random people being like, you know, can you explain the difference between Ethereum and Maker or Ethereum and Auger? You know, that's like, that's a retail person who just found out about the space and is looking to learn more. or when you start getting texts from, you know, your friends outside the space or your friends from high school.

I've gotten a couple of those recently, whereas, like, nobody texted me in 2018. Yeah. And so it's still very early, but it's starting to trickle out there. And then on the institutional side of things, you know, there is some. I think most institutions are still just like it's too early. I think most institutions, like the people talk about like the institutional money or whatever, in my view, I think it's not really going to come in earnest until the market cap of the space is over half a trillion. And then we'll see a huge flood of it when it's over a trillion. But at current levels, they're still kind of like, oh, it's too early.

And, you know, that's not like a knock on the space. It's just like, you know, you could have sent them Uber at the series B and they would have said, oh, it's too early. Right. Right. That's that early. But we have seen some is the kind of note of positivity I wanted to end that on. You know, we have a, there's an endowment in our fund that's in the, in the digital asset fund. And, you know, that fund is, is a fund that owns a lot of defy assets.

And the reason why they invested in that fund as opposed to our other funds is they were actually excited specifically about decentralized finance. You know, they knew the Bitcoin thesis, but they didn't want a ton of exposure to that. they wanted exposure to defy. Now, that's rare and that's an outlier, but, you know, I think it's starting, and there's some first believers who are starting to get in. That's super fascinating. Yeah, I think investment vehicles like that are pretty perfect for institutions. Back to the case for eth, a price appreciation. Some institutions may also just say, hey, you know, what if ether as a reserve currency for this whole defy open finance thing, what if we just buy ether as kind of of a proxy to get exposure to the entire defy price appreciation. That to me feels like a narrative

that could pick up, particularly because the CFTC and U.S. securities regulation has deemed ether a commodity. Seems like that's similar to Bitcoin and that it's a safer play to make for some of these institutions. Do you share that view? Yeah, I can see that happening to some degree. I think institutions, they want to have a pretty diversified portfolio, though. And what I think they might do is they might, they might buy some Bitcoin, they might buy some ether. And then they'll probably invest into a handful of funds. I think that's kind of what it looks like, steady state long term. So if we are right, and this defy bull market is coming, we're just in the first ending of it, and a flood of new users is coming to the space.

Are you concerned about that at the same time, too, because we were talking earlier about these very strange mechanisms of various ways to wrap contracts. We talk a lot about the return in defy, at least that's sort of the obsession of the yield. We don't talk as much about the risk. Are you concerned that defy is just going to get completely hacked, like owned at some point and what that could do? and, you know, if it does, how will it happen? Yeah, I mean, there's always that risk there. It's really tough to write secure code in this space. You know, you can have it audited by all the best auditors,

but it's still no guarantee. To date, most of the hacks that have happened have been when people didn't have their code audited and reviewed. But, you know, auditors make mistakes and miss things, too. So it's still no guarantee. The only guarantee, you really is just having something live in production for a long period of time with a lot of capital in it is kind of like, you know, the biggest bug bounty, right? Like Bitcoin is a good example of that. Ether itself is a

pretty good example of that. A lot of the defy stuff is still young. As far as what the biggest attack vectors are, I think the biggest ones that people haven't exploited a ton are, you know, oracles are a big attack factor. You know, there's no reason why a lot of these centralized oracles somebody couldn't just hack into their server and tell the machine to spit out a different result. And then when the DAP board ever gets the result, it's just something completely off the wall and wrong. And then the person profits from that. That's an attack that's possible today. You don't need to understand anything about solidity or the EVM really to do it.

It's just a pure, you know, can you hack into this box in the cloud somewhere style vector. outside of that, I think the next biggest risk is just, or similarly size risk, is just solidity bugs in programs that people have written. Do you think it's inevitable that we'll have another Dow style event? Probably. I think these sorts of events happen, they happen in traditional finance, they happen in every ecosystem. Like if you want to take it really abstract, even like forests, you know, in nature, like there's

forest fires and things get burned. bad things happen and then things start to regrow. And, you know, it's sort of similar here. Joey, this has been a fantastic conversation. Thanks so much for spending the time with us. We walk through so many interesting things. You've got a great take on all of them. Thanks for letting us peek into your mind. I've got to ask you this last question. So when you kind of zoom out and look around everything that's going on in open finance, what most excites you now? I think what excites me most is just seeing lots of projects start to go live.

You know, we've been all been working on this stuff for years. And, you know, seeing the new version of zero X, multilateral die, you know, the stuff that compounds doing with their governance, you know, Augre V2. And then also seeing all the new stuff that people are just starting to launch. That's more nascent, you know, things like balance or things like iron. And it's cool to see both of these things and see how they interact. And it's really exciting to me because it feels like there's sort of a wave, a new wave of entrepreneurs and developers building defy protocols and projects more so than

there was a couple of years ago. And so that's just exciting to me because it gives me confidence that, you know, something real is going to be created here and this is actually going to work. Joey, the Bankless Nation appreciates you coming on to the Bankless podcast. if you had a request of our listeners as to where they should go to find out more about Auger v2, to find out more about Pantera, or just to follow you in general, what should they do? Yeah, so I think if you use Twitter, it's very simple. It's at Pantera Capital, at Auger Project, and at Joey Krook are all our Twitters.

If you're looking to just dive in and read a bunch of content, you can go to panteracapital.com, auger.com, auger.com. and I don't have a website, but I guess the last thing I'd say is, you know, if anybody wants to reach me or send me a deal or send me something you're working on or just ask for advice or feedback or whatever, anything, feel free to message me on Twitter. Or you can just email me. My email is just Joey Krug at gmail.com. Pretty straightforward.

Joey, thanks so much. We appreciate you spending time with us. Bankless Nation, we've got some action items for you today. one is to try out the Auger V2 protocol. That is actually coming in the next week or so. We're going to be doing a tactic on the bankless newsletter on that. So look for that tactic. You'll give you a hands-on view of how to actually use Auger V2 and make a bet on something.

Also, we have launched a new video show called Meet the Nation. This is different than State of the Nation, which you are familiar with. And David, we just recently had Ampleforth on that, right? Yeah, speaking of Ampleforth, we just did the Ampleforth Meet the Nation. And if you guys are looking to learn more about Ampleforth, that is the place to go. I interviewed the co-founder, Brandon Isles, about the Ampleforth currency, where it fits into DFi. So if you have further questions about how Ampleforth works or what even it is or why it's so different, definitely go check out that video.

We will include that in the show notes. And lastly, David, I just checked. We are at 77 reviews on iTunes, five-star reviews on iTunes. Do you think we can get to 100? We, I hope we get to a thousand because that's how big the bankless nation is. And so if you consider yourself a part of the bankless nation, and you also want the bankless nation to grow larger, the easiest and most simple thing that you can do is you can go and give us those five-star reviews,

wherever you listen to podcasts. That's how we get the bankless gospel into more. ears and we pass and get up the charts of iTunes of Spotify so that people can know what to do when it's time to go bankless. Absolutely. Guys, as always, risks and disclaimers, we talked about some assets that are risky. This is not financial advice. ETH is risky. Crypto in general is risky. Some of the D5 protocols we talked about are also risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we are glad you are with us on the bankless journey. Thanks a lot. And that's a wrap.