Bankless - 28 - The Bull Case for DeFi | Vance Spencer

Episode Date: August 31, 2020

Episode: #28 August 31, 2020 ----- Tools from our sponsors to go bankless: Loopring - trade & pay on Ethereum w/ near-0 gas fees! (use "Bankless" for VIP4 status & trades at 6bps!) Monolith - holy grail of bankless Visa cards Aave - money lego for lending & borrowing Rocket Dollar - tax shelter your crypto ($50 w/ "BANKLESS") (Read this on IRAs and 401ks) ---- Vance Spencer of Framework was buying DeFi tokens when they were deeply unpopular. Deep conviction on DeFi, but he and his co-founder made bets on communities. He was contrarian yes...but contrarian right. Ask him his strategy and he'll simply tell you..."I look at memes all day." But there's hidden brilliance in that phase. Listen as he describes how he invests in the crypto native founders, how he buys culturally composable communities, how the best things start very small.  His fund bought SNX when no on believed. They bought LINK when it was worth 18 cents. How? Why? What's he buying now? We end with some FIRE predictions on final market caps for this bull run. We cover: Are we in a bull market? The DeFi Bull Case Crypto Native Investing Fund Composable communities Contrarian bets in the bear market Where did the LINK marines come from? Populism is real in crypto REGULATORS are friends? Turning Communities into Protocols Farming Token Premium Things Vance is buying Price Predictions!!! 🔥 Join us next Monday for a fresh episode! ----- Resources discussed: DeFi Studio Framework Labs Leave Stealth Listen to Protocol Sink Thesis episode ----- Episode Actions: Get involved in communities - YFI, YAMs, SNX, Bankless Get active in the networks you invest in! (e.g. own some ETH, try to run an Eth2 validator!) ----- 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 am here with David Hoffman, and we're here to help you become more bankless. David, how are you doing after that epic episode? We just came out of perhaps the best bankless episode we've ever recorded with Vance Spencer of Framework. Vance got on my radar when he did the podcast with Dmitri from Hidden Forces, and he just nailed everything I thought about DFI. And so we wanted to get him onto the bankless podcast to do a podcast with two hosts that live inside of the DFI ecosystem instead of outside of it. And Vance just

hit it out of the park. This podcast was absolutely insane. We kind of go through the history of communities that came out of the 2017 mania, went through a grueling bearing bear market together, created culture while their respective teams created protocols and turned into the DeFi protocols that we know of them today. And then we talk about liquidity mining and governance tokens and distributing ownership over these pseudo equity cash flow protocols. And then we talk about how these things compose together. And then we finish off with some of the most insanely bullish predictions I've ever heard ever about crypto at the very end. So you guys got to listen to the whole thing. This episode just flowed so beautifully. Ron, what did you think about

this episode? Yeah, you know, we always talk about in the intro, we always talk about how to get started, how to get better, how to front run the opportunity. This is an episode that will help you front run the opportunity because Vance and the framework folks have been front running the opportunity in DFI since the whole thing started in 2017, 2018. So if you listen to like one episode on DFI and you're trying to get insights into what's next, what's the future, trying to understand how to, like, invest, deploy capital in the space. This would be the one to listen to. Of course, the 27 episodes previous are also some essential listening as well. So if this is your first bankless episode, go check out the archive, a lot of gold in the archive, and we've been building up to this point.

David, you know what? I've got kind of no more to say on this. I think we should just get to the goods and go right into the episode. Yeah, there's nothing more that we could add to this insanely dense episode. But before we get there, we're going to take a moment to talk about our fantastic bankless sponsors. The first sponsor I want to tell you about is AVE. AVE is a defy protocol that you absolutely have to check out. What can you do with it? You can lend. You can borrow banklessly, all on Ethereum. So you could do things like lend die to the protocol. It will magically transform that die into an interest-bearing die account, not just die, all sorts of crypto assets on Ethereum. You can also borrow against it. AVE has been climbing up the leaderboard as well, and they've

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which is really reducing the amount of activities that is really feasible to be able to do on Ethereum. This is where our newest sponsor, Loopring, comes in. Loopring is a ZK roll-up scaling protocol for Ethereum for both trading and for payments. ZK. Roll-ups, that stands for zero-knowledge roll-ups. It's basically cryptographic magic. It allows you to combine activity and transactions into one single bit of information, which means that massive amounts of transactions can be bundled into a very small chunk of information, which reduces the gas per transaction. At loopering.io, you can find a ZK roll-ups-based exchange and also a payment mechanism, all with the same security guarantees of the Ethereum L1 blockchain, which is really important.

So loopering and ZK roll-ups allows you to scale up transactions, trading, payments, into thousands and thousands of transactions per second, but with the same security guarantees of the main Ethereum blockchain, which is just incredible. September, Loopring is releasing the Loopring wallet. This will be a mobile smart contract wallet with ZK roll-ups tucked in natively. I'm really excited for how this is going to impact the adoption of Ethereum. The rest of the world will be able to experience Venmo-type transactions, but with the same amount of trustlessness and security of the decentralized future ahead of us. So if you're a trader that's being eaten alive by gas fees, visit loopring.io to get onboarded into

Ethereum's cheapest and fastest exchange. All it requires is an Ethereum address and you can trade on a high performance order book completely gas-free and transferring ether and ERC20 tokens on the platform is completely free. If you visit loopering.io, enter the code bankless in order to get the highest VIP tier for six months. So check that out. There's a link in the show notes. Visit loopring.com.i.o, enter code bankless. All right, let's get to the episode with fans. Bankless Nation, we are so excited to bring on our special guest, Vance Spencer. Vance is the co-founder of Framework Ventures, which is a D5 First Crypto Fund. We'll talk about what that means in just a minute.

But it basically means he and his partner had the thesis of D5 before it was cool. Now everyone's doing it. He's got a background in Silicon Valley as well. Vance, how the heck are you doing? Is this a D5? bull market, my friend that we're in. Hey, thanks for having me on. Is this a DFI bull market?

It certainly seems like there's a lot of enthusiasm. I think, you know, with all the vegetable coins coming out, it's a certain euphoria. You know, I think it's good to see the technology progress. It's good to see the community rallying around these kind of new primitives. It's good to see more users in the space. I don't know if I would call it a bull run quite yet. but certainly things are heading in the right direction.

All right. So maybe I miss some vegetable coins, guys. What else is there? I know there's yams. But are we at like, you know, potatoes? Are we broccoli yet? His hands. Yams.

You know, spaghetti. Okay. The whole food pyramid of Dify coins. So we're hitting all the food groups. Yeah, you got to hit all your food groups for proper nutrition. I mean, we're not specifically bullish on one section of the food pyramid versus another. But it's good to. see the Whole Food Pyramid getting the attention.

Well, one thing you've been consistent on is your consistent bull thesis for defy. Can we talk about that for a minute? If you were to summarize Vance, the framework bowl thesis for DFI, the YDFI, what is it? Our pitch on DFI is three things. You know, number one, finance is the world's largest market for consumer enterprise software. Number two, there's been almost no innovation in finance for the past 30 or 40 years. And the reason there has been no innovation in finance for the past 30 or 40 years is because there's no developer sandbox.

If you develop a game or if you develop a social networking app, you can go to the iOS app store, you can get it on test flight, you can get instant distribution into millions and millions of iPhones. If you want to develop a financial product, your path to getting that out into the market is effectively to go work for Goldman or Morgan Stanley for 20 years, get senior enough to propose some new exotic instrument, and then hope to get a push through. There's really no developer-first ethos in finance until now.

And what we think defy is, and this is always evolving, but generally it is the developer sandbox for finance. Today, anyone in the world, whether you're a developer in India, developer in China, smart kid living on the West Coast, East Coast, the United States, whatever, you can go and build synthetic assets. You can go and build an AMM. You can go and build new and interesting applications built off the financial primitives and the tooling that is based on Ethereum today. And that's something that's fundamentally new. And when things get, you know,

10 to 100 times cheaper, you know, innovation naturally explodes. You saw that with Amazon Web Services. You saw that with the iPhone becoming this new developer platform and distribution mechanism. And, you know, I think that's kind of where our, our, our. our bulk case for DFI comes from on a really general sense. In a very specific sense, you know, we're bullish on the people in the industry. I think it's all just about people. You know, you have the Andres, you have the Michael from Curbs, you have Keynes, you have Keynes, you have Robberts, you have Rooms. Like, these are very unique people in the sense that, you know, these probably aren't the likely candidates to go and start an equity-based company,

but the DNA of a founder in this space is just so much different. And it's so interesting. And they move so fast that it's just hard to not be as bullish on the space as we are in the people in it, you know, itself. So it's really the permissionless aspect of it. Yeah. Yeah. I mean, you know, I'm super excited to see how we can put the supply chain on a blockchain and track strawberry shipments in real time. But like I think the real innovation is going to be just new things that we can do with this technology.

and just the creativity of developers around the world, you know, seeing Robert Leshner build a unicorn in two years. Like that's a huge, just flag that he planted in the ground. And that's going to serve as a rallying point for people. Yeah. So, Vance, I've just on this permissionless point for just one second, you know, some people outside of Defi have said, well, if the traditional banking system just opened up all of their APIs, you'd basically have the same thing. So there's efforts to do that in Europe. and maybe it's more advanced in Europe than it is in the U.S. Do you believe that's true?

Like what if all of the banking like infrastructure API layer just sort of opened up? Would we have permissionless finance that way too? So the European regulation as it relates to banks is effectively opening up all APIs for read access. That's a lot different than right access and it's a lot different than fully kind of embedding permissionlessness within the banking stack itself. So, you know, I'm pretty bare. on just like the open up the bank APIs and we'll have a permissionless finance kind of

ecosystem today. I really think you need to re-architect this stuff from the ground up. Yeah, Vance, you said that you're bullish on DFI because of the financial sandbox. And there are, and what we're talking about is there are perhaps ways that the legacy system could open up and be a little bit more modular and experimental. But at the core of the problem, why is traditional finance so gated. Like what, who's gating it? Is it the private banking industry or is it like the nation state regulations? Why can't we have what we have in the defy world today with financial experimentation in the legacy system? Like, who's holding that back? It's honestly a mixture of both. You know, the enterprise enterprises that control the financial stack as it, you know, lives

today, they really have no incentivization mechanism to open it up for a third party developers. and a true permissionlessness financial system. They would have to develop new business models. They would have to potentially cannibalize what they already have going. It's just something that doesn't have a very clear value problem for them. And on top of that, they're burdened by regulations and things that they need to do as a financial services business to stay compliant within whatever geography that they're currently located in. So, you know, there's the old adage that it's really hard to turn like, you know, 100, 100,

and just a huge cruise liner. But with a smaller boat, you can be a bit more agile and get place a bit faster. So I'm just like more bullish on just this bottoms up developer movement rather than like a top-down re-architecture of the existing financial system. So the Defy protocols that we've seen lately and you rattled off a list of Defi entrepreneurs, DeFi seems to be able to offer like the breeding ground for like a new type of person. Right. And you listed like Rune, Kane, just the leaders of these DFI protocols that are,

but perhaps like technically minded. They're developers, but they're also financially minded as well. And so there seems to be like this new breeding ground for these new types of people that are coming from the finance world and also coming from the tech world that is now enabled to do something experimental. And so there is now like so many more like finance startups that are enabled by by crypto and by defy. If you look in traditional industries versus what's going on in crypto, you know, the amount of greenfield and crypto, both on the, there's not a lot of people experimenting there yet and on the kind of this is just a massive wave that people are going to ride. You know, the opportunity is relatively large compared to just kind of developing a basic, you know, C-corp equity style company. But with that, you know, comes additional risks.

Like, you know, one of the things that I ask founders when they say, you know, we want to do a token, we want to hand this over to the community, we want to, you know, fully decentralize this. You know, one of the questions I ask is like, you know, are you about that life? Like, is that something that you really want to do? You know, it's you're playing for a much larger outcome because you're looking at basically the re-architecture of finance in the 21st century. but it also comes with, you know, regulatory gray area. It comes with, you know, moving organizational control of your baby to a Dow or people you don't know. I think the people that do these things the best are the ones that just full on embrace it, you know, whole hog and just go for it.

You see Andre, you know, just distributing Wi-Fi to people based on the premise that this is software that he builds, that he will continue to develop it, but he doesn't want to organize it anymore. You know, that's very powerful. You see Kane doing the same thing with the three-Dow structure. You see Robert Leshner doing the same thing with progressive decentralization. It really isn't for everybody, but the entrepreneurs that self-select to be in this space are just of an incredible caliber because they're at the cutting edge of financial technology and of just organizational principles writ large. And so, you know, I think maybe it's just the self-selection, but the entrepreneurs that we see in this space, the really high-quality entrepreneurs, you know, that is the real scarce resource. And, you know, they're just frankly incredible when things really start to get humming.

And, you know, I think the thing that, you know, all these founders probably won't come out and say, but is readily apparent to me is that, you know, these people are playing for much larger outcomes than just a C-Corps. You know, you might get to a billion, two billion, three billion dollar valuation for your C-Corps equity. And that's great. You know, you'll probably sell it. You know, maybe you'll try to spack it, take it public, whatever. That's great. But when you look at defy and you look at, you know, the cash flows, these protocols accrue, you know, it's very easy to see these being. $10, $50, $100 billion businesses.

You know, the meme used to be, you know, which coins will be to trillion. But, like, I think that will eventually happen just because of the way the token works in the system and the way it captures value and just the community-owned nature of these things. And so, you know, I think that that's just a long-winded way of saying that the entrepreneurs in this space, they're playing for a lot more than just traditional entrepreneurs and their kind of caliber of talent and attitude has to match that pace. It seems like you guys aren't just looking in D-Fi. part of the thesis is to find that crypto-native unicorn founder, right? And we'll come back to,

you know, some of the founders and the archetypes a little bit later because I think it's super interesting to dive into more. But before we do, can we talk about another element of the thesis that I feel like framework, the way you've structured your company is a little bit business. And this is, if I understand it correctly, Vance, you have kind of two sides to your, I guess, support like investment business. There's two sides to framework. There's kind of the fund side where you're actually like actively investing. And then there's also the lab side where you're actually participating in these networks in various ways. So it's almost like an activist investor type of flavor where you're doing both sides. You're investing in the networks, but you're also participating in them. Can you talk about

that a little bit so we can understand how things are structured and why you've decided to structure it that way? On the activist investor side, I think activists usually comes with a bit of a negative connotation. You know, generally, like with these protocols, we come in peace. We're definitely opinionated and we definitely want to see things get done. And, you know, I'm happy to be, you know, pushy with teams or with the community just in the spirit of pushing things forward. But, you know, our bias is, you know, to the protocol and then to the founding team, you know, in that order. and, you know, early on in the life cycle, when there's more of a core team than a protocol that may flip, but, you know, once this thing is live, you know, it's like you've created this

public park and it's basically all of our job to maintain it and make sure, you know, it doesn't kind of just become this tragedy of the common style situation. In terms of, you know, labs and ventures, ventures is our principal, you know, investing entity, and that's where we do most of the venture work out of. But labs, the reason why we have that is because, you know, participating actively out of a fund is very difficult. You know, there's admin, there's audit, there's tax complexities, but more than that, you need to have the talent in-house, like we have a full engineering team, you need to be building infrastructure. You know, you can't really do that at both of a fund.

You need to have mechanisms for participation in governance. And honestly, that works best out of a C-Corp. And so the idea of labs was just fully borne out of, you know, how do we provide, you know, services to our portfolio companies in the way that is the most valuable. And so, you know, you'll see us doing things like, you know, participating in governance, you'll also see us being, you know, the largest trader on a lot of the protocols we participate in. And that's because we've built custom trading infrastructure that, you know, does really remarkable things to help bootstrap volume, bootstrap liquidity, and show people, you know, how you can use these protocols. An example of that is our future

trading strategy. So what we do is, you know, we'll look at Binance and we'll look at the perps on finance and we'll trade them when the funding rate spikes and we'll hedge that out on synthetics. And really, we were the first people to figure out that you could do this and that hedging on synthetics exchange was the best way to hedge a futures bet. But really, we're building this to not only benefit the network in a sense that we're effectively harvesting yield from CFI and giving it to this synthetic staker base. But we're also doing this to show people and lead the way on how you can actually use these decentralized protocols to add value to a trading strategy if you're a trading fund or if you're a retail customer or really whatever. And so Labs is really just, you know, it's our active participation entity. it's where we kind of demonstrate the value of protocols through. And then, you know, coming up here, we're actually going to start, you know,

building things and spinning them out. And so, you know, eventually we want to kind of see, you know, framework ventures as just one business line that we have, while Labs kind of does, you know, a bunch of different things to support the protocol, to push things forward more generally in DFI, and just to be a good steward of the industry. As a fund that is an active user of the protocols that you guys are participating in, You guys get access to some alpha that maybe somebody that just buys a protocol's token on Uniswap doesn't have because you guys are in the trenches using the protocol for what it's supposed to be used for,

seeing it's positive, seeing its negative, seeing where it needs to get fixed. And then also you have a stake in the protocol because you are investing in the tokens of the protocol, which means that you guys are incentivized to work with the teams of these protocols to make their protocol better. So how to tell us a little bit about that process. So you guys are users of synthetics. You guys are users of AVE. Tell us about your communication with these teams and how this is like kind of a conversation about how to iterate and improve the product.

Yeah. So I think the first thing is that, and this is definitely different than the traditional venture hedge funds, is that we do, you know, 95% of our business out in the open. You know, whether it's in the Wi-Fi Telegram channel, whether it's in the Synthetics Discord, whether it's in the AVE Discord, you know, people can see what we're doing. And I think that gives them a sense that, you know, there is no kind of boogeyman behind the curtain with ulterior motives in the sense that, you know, we're just very open and honest and transparent with the communities about what we do.

And I think, you know, after we did that once, people started to notice it after we did it twice. It was like kind of interesting. But then third time, people were like, oh, interesting. These guys are good stewards of the protocol. You know, we can trust them. And I think when you see this like backlash against VCs, you know, in the market with things like Wi-Fi or yams, right or wrong, I think that's why we haven't really been looped into that bucket, just because we're super close to the metal, we're super transparent, and people just

know that we come in peace. So I think, you know, that's kind of one aspect of what we do, but, you know, you're totally right in the sense that, you know, our whole strategy is that, you know, instead of being super large, we're just going to be super agile. We're going to be the first, we're going to be the heaviest user, we're going to be the closest to the metal. Like, we're going to understand how these protocols work at an atomic level so that when it comes to making investment decisions, we can make those as accurately as any person on the planet. And really, this shouldn't come as to surprise anybody, but the only way to learn about stuff is to just do it and then to figure out if you're interested or if it's working for you

kind of later down the road. And so using these protocols and getting into the DNA of what's going on and understanding how the smart contracts are architected and what the vulnerabilities are, you know, that's just the standard part of our due diligence process in a way that I don't think is fundamental to many other firms. And that's because we have a full engineering team. That's because we have a full training architecture. That's because we're just super close to the teams and the DNA and the culture of the space itself. And I think that is in a lot of ways our unique advantage. You know, Vance, it kind of strikes me that we're just talking about what you look for is

crypto-native founders essentially, right? So they're not going to be the typical you know, cast, the typical archetype who would start a Silicon Valley firm. Well, you guys are also not structured as the, you know, the typical VC fund or the typical even crypto hedge fund. It's more of a crypto native fund type approach that you're taking, right? And what also strikes me is that what you've been able to produce with this approach is this really incredible feedback loop, where as you're steward to the network and you add value to the network, well, then you start getting invited into the network more by the grassroots community. It also provides a way for you to really learn about what you're investing in.

It strikes me, I don't know if this is, if you think this is the case, but it strikes me that many, even crypto funds don't actually know what they're investing in when they're buying a token and when they're like investing in something. And certainly the traditional funds like, have no idea what they're buying. Do you see a lot of that? Like, is there a information arbitrage that you guys have because you're actually participating these things and like using DFI that they don't? I mean, you know, not to tube my own horn, but, but like absolutely. We get a lot of questions of like, you know, how are you guys this close? Like, how do you guys have this much information

advantage? And I think the honest answer is just like, this is literally all we do. You know, Michael and I live together. We started the fund together. We've known each other for five years and have been best friends in the foxhole of crypto and other startups throughout that. And I think just like the relationship between Michael and I and just our commitment to building something that can be quite large and hopefully at last us is really kind of what separates us. And just in terms of bringing the same intensity to work every single day, you know, reading everything on crypto, Twitter, meeting every single person, you know, if anybody on in the Link Marines or in the synthetic Spartan, you know, needs help with, you know, the resume or editing things like that.

Like, we will actually help them. And it's not just because, like, this is some, like, sci-op, you know, information advantage. It's just like, this is because this is all we do, literally. And so just being, you know, as humanly close to the possible or humanly as close to the metal as possible is really where all of our advantage drives from. And I think what's, what's really cool for us is, like, you know, we saw these couple of Chinese, you know, blockchain outlets that posted this full story about us. And it was really well researched and it had all the details of how the funds started and what our thesis was and the projects we've been in.

And we literally had no communication with those people before they posted. Wow. Like, you know, I'm on, I'm on Google Translate, like, trying to like read, like, you know, kind of broken Chinese, like in English. And it's just like, people notice this stuff. Like when you're authentic, when you're showing up every day, when you're bringing that same intensity and when you're just showing that, you know, your good stewards, it reaps benefits. It might take a little bit.

Like we were deeply uncool for probably the better part of a year. And a lot of people still think our style is pretty whack. But, you know, this is basically what we do. And it's like the best job ever. And we're super thankful for it. And we're just kind of determined to keep giving back to the community and keep pushing things forward. And I want to get to another point that you made, which is, you know, these aren't the typical founders. These aren't the typical people that you might invest.

invest in. I think that is like one of the things that I enjoy the most out of crypto is just the sheer volume of the number of characters in this space. Like, like, Kane is basically a suitor anarchist. Like, it's pretty funny to me, but that's kind of what it is. Straight up. Yeah. Not even a little bit. Stanley is like this pretty funny Finnish guy. You know, Michael Igrov is a, you know, X particle physicist. And it's just like the amount of people you meet in this space is super interesting. And it's what keeps me super motivated.

And I just think it's an incredible vertical to be in right now. I feel like it's just like the island of misfit toys. Like everybody, you know. And then you have someone like Andre who, you know, he launched Wi-Fi. And then I called him like two hours later, just like first kind of out of the blue call. And he described himself as, you know, the Joker and Batman. You know, chasing a car, caught it, you wouldn't know what to do with it. And immediately after that call, I looked at Michael and I was like, you know, we have to buy as much of this as humanly possible.

That's a complete opposite of what a Silicon Valley VC firm would do, by the way. Oh, yeah. And there was discussion about it and there was kind of like looking at the business model and what this could possibly be. And I posted a short Twitter thread about the thesis on it. But, you know, things like that and opportunities like that, you really have to be prepared for. and if you have a traditional VC mindset in this space, I don't think it's just part of your natural kind of reflexes to think openly about that.

For us, like we saw Andre in this anti-VC movement as a theme. And the fundamentals of the business were found, but like if you're a venture capitalist and you see a theme that explicitly excludes you, that should immediately be a cue for you to get exposure to it because purposefully, you're not supposed to be part of that. And if you can kind of help subvert that and help the company and help the narrative and help the protocol, like, you can add outsized

value to that investment. And so just like weird opportunities like that is just the stuff that we live for. It seems to be to me that framework ventures suffered through the bear market just like the rest of us, right? And also just like the protocols that framework invested in. And one of the topics that we're going to go into is like what happens to a protocol in its community when it goes to a bear market and how it comes out of that. And it seems to me that you, guys survive the bear market by just using this sandbox that is defy as your ground for sharpening your sticks, right, as your ground for getting better and kind of shedding traditional thought and just learning what works in the moment, right? And then as a result of this, you guys have turned

into just, it turns out what works is just being good governors of a protocol. As a result of this, you guys have invested in things that you know have worked and you guys are now the stewards of these protocols. And so at this point, how do you guys, because you guys have limited energies, you guys have limited capital because capital is not infinite. So at this point, now that you've gone through this bear market and now we seem to be, you know, quote unquote going into a bull market, how has your learnings guided what you guys now decide to invest in? Like what are the criteria for a protocol that you guys really look for that kind of matches this thesis that you guys have generated over the last like two years. So I think at this point, and we started with, you know,

probably 20 million when the fund started. At this point, our energy is probably the rate limiter and Michael and I's time versus our capital. You know, like we could make seed investment, series A investments all day. But like the stuff that that we've always kind of like internalized and talked about is not becoming, you know, the spray and pray VCs that do a bunch of different projects and have, you know, no conviction or very little conviction and or just kind of working off of the signaling of other VCs and letting them kind of do the cognitive work for them. For us, like I think we've always taken a lot of pride in investing in things that are deeply unpopular, you know, whether it be chain link, which, you know, nobody has liked for a long time

except for lots of kind of grassroots organizations. Synthetics, which got hacked, was a stablecoin project, was located in Australia. Like, that didn't seem like a natural candidate to be a good project. But all the stuff, it just comes down to the people for us. Like, who is leading the projects, who's sitting in the chair. It's cool to have all these big brain thesis about, you know, the future of money and, you know, the future of finance and all that good stuff. And to a certain extent, we want to see, you know, sound business logic, good rationale and thinking through the plan. But more than that, the people that are sitting in the chairs are doing the work.

If you have a cornerstone leader like a cane or a ruin or a lessner, they're a magnet for talent. And if you get enough people that are smart and they're dedicated and that are in tune with this movement and issuing a token and living that type of life, a lot of it is possible. And so, you know, I think from our life cycle as a fund, we've shifted from, you know, being very thesis oriented, you know, which we still are to a certain extent to being a lot more people oriented now. And in a world where everything is conducted over Zoom, we haven't met probably 70% of the founders in our portfolio in person. It really becomes how good of a judge of character, of work ethic, of integrity are you? And I think that, you know, Michael and I just happen to be pretty decent at that. But also our networking crypto is just kind of like allowed us to vet these opportunities a bit more. But, you know, for us, the stuff that we really enjoy is making an investment, giving them a year, year and a half,

to get the protocol out to market and just working with them in a really deep way to help kind of bring that to fruition. You know, Future Swap is an example of that. That's hopefully launching in the next month. Fractal is another example of that, which will probably be, you know, a little bit more of a gestation period into next year. Teller is an example that will launch this year, but like that's our bread and butter, like working with people and helping them build things that are important and, you know, sticking with them through the good and the bad is really just kind of what we do. Finding good talent, good people and sticking with them through the good and the bad. That's a great lead into where I kind of want to

go next with this conversation. And where that is, it's actually, I want to go backwards. And I want to go back into like 2018, 2019, which was the grueling bear market, right? And we've been talking about some of these like all-star founders that are like talent magnets. But not only are they talent magnets, they're also community magnets, right? And so far, I think it's very fair to say that all of the defy tokens that have done these kind of insane returns in 2020 and even before that are tokens that also generated community. So can you comment on how these successful DeFi protocols are the protocols that came out of the bear market with like a working protocol and a very strong community?

The talent breeds, you know, more talent and then, you know, that breeds a community and then the product needs to be there. But, you know, once those things hit full stride, they can be very powerful. And I think for us, like, thinking about communities and how those spread and how those become viral is a fundamental part of what we do. And it's basically just like our ecosystem strategy. If you look at all of our protocols, you can probably notice a very common theme. You know, chain link provides data to probably all of the protocols that we invest in. You know, all of the protocols that we invest in, work together, providing their assets to each other, you know, giving preferred access to technical resources and just kind of having deep technical and cultural

integrations. And so, you know, I think this isn't something that a lot of firms have hit on quite yet, but like when you can take one protocol and you can mesh that community with another, it's so much easier than just doing a cold start of a community. You know, when you can combine things and when you can get people to work together and when you have this idea of a tent where, you know, everybody's in the tent, everybody's growing together, everybody's extremely happy. That is one of the more powerful concepts in crypto. And I think the marquee example of that is when Synthetics started using Chainlink oracles. You know, the combination of those two communities really bred this fervor and this interest and excitement in not only a really great use case for Chainlink,

but, you know, a high-quality customer in synthetics that could really help Chainlink and ride the wave of just Defi in general. So I think that's kind of my first point. Just on the bare markets, just the resilience and the perpetual optimism of founders throughout the past, you know, a couple of years has just been incredible. Like perpetual optimism, believing in yourself, believing that you're going to prevail, you know, demonstrating passion and confidence. Like these things are force multipliers. This can take you from, you know, a few people supporting your project to hundreds,

if not thousands, if not tens of thousands. And, you know, that's one of the main things that we look for in people is, is do they have that perpetual optimism to ride out the highs and the lows? Because, you know, Michael and I, just from firsthand experience, have had to do that as well. You know, we've had, you know, years where things haven't been awesome. We've had years like this one where things have been really good. But it's all about having the perpetual optimism and the focus that, you know, you will prevail and that things are going to go your way. It's just a matter of kind of banging your head against the wall, you know, a number of times until it works. And that's kind of the main thing that we

look for as we go through kind of the bearer and bull markets that are that are pretty common to this space. I think the most interesting thing that I've observed over the 2019 transition into 2020 of these protocols is the creation of culture in every single protocol. And we have these like these memes, these shelling points of like a logo or a mascot for every single protocol. Like we have the link Marines. We have the synthetics Spartans. I think AVE is now the Avey Avengers at this point. And so, you know, these community of people who are inherently interested in defy and maybe all had like some semblance of some thesis of defy and that's why they were there, all stuck around through this bear market together and we're, it's the people that are

provably in it for the tech almost. And then also at the same time, there's also the financial returns if you are convicted, have the conviction enough. But at the, at the, going through the bear market as a community together generates this culture and community. And that's why we see a lot of memes coming out of every single defy protocol that has successfully made it through this bear market. And so what I'm bullish on is exactly what you said, where each, each like a defy protocol is its own tribe, but they're not tribal. And the concept of composability in Ethereum, the composable protocols, begins to make composable communities. And that ultimately coalesces into this one single defy community that I think was successfully tapped into by Yams. Because if you go to the Yams.finance page, you see a place for every single one of these communities to, like, work with Yams.

And that's what Yams really was, was like this pinnacle of community that turned and that captured this energy and turned it into this own meme generating thing. And then we've also seen memes and culture already emerge, extremely. quickly out of the yearn, the urine and wifee systems. So when you guys think about protocols and communities, how do you, how do you guys fit in culture or is it kind of just like an interesting afterthought? No, I mean, it's literally the first thing that we think about. I think the, the community that we're best known for is probably the Link Marines and just playing a very early role in helping kind of develop that. But, you know, to your point, it's so true. Like, I don't know if you really have a community until it's been through,

not a bear market, but just a market where a period of time where things are more dicey and less sure. You know, and a bear market is a great way to purge out the people who are not true believers. And, you know, you see a lot of the memes and the culture and the off-end kind of like, you know, inside jokes form in these periods of tumult. And I think that is, that's perfect because, you know, you want to really kind of have a strong foundation of your community and an identity of who it is

before you take it to a mass market. And the best way to do that is through kind of a bear market. In terms of your point about like, you know, composable communities, like that's exactly kind of our thesis on community management and starting. It's so hard to cold start a community. If you can, you know, use, you know, whether it be another community or just a general theme to kind of bootstrap your protocol to a certain level of usage and attention, you know, that's the best way to do it. And I think a great example of that is just AVE. You know, really, if you look at AVE's rise, most of its TVL, you know, at least initially and through kind of probably mid this year was ChainLink. And they were the first people to adopt Chainlink oracles, you know, everybody who loves Chainlink,

you know, puts all of their chain link on AVE because they know it's secured by Oracle's that they trust. And that's been a really symbiotic community. And, you know, I think that's one of the coolest things about the space is that it's not zero-sum. You know, you can have a partnership in crypto that is so technically and culturally integrated in a way that really isn't possible in traditional startups. And I think that is just one of the superpowers that this space has is that not only are things technically composable, they're culturally composable. And, you know, that's just like something that we think about a lot. And, you know, the other thing we think about is just smallness. You know, the best things start very small. And there's this sense of

either exclusivity or there's the sense that the rest of the market is ignoring you. And that smallness breeds fervor and that fervor breeds, you know, a few more followers. And those followers are really interested. And that eventually kind of slowly starts to seep in the mainstream. And identifying these little cultural nuances and determining how they spread is something that I spend a lot of my time on. And I think, you know, other investors kind of like think of this as like you're looking at memes all day. And it's like, yeah, I'm looking at memes all day. But like that's part of my job.

Like if I'm being paid to identify themes and which themes might be profitable, you know, as long as they're followed up by solid technology, you know, hell yeah, that's what I'm going to do. And if that means spending time on a 4chan or Reddit or crypto Twitter for hours and hours each day, that's just what I'm going to do. Well, I guess the meme is just really the rallying cry for that culture of that community you were talking about. Hey, guys, going bankless is a journey and you don't have to do it alone. So we're going to pause the episode with Vance really quick so we can talk about some of the fantastic. bankless sponsors that offer you tools to help you live a bankless life. 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.

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retirement account out of jail and also use the bankless code to get $50 off. So make sure you use that code bankless when you sign up on rocket dollar.com to get $50 off. All right guys, let's go ahead and get right back into the interview with Vance because there's a lot of bullishness ahead and I'm really excited about it. I want to return to you like the way David started talking about this, which is the bear market and get back to that theme that you were just talking about Vance of conviction. Because now, that defy is on the upswing, I think we quickly forget what it was like in the bear market. Like how unorthodox these types of perspectives were, how contrarian they were and how convicted

you actually had to be to do some of the moves that you guys made in 2018 and 2019. I want to talk about some of those moves specifically and some of those investments specifically. I mean, first of all, as a sector, people. thought not only crypto is dead, right, but like maybe Bitcoin is the only app and there's this maximalist kind of movement that did okay. But inside of crypto, everyone thought Defi was just this niche. Everybody was investing in ETH killers, right? The next smart contract platform that would replace ETH and like supersede it. Everyone thought that that Bitcoin was the only app. And like,

what I'm really interested in is how some of your investments had conviction even among the insiders. So let's talk about synthetics for a minute. So you guys are well known for a concentrated bet on synthetics when it wasn't very popular. And I'll confess, I was there back then. So when synthetics was called Haven, right? And Haven didn't quite work. The way I understood it in 2018 or so, was that it was kind of like a maker competitor. And I think that was kind of the popular belief. There was this belief that protocols can't really pivot. There was this belief that there was already a staple coin.

If it was going to work in defy, it would probably be die and maker. And nobody was, it was not popular to invest in SNX, to invest in synthetics. But what did you guys see that everyone else didn't? Why did you have such conviction about that investment at a time it was massively unpopular? Yeah. So we met Kane at the Web 3 conference in Berlin last year. And that was kind of our first introduction of the team. And we met him through Sergei, kind of on the pretences that they would be one of the users of their oracles.

And it really just started from a dinner of hanging out with Kane and hearing about his backstory and hang out with Justin and hearing about, you know, his time as one of the technical leads at MongoDB and talking to Jordan, you know, their business development guy who is just incredibly smart and savvy. And, you know, back then, you know, crypto was pretty much dead. And it was like, wow, these guys are really talented. Like, what are they still doing in this space? Like, what do they know that we don't know? And, you know, over a period of months, like, we would have calls with them and we would kick the tires and we would hear the vision.

and they were very upfront about the shortcomings of Haven and protocol and the Oracle hack. And like, you know, I can't describe how deeply unpopular S&X was because like it had literally just been, you know, one of the biggest hacks in D5. And, you know, for us, like, we acknowledge that. We saw it. We took their answers at face value that, you know, they would fix these things. That Chainlink was a viable solution to their Oracle problem and the vulnerabilities that it had. and we tried to see, you know, like where would DFI be going next? And, you know, it's a mixture of high-quality synthetic assets that represent not only the U.S.

dollar, but, you know, the Korean won, you know, leverage Bitcoin, leverage Tesla. And it's a mixture of that. And then it's a mixture of, you know, these reflexive token economics, which not only build a balance sheet for the protocol itself, but it also builds this mini trading game where, you know, people are hedging their debt and they're kind of trading against each other. and really the hardest thing to do in a defy protocol is to get your first 100 users that are trading real size. And this seemed just like a natural solution to that problem. And so, you know, from that, from understanding the size of the opportunity, you know, if you knew nothing about crypto and I dropped you in crypto and I said point to where the profit centers are, you would immediately go to Binance and Bitmax and you would say, holy shit, if you can get leverage, you know, you're going to make a ton of money.

Like this is the only space that you should be paying attention to. This is the only space you should be investing in. Spot markets are potentially not that interesting. Everything else is probably too early. But if you can get to some type of decentralized bitmax, you know, that's a huge opportunity. And, you know, our thesis has evolved since then. You know, I think synthetics is very likely to become a decentralized bitmack style player. But I also think, you know, when you're issuing SUSD, SBTC, and those are viable inputs to the yield farming kind of craze that will that will take place.

over the next five to 10 years, you know, it has this interesting optionality as a protocol. And so, you know, from that, from Michael and I talking, you know, just from us batting around these ideas a thousand times, from talking to Kane, you know, 100 times, you know, we got to the point where we put in, you know, I think it was like 16% of our fund into synthetics. It's kind of one of those moments where you clasp your hand, you take a deep breath, and then you're like, okay. But, you know, I think one of the things, things that we pride ourselves on is just having, you know, more conviction in our fingernail than a lot of people do in their whole body when they start investing in stuff. And I think that just comes

from, you know, doing deep research, Michael and I being able to be open and honest with each other about the shortcomings or the potential protocols. And just for us, you know, acknowledging that, you know, this fund, this concept, you know, we view this as a startup. Like, it's always day one for us. We always need to be willing to take risks that potentially seem a little bit crazy to extent that they're well thought through. 16% is a very concentrated bet, my friend. Like, kudos for having that one pay off. And again, I just can't overestimate how unpopular SNX was at that point in time. Like, you know, people were calling it a scam. People, you know, it was just, it was not a popular decision to make. One thing that's tripped me up,

and maybe trips me up a little bit still about SNX, maybe you can address fancies. people say it's a recursive model, right? So it's basically all the synthetics that you're just talking about, which, you know, a defy bull would say, yeah, of course synthetics are going to be massive on, in defy, massive on Ethereum. But the fact that all of synthetics are based on the value of S and X is somewhat recursive. It's almost like, you know, Wells Fargo backing all of its deposits with Wells Fargo stock. Like, you know, what do you say to, to, to, to, you know, what do you say to, to, to, to, you know, to, this point because I think it's tripped some people up about synthetics as a platform and as an investment. Yeah, and I fully hear and understand those concerns, you know, it's reflexive on its way up and, you know, it's potentially reflexive on its way down. But for us, the idea that you can build this balance sheet in your native token and that generates this reflexivity, which, you know, effectively forces people to trade and bootstraps your first, you know, 100 users, that leads to the idea of synthetics, the trading volume of synthetics, and just the culture of synthetic

spreading to the extent that more people learn about it, more people trade it who are not SNX stakers. And then you eventually add in different types of collateral like ETH, like Bitcoin, you know, to build that balance sheet out of things that are not just synthetics, that eventually you will get to this ecosystem that is not just relying on synthetic collateral, but all the fees are going to synthetic stakers that is a bit more healthy. And, you know, those are things that we talked to the Synthetics team about that, you know, we're actively pushing for the reality is that, you know, they have a lot of things on their roadmap that will just outside of, you know, the question of SNX collateral, make the debt pool a lot healthier, whether that's an open

interest funding rate, whether that's leveraged futures, whether that is using SINCES, effectively virtual tokens on one inch and curve to make this interesting virtual bridge. You know, the problems of synthetics are probably larger than just, you know, S&X is bad collateral. If you could, you know, identify the top three problems of synthetics, that would probably be number three to me, maybe even lower. I think the better arguments are, you know, how do you grow trading volume more organically? How do you construct a trading incentive program that pushes volume through the exchange? How do you deal with cannibalization of synthetrating volume on centralized exchanges or protocols like uniswap? versus synthetic exchange.

But like, you know, these are all good criticisms. These aren't, these aren't bad ideas or poorly reasoned things to think about. For us, I just think, you know, if you have growth, if you have interest in trading sense, if you can get them integrated into more places, a lot of the growth that comes with that will solve a lot of the fundamental problems of the protocol itself. Yeah, well put. Okay, so let's talk about another one. So, Link, when did you guys get into Link?

Oh, man. Link, so we were, we got into Link in, I think it was September 4th, 2017. Okay. All right. So if people are, you know, go take a look at the charts, you know, and see what the price of Link was September 4th. You said 2017, not 2018? Yeah, 2017. Okay.

All right. So, and at the time, right, so I think at the time, 2017, 2018, 2019 or so, the probably the insider thought, again, outsiders just thought this whole defy, this whole crypto thing is dead, but insiders thought this, including myself, oracles are going to be super important, right? No, no dispute there, no argument there. They're going to be super important for defy. But Link itself has very, very little value, right? It's just another utility token. And we just came off of an ICA mania where all of these utility tokens went to zero, right? So that, you know, might have been the common insider defy insider belief. But you guys started making bets in 2017. And then I imagine you followed up in subsequent years with even more. So what did you see about Link, maybe as a system, and also about the value accrual mechanism of the link that all of the defy insiders and crypto insiders missed.

So the genesis of our link investment was Michael found this paper called Towncrier, which is effectively about how you can securely bring data off-chain to on-chain. And it's written by Ari Jules, who's a professor at IC3, which is the Cornell Institute for Cryptocurrency, who we've met a couple times. So the relationship was with some context. And we read it and we were like, wow, this is this is really smart. If there was a monetization mechanism and an incentivization mechanism for an oracle network to do this, that would be very powerful.

Just because if you think about it from a hundred thousand foot perspective, you know, if you think about where value accrues in a blockchain world, because blockchains don't have networking capabilities, you know, a good choke point for pricing power and for value accrual is where, you know, data, feeds or, you know, output payments get processed into and out of blockchains. And so, you know, philosophically, kind of we thought that that was probably the main place for value would accrue, and that if you built a sufficient, sufficiently robust Oracle network, it would not only be this thing where developers were using it just for kind of one-off price feeds or things like that, it would really become fundamental middleware for developers to really build products. And at the end state, you know, developers would probably end up interacting more with an Oracle network as it starts to store private keys, do off-chain computation, bring data from off-chain to on-chain,

then they actually would the Ethereum base layer itself. And so, you know, that was the original thesis and it's developed over time. And, you know, for us, you know, we knew Sergey. And so, you know, the idea that this thing would take two or three years, you know, that was okay with us as long as we could talk to him and kind of, you know, bounce ideas off of him. And, and, you know, when things were super dicey in 2018, we could, you know, get some, just some idea of, of what the plan was and, kind of like, what his general vision was for the entire Oracle network. And I think, you know, for us, we view Chainlink as effectively an insurance business. And we view the Chainlink token as much the same. If you look at, you know, the value that Chainlink is securing, it's about three

and a half billion dollars right now in terms of, you know, projects that have integrated these oracles into their fundamental architecture. And, and, you know, this is the value that Chainlink is securing. On the daily active volume side, you know, it's probably, you know, 500 million to a billion dollars in volume that Chainlink is actively securing from McDex to DYDX to other kind of trading protocols. And so really, I think for us, the grand vision of ChainLink is, you know, number one, it's going to be a payment token for the ecosystem itself. But number two, it's just going to be this, effectively this insurance layer once staking comes out,

where people are verifying the quality and accuracy of their data feeds coming from off-chain to on-chain, and it'll kind of be valued at this similar multiple of maybe an insurance company. And so that's kind of the general arc of the investment in the thesis. The things that really tipped us off early to this could be something special was just the community. in early days that was on 4chan and you know that's where i put his own problems but in terms of a forum for

forward thinking sometimes edgy talk about technology you know 4chan is relatively undervalued you know it was the first forum that i read about ethereum on again the first forum that I read about bitcoin on you know if you're looking for people who are dissatisfied that is with the status quo that are highly technical, that's usually a good place to look. And I think with the rise of like, you know, defy, um, shit coins being traded on fortune, you know, it's probably a little bit less signal today. But, you know, way back in the day, that was something that stood out to us. And we could say, wow, this is informed discussion about what this could be. Um, it's very likely the community brews around this. That's another thing only crypto native fund would do is, is like pick up

investment thesis ideas from fortune. Um, but it's like I, you know, for people who do, didn't pull up the graph, right? So you're talking about September. In November or so, 2017, link was trading at about 18 cents per link. Today, right now, it's about 15, got as high as, I don't know, let's see here. I'm just, $20. Okay. So that's been a successful investment. But, like, so all of these utility tokens, you said, you mentioned payment token. You also made the case for like kind of insurance, why Link has to be valuable because it'll be used for staking. But a whole bunch of tokens in that class ended up dying in 2017 and have never come back. What is it about the Chainlink community?

Like, where do the Chainlink Marines come from? Where does ChainLink God on Twitter? Like, where does he come from? Like, who is that guy? So many questions about Link. So we were doing an interview with Bloomberg and the woman was like, do you know who Chainlink got is? No way. I was just like, that is not what I thought we could be talking about.

But all right. So, you know, on the token itself, I think the most important thing to understand about Chainlink is that it's in V1 of its network. And it'll be probably 10 versions before the thing is fully decentralized and the token is fully used in the payment mechanism from the staking or the staking will probably be sooner than that. But, you know, eventually what they're trying to do is just build out this two-sided marketplace where you have data requesters and data providers. And right now they bootstrap that with the aggregator contracts and they bootstrap that with node incentive subsidies where, you know, if projects want an Oracle, you know, they can

trust the 21 top node operators on Cosmos, which are effectively the same node operators on chain link to provide that same base layer security to their data feeds. And, you know, if your base layer isn't as secure as your Oracle network, like I really don't understand the premise of building on blockchain other than regulatory arbitrage. So I think that's like the most important thing. As the network matures, it's going to move from an aggregator contract to more of a service level agreement where smart contracts and note incentives or note operators are interacting on a service level basis to provide data. and then have things like, you know, which type of infrastructure are you running?

Okay, how much insurance are you willing to stake on this Oracle requests and so on and so forth? So that's going to take a little bit. But like our vision of this network is that, you know, it starts with defied, expands an enterprise. And eventually this just becomes the entire middleware for the smart contract powered economy, which is definitely a buzzword, but it's entirely true. Like if you ask people back in the day about how long it took them to sign documents and how onerous that process was.

And then when DocuSign came along, how much of a sea change that was in the pace of business and how much more effective things were, that's largely what I think will happen with blockchain and oracles and things like that. So, you know, it's a huge bet on the future of the industry as a whole and the need for high quality data on chain. In terms of the Link Marines and where they come from,

it's funny. like, you know, populism is real in crypto. You know, having these legalities which are not driven by venture capitalists, which don't have this kind of undertone as being, you know, elitist, which, you know, a lot of, honestly, the blockchain marketing and the blockchain ethos comes off as to normal people, you know, that spread this community of, you know, people that are just interested in the concept that, you know, oracles are powerful and, you know, they can potentially play a huge role in kind of the next phase of blockchain.

And I think that, you know, having just a more diverse base of people than, you know, smart contract developers and wealthy people that live on the West Coast of the United States, you know, that actually breeds a healthier community than just kind of the circular stuff that we see a lot of in, you know, whether it be defy or blockchain writ large. And so when people ask, like, where do the link marines come from? It's honestly everywhere. Like, I've met people who are literally blacksmiths in Tennessee that are like Marines. You know, hitting me up on Twitter.

You know, I've met people in Florida that are, like, Marines that are, like, looking for help with their resume. You know, it's really a movement that exists outside of the popular narratives of Defi today. And, you know, if you think of things that are indicative of where the future is going, that's usually pretty prescient. Yeah, you were talking earlier about that VC backlash. I mean, I guess this is all part of it, part of this populism. And, you know, I got to say, part of the reason the bankless movement has been so successful to this point is due to that, right? Like, at some level, people see the VCs, as well as they should, the Silicon Valley VCs and, you know, the East Coast Wall Street folks, they see those as

those people as the banking class. Like, that's kind of what this movement is meant to disrupt, right? It's about bringing some credible neutrality to the everyone, man. So everyone competes equally in these markets rather than having an established class sort of get advantages. So I can, I, I can see it now that you put it that way. Absolutely. I mean, that's what this whole movement is about. Like, you know, you can go on your computer with, you know, any amount of money you have deposited into AVE or yield farming or really whatever and earn money. You know, there's no middleman.

You don't need to rely on some centralized institution. And I think that is, that is hugely, hugely powerful. Like the venture capital backlash in this space is, is not just constrained to, you know, some of the egregious behavior that funds displayed in the 2017 run up with the smart contract platforms and ideas that just weren't well thought through that that people pumped money into and then dumped on retail. But it's indicative of a larger societal trend of people being sick of a few institutions, a few people having information rights and information advantages over the rest of people. And so for us, like, you know, we're all for this populist wave in crypto,

just because I think it speaks well with the ethos of what we're trying to. accomplish. So this brings up a really good point and it's a conversation that's pretty close to my heart. And so we have AVE, we have synthetics, we have link, we have compound and we have the compound governance module. And then we also have, you know, yield farming and liquidity mining. And what all these things are trying to do is trying to get tokens into the hands of the users in order to turn over the keys of the kingdom to the users that are actually using the protocol. And, you know, Partly we want to do that because that's part of the ethos of cryptocurrency, but also the teams that are building these things need to exit because a lot of what is going on in Defi is straight up regulatory arbitrage. A large part of the cryptocurrency world is ignoring the regulations of the nation state and doing their own thing in a way that is the best for the user, but not at all best for the nation state.

And so we just talked about like the banking class, right? And that is an institution of people and finance that doesn't really want things to change. And they definitely don't want the defy protocols to kind of soak up all the value in the space. And so, you know, if Avey and if compound and if all of these defy protocols grow to as big as we hope that they will, there is inevitably going to be some backlash. And so that's why compound started this. whole movement with this governance token that now all these other protocols are following suit because I think everyone knows that in the future there's going to be a lot of vested interest in stopping this movement, right? Like the legacy system, the incumbents don't want things to change

because that's what incumbents do. And what this bull market, I think, really resembles is this coming, you know, but more or less middle finger to the legacy system that is giving, over the keys to the kingdom before the nation state and the nation state regulators can even figure out like what is actually going on. And the idea here is like we're going to liquidity mine these tokens and get them into the hands of the users so that no one can enforce KYC, right, so that no one can actually know who these users are. And so we just, these protocols gain anti-fragility through chaos, right? And so is that, is that an okay take? Is there anything that you can't want to throw a full?

lag there, or is that something that you kind of agree with? You know, the protocol for launching a protocol today is much different than it was two years ago. It's not, let's get, you know, a bunch of ICO advisors. Let's pump a bunch of money into it. Let's, you know, negotiate with centralized exchanges so that, you know, we have a good, you know, some good price action upon the listing. You know, let's make the team lock up super, super short so we can get some liquidity on our holdings.

you know, today, it's a mirror image of what happened in 2017. You know, no money. We're going to liquidity mine it. No listings. You know, it's just going to be on uniswap for whoever wants it. Lockups that last forever. You know, most teams are doing three or 40 years. Synthetics actually voluntarily locked up all of their team tokens for an additional year last

month. And this is three years after the initial ICO. So really the playbook has been flipped on its head. think all of this is a response to just the market shouting at people that, you know, 2017 hurt and they don't want to see that again. But also it's a reaction to regulators effectively saying, you know, if you issue this like a security, we're going to come after you. And, you know, I think in a large extent what we're doing today is a lot healthier with liquidity mining and distribution, especially the projects that really have that be kind of their first principle,

instead of like doing an equity cap race and distributing, you know, tokens to have the cap table. Like compound, you know, you do something like Wi-Fi where it's just like the tokens are out there, you know, go get them if you want them. I think that's like a relatively more powerful approach. I think on the regulatory side, you know, there's going to be, and I had a conversation with this, about this with a smart investor a couple weeks ago, his point was, you know, there's now so much money being made in the space that, and most of it's on paper, admittedly, you know, that there's going to be some type of regulatory

backlash. Like people are starting to notice. And so whether that is, you know, Hester Pierce creating a regulatory sandbox for, you know, blockchain protocols, whether that is some type of precedent coming down the pipe on, you know, a U.S.-based company, you know, about how they have done their decentralization process, you know, there will be some. some type of regulatory clarity, which will reorient people in terms of, okay, they said we can't do this. You know, so this is appropriate. And eventually we'll get to best practices where things will get just more and more decentralized, more and more transparent until regulators are okay for that. And I think, you know, the point of regulators is to make sure that people don't get hurt.

And when people get hurt is when things happen in opaque, you know, information advantage, situations where things are more centralized. If you do things fully decentralized, and if you do things in a fully fair way, the role of a regulator changes from this weird pseudo-babysitter that has to play whackamol with a thousand scamy projects to someone that is auditing code and making sure that the interest rate on the interest rate model on compound actually works, or the interest rate model on Ave actually works, or the synthetic staking pool is as healthy as it could be. And I don't know if you guys saw this, but a couple weeks ago, the end of the end of the SEC put out a job request for someone who could actually read smart contract code. And I think

like if I think about the future regulation, that's where I want it to head. I want them to be auditing code. I don't want them to be playing whackable. I think that is a far higher leveraged job that they could be doing. And I think it benefits the consumer just an order of magnitude more. That's a pretty interesting take about the future of regulation in defy that I haven't really heard before and it's definitely an optimistic one where regulators come in and just like make sure everything is going okay rather than trying to shut everything down in a world where compound and avi and synthetics are like you know multi-billion dollar platforms with with tons of value and it is actually making dense in the legacy financial system do you how adversarial do you think this world is about to

become when the, when regulators find out that D5 protocols actually can't, they can't be swayed to the regulator's whims. Do you think we're about to enter an adversarial world or, or do you think it's going to be a little bit more cooperative than that? All of the, you know, if you read all the regulatory precedent, whether it be on, you know, mixers or whether it be on, you know, I see those from 2017, you know, really all the advises if there is this one centralized actor, if this is this one centralized controller, you know, there's problems. If you can get to this decentralized form of governance and this decentralized form of just effectively protocol organization, I think it becomes more of an open question to regulators

as to, you know, who is responsible for what, you know, what is our regulatory jurisdiction, you know, who do we need to come after? And, you know, like, we are all for regulation and the maturation of this industry. Like, I think the industry has its roots in crypto anarchism, but eventually we're going to have to grow out of that. And I think that's fine. What we should be doing right now is giving regulators the tools and the context to kind of follow us on that journey so that we can make defy a hundred billion trillion

dollar asset class, you know, something that people take seriously. The, you know, and one of our. our investors is a, you know, very well-known Wall Street guy. And we walked him through, and he deposited assets on BlockFi. And we walked him through what compound was. And he was saying, you know, what like what do you mean? I can get 30% yield. This seems like a scam compared to BlockFi, which, you know, is just a centralized institution that I can trust. And, you know, once we walked him through, you can audit the code. You can audit the quality of the collateral. you can see in real time how the interest rate model is behaving.

On the other hand, BlockFi gives you literally no transparency into what they're doing or how they're doing it, and they're paying you a third of the interest rate. It was clear to him which one was the better bet for him to put capital on. And I think that regulators are largely going to see that as well. I think on a human level, when you take things out of people's scope, they don't really take that well because you're diminishing the importance of their job. but I think it actually opens up a much more broader interpretation of what regulators can do in a market that is completely transparent.

And so throughout this conversation that we've had so far, we've been talking about the importance of community when it comes to how these DFI protocols work, right? Like a DFI protocol without a community is not a protocol at all. And especially with the coming world of regulation, which is coming to crypto, So there's another very strong reason as to why community is so important because if you are creating this governance token that governs over the protocol, you need a group of people to hand off that governance token too. A governance token without a community is just decentralization theater. And then we are going to have the same kind of laws and regulations upon these, you know, quote unquote, decentralized protocols that aren't actually decentralized as they would like a centralized lending institution. And I think that's where like the conversation of the protocol sync thesis comes into play because communities gravitate towards protocols that are deep in the protocol sync thesis.

Fans, are you familiar with the protocol sync thesis, by the way, before I keep on citing it? No, no, I am, yes. Okay, great. Now, that's good to hear. First off. And so, so yeah, communities gravitate towards things that are dense in the protocol sync thesis that are at the bottom, A, because they're good investments, but B, because of their credible new track. right and so i think the protocol sync thesis is going to be this magnet for at things applications protocols that i hope regulators look fondly upon because the reason why they are down in the protocol

sink is because they are credibly neutral they are fair they haven't scammed anyone they've they've maybe they haven't followed regulation to a t but they haven't harmed anybody in the process and so like my kind of bullish thesis for it for defy at large is that the protocol that are dense, A, cannot be touched by regulators, but B, regulators don't even want to touch them because they've dotted all their eyes and crossed all their T's. Is that a fair take? Totally. I think the superpower of Ethereum is that it's incredibly neutral, almost Switzerland-esque platform for people to build on. And I think that is viewed favorably in the eyes of regulators. If you looked at the CFTC kind of comments on what its security versus commodity status was,

if you look at, you know, even kind of any of the big consulting firms such as Deloitte or Ernst & Young, you know, they look upon Ethereum as this neutral compute layer. And I think that is the main tailwind that Ethereum will benefit from. If you look at something like, you know, pick your ETH attempted murderer, it's so much harder to claim, you know, neutrality in the age of venture investment, in the age of, you know, some of the applications that are getting built on top of something like slana, you know, getting outside share tokens. It just, it just doesn't come off the same way. And so I really agree with you in the sense that like Ethereum superpower is the sense of like,

you know, benevolence towards developers, credible neutrality and just a sense of fairness and a lack of platform risk. But, you know, that that also comes with downsides. And I think that with the ETH II schedule, we've seen that. You know, in a leaderless, decentralized organization, things just take a little bit more time. But, you know, computers took like 40 years to fully be realized. It's been six years since Ethereum came out. Like, we can afford to be patient. And if it's a two-year time horizon for ETH II, if it's a three-year time horizon for

ETH two, I think that'll look like a speed bump in the general arc of this technology. Yeah, I think probably both David and I totally agree with your Ethereum thesis. there, it should not ever sacrifice its credible neutrality for some short-term velocity. As many other Ethereum murderers, as you put it, are doing right now. Attempted murders. Attempted murders. There you go. All right.

So let's move a little bit further to current state, Defi, and talk about that for a minute. So here's something, like, so bankless listeners will be very familiar with our thoughts on defy tokens writ large, right? That they are essentially proto-capital assets or could become them. There are these governance tokens where the governors of the tokens, once decentralized, can actually vote in cash flows. And then these defy tokens can become capital assets with on-chain value flows or cash flows, which means you can value them based on something that, you know, people are familiar with in the stock market world, which is net present value of future

returns essentially, right? So we learn this in business school. That's super. cool, but something that I think you guys realized before maybe a lot of people and before me, because I'm just recently observing this as well, is that there's actually even more premium in some of these defy assets than just the value flows and just the cash flows. So you tweeted this out, Vance, I caught this a few weeks ago. You said, and we'll take S&X as an example. So that's the synthetics token that we've been talking about earlier. And you said something like, like valuing S&X based solely on volume fees, volume and fees on the synthet, the synthetics exchange is undervaluing it.

What I think you were saying is that valuing S&X just based on its ability to generate cash flows is actually undervaluing it because there is some other hidden premium here that makes it even more valuable. I want to talk about that. What is this additional premium that makes? S and X even more valuable than just the volume and fees. We'll just take S and X as an example, because I think it's a useful one. And just like a primer on valuation, for those who aren't familiar, if you look at any protocol, whether it be uniswap or compound or synthetics,

the fees that accrue to that protocol, either from the fees that are generated from trading for unswap or synthetics, or the spread between the borrow and lend rate on something like compound, you know, that is the basis for what you value the protocol on. And generally, you know, if you look at consumer internet startups or, you know, protocols themselves, they trade on, on what is effectively a price to earnings ratio. And price to earnings ratios are, you know, the fundamentals of how you value things in traditional finance and, you know, just some comps. So late stage mature SaaS startups. So, software as a service that are listed publicly, they trade at around 10 to 20 priced earnings.

Earlier stage stuff, you know, it can range from infinity to, you know, being something more reasonable in the, you know, 300 to 400 to 500 range. If you look at all the DFI protocols, you know, that exist today and you try to value them, generally they trade at 100 to 200 times their fee base on a yearly basis. So that's their price earnings ratio. So if a protocol has a million dollars in fees, it'll probably trade at around $100 to $200 million. And this valuation band is something that hasn't moved in actually the last six months. So it's been relatively consistent as building up a valuation benchmark. In terms of my point with synthetics, you know, there's two ways to value synthetics. By the way, Vance, before we get away from that valuation ban,

that valuation ban price earnings ratio, it's not crazy, right? Like Netflix is about 88 or so, high 80s. You know, Amazon is in the hundreds, isn't it? Yeah, no, it really isn't. And I think, like, you know, you can make the argument, not financial advice, that this stuff is, you know, potentially undervalued relative to its total addressable market. But really like what the price earnings ratio tries to express is, you know, number one, one, how much is this protocol making and fees for its holder base? And number two, what is the market's expectation of growth? If you have a super high multiple, like Netflix at 88, you know, people are still expecting

Netflix to grow a huge amount. But if you have something like 100 to 200 in a very early stage consumer tech industry that's taking aim with the largest financial market in the world, you know, that's when you start to be like, huh, okay, maybe this is relatively undervalued. And so that's part of it. The other part of this is how directly do the cash flows of that protocol or a company tied directly to the stock or token that is underlying it. In a stock like Netflix, Netflix does not actually pay dividends. So you know, you're never actually going to earn any of that cash flow. It's all going to be reinvested into growth of that company.

For something like synthetics, you're earning those fees directly. They pay out a dividend every single week. And so, again, when you talk about that hidden premium, it's a result of a few things. It's a result of A, the moniness of the token and the monetary premium it accrues. B, it's a result of that token having just more direct access to cash flows and being a more efficient vehicle for value capture. And then C, you know, it has additional premium because the governance of tokens is more direct than you would have for a stock. And so, you know, those are the three things that are generally universal and why tokens, when compared to equity, trade at, you know, three to five X, you know, what you would see in an equity counterpart. Like, you know, Ripple, I think raised around at, you know, two or three billion, but the tokens are valued at around $10 billion.

And so, you know, it's the market's perception. It's the, it's just the general attitude that the tokens have some type of premium versus equity. Can we talk about a fourth, too, like maybe a D here, which is what I'm coming to maybe understand. So we were talking earlier about kind of this token mashup. David used this, I think, brilliant term. David, we want to see an article, composable communities, right? And that was maybe best exemplify. The first time I saw a powerful this was in yams, where you brought all of these tokens together and, like, they could be jointly farmed in these yam pools, right? But the lucky, I don't know, seven or eight or so tokens that got in those pools were tokens that had really strong communities, right? Very desirable communities, right? Like, you know, XRP was not invited, even if it was tokenized on Ethereum, right? But synthetics was, Y-Fi was, other tokens with powerful communities. And what we saw is maybe this

like this fourth thing, which is like a farming token premium. I don't know if that's fleeting, whether that's just like the current state of things or or whether that's more lasting. But when YAMs launched and started shooting up in price, all of the tokens that had YAM farms, essentially where you could farm with them, they shot up too. Right? Like we're talking like 50% in a day for things like comp and AVE lend and Wi-Fi. What do you think about that idea, the farming token premium idea? Is that sort of just a fleeting thing like one time only? Or is that real too?

No, that's spot on. And to the synthetics example that you threw out, like, you know, as a synthetics holder, I'm earning money from the fees of the protocol, but I'm minting when I take synthetics, I'm minting S-U-S-D, S-B-T-C, S-Eth, and the things that I can do with those synthetic assets are I can put them in curve. And just from those synthetic assets alone,

I can earn 45% yield on top of what I'm earning onto the synthetics, just the exchange fees. And so the valuation point that you were making earlier is like the valuation of synthetic should be the composite of the exchange fees and the yield farming fees that you accrue from its synthetic assets. And so juxtaposing this next to your example of like Wi-Fi and Yams and synthetics and lend and, you know, all the tokens that seem to be the popery of, you know, when you're trying to bootstrap a defy community, these should be allowed to be yield farming assets.

I agree with that in some sense. But like, do I think that yams will be the monetary base for the new financial revolution. You know, I may disagree with that. However, for things like SUSD and SBT that serve as representations on chain of something that you might not otherwise have, you know, those premiums are sustainable. People will always need a synthetic form Bitcoin on Ethereum that they can trade. People will always need a synthetic form of the US dollar that is truly permissionless that they can trade on chain. And so for me, I've used synthetic assets that synthetics produces like SUD, SBT, SBC, SET, and virtual tokens as having, you know, this shot to really corner a market on, you know, being the collateral that allows people

to yield farm with. So like when future swap launches, you know, a USDC, SBTC, SBT pool, you know, that'll allow you to earn future swap tokens. Or, you know, curve you can put SBTC and SUSD into, like those premiums will sustain. You know, I don't know if YMs or Wi-Fi as a monetary basis. especially including the locking mechanisms that their governance has, if those will retain their premiums long term from just yield farming. But I don't think that's necessarily a bad thing.

Those two assets are absolutely, I mean, at least Wi-Fi is just a cash flow machine and its valuation will be reflective of effectively all the yields in defy at large. Okay, so you do think this yield farming mechanism will continue to command a premium. you're just skeptical on some of the maybe underlying more memetic assets like a yam for instance right in its long-term value but i want i want folks to kind of connect the dots here in sort of the analog world this would be like owning a share of apple stock right let's say i owned a share of apple stock and i was able to deposit it into my chuck schwab account and then earn tesla shares as a result of doing that. If I deposit my Apple shares, I lock it up in this brokerage account,

I can start earning Tesla shares. That's kind of what we're doing here. And we're doing it like in order to distribute the tokens to communities. So it seems to be the case that tokens with very strong communities like a like a Wi-Fi or an S&X will just be valuable because other tokens want to harness the power of those communities. And they're willing to give them their tokens in order to do that. Their capital assets. It's like I'm willing to give Apple shareholders some Tesla that I print because Apple shareholders are a fantastic community that I want as part of my Tesla governance. Is that kind of what's going on here? Yeah. I mean, it's like the distribution of like when you try to bootstrap a protocol with an interest of like you know if you start

you know Wi-Fi 8 you know the sequel to Wi-Fi 7 and you have YAM and Wi-Fi and Lend and SNX you are kind of like bundling those composite communities into you know what you hope will be an amalgamation of yours and then like I go back and forth as to whether Defy yield farming is a short-term or long-term thing. On one hand, you have, you know, compound and Avey and all these guys messaging that inflation will continue for four years. I think, you know, this is basically kind of the same game

played over and over and over again. At first, people are really interested in playing a game, but, you know, the more iterations it has, it becomes, you know, marginally less exciting. I think that, you know, from yield farming, where we build from here is, you know, perpetual swaps coming on chain. I think that'll probably be the next leg up with layer two and things like feature swap or perpetual protocol or derivatives. And then from there, you know, we're basically at feature parity with centralized

exchanges. And so, you know, that's when we get into the really interesting things of being able to ship high-quality synthetic assets like Tesla or oil. And really, you know, that's when the centralized exchange experience will effectively be no more superior to defy. And I think that's when we see kind of spot and leverage volumes go from, you know, today they're about 5% of centralized volume to I think about 50%. I do want to give a shout out to Dan Ellitzer because he wrote about this concept of composable assets in his very old piece, old for crypto, superfluid collateral in open finance, where he wrote an article about how you can deposit ether and into uniswap and then there's this token that it comes out of that which then you could use as collateral.

Right. And what Dan wasn't equipped with at the time was this world of defy governance tokens, which are themselves capital assets that other defy token protocols are using to tap into to distribute their capital assets. And so like right now, like in this in this world of a capital asset pseudo equity tokens that are yielding a further capital asset pseudo equity tokens, right now the yields are good, right? And in year in finance, the YUSD, formerly known as the YCRV token, it's earning like 50% APR on your die or on your USC, which is insane. And then there seems to be like every new week,

a new liquidity mining yield farming tool that is tapping into all these other pseudo-equity governance tokens that uses those energy in those communities to distribute their token to make their protocol like governed by the community, right? And so, like, we have returns. We have people leveraging, like, compound and Ave to access the capital in their tokens, to purchase more tokens to do more yield farming, which, and the borrowing of that money creates yield in these protocols, which is why people are supplying crypto dollars into these protocols to begin with.

My point is, is that right now the music is playing, right? And so long as you can access, you know, 50% APY on your crypto dollar inside of urine, there's going to be capital coming into the space to access that. And like people will say that APR, like high APR means high risk and that's generally true, but also not necessarily. Like there could be no risk and there could just be just returns. There's definitely risk, by the way. And so as so long as people are able to access returns, like the capital will flow.

Like the capital will come in if, and this is the way that it worked in 2017. Like people made money and so more money came in. and then those people made more money, and then the music kept on playing. However, at some point, the music has to stop because that's just how these things work. The music just doesn't continue. And at some point, the music will stop playing. And then while there will still be yields, these assets that these yields are coming from will start to depreciate in price because the selling will commence.

And then while the yields will still be there, the assets that everyone owns will depreciate. And then that's where the tide will turn, and we go from bear market to, or from bull market to bear market. That's my kind of like 18, 24 month time horizon for defy. That's kind of like my game plan that I've kind of integrated in my mind. I think in a lot of ways what's happening right now with the vegetable coins feels unsustainable. And that's because, you know, it probably is. People are just forking code that already exists, whether it be, you know,

And it's mostly the composite of like the compound governance module and the SNX staking contract. And, you know, maybe you've thrown a rebase in there. And then it's like, okay, we're good to go. But like, you know, that won't continue and that won't sustain this industry much more than a couple, you know, two or three months. You know, what's going to happen is that, and I think we have really good eyes on this, just because we have a lot of early stage protocols that have yet to launch, you know, people are going to release perpetual swaps. People are going to release options, smart contract platforms. People are going to really start to take share from centralized exchanges. And then after they take share from centralized exchanges, they're going to take share from centralized OTC desks.

And the market will continue to expand. And I think if you think about where the yield is coming from, the yield is coming from just a fundamental bullishness on the size of the opportunity today, which is relatively well defined. It's just, okay, step one, eat all the central. commercialized exchanges. And that in and of itself is probably a hundred to two hundred billion dollar aggregate market cap opportunity for defar protocols, probably more. You know, you look at the valuation of Bitmax. It's around 12 billion. You look at the valuation of FTX. It's probably three or four. You know, you add up Coinbase. That's another probably 15, 12. You know, you can get to $50 billion in aggregate market cap on an equity basis market opportunity.

if you think about the premium that tokens accrue, you know, it's probably four or five times that. So as long as the industry starts or continues to make progress towards eating these businesses in earnest, you know, things are going to go our way. But it's not just going to be the same game of musical chairs that people keep playing. People will just get bored of that. Like, you know, the spaghetti coin or whatever, Michael and I got into the office one morning and we kind of looked at each other like do we want a part of the spaghetti coin like no we don't want to do that like we've done that it's it's cool um like we have more of an eye towards innovation and what's next and i think you know the things that this next leg up of defy really depend on is layer two um or you know a new

blockchain like slana even though i'm i'm less bullish on that um but you know assuming there's progress with layer two and you know i think the one that we're most bullish on is is uh optimism in o vm you know, we can we can really make this not just a flash in the pan, not just like in crypto, there's this weird conception that bull markets only last a year. And like if you look at every major technological shift over the past 30 years, like that's been a 10 year re-architecting of an existing industry where multiple players have had huge outcomes. And I think like that's where we start to go eventually. But I think, you know, the first step there is, you know, getting to a transaction latency that can replicate the centralized exchange experience

and solve a lot of the front-running issues with the oracles that currently exist. Let's fast-forward, Vance. It's been super cool. Let's fast-forward. Let's say some of those Oracle problems are resolved. Front-running problems are solved. Let's say layer two is resolved, OVMs, optimistic roll-ups, whatever. What's next for DFI?

You mentioned a few things, but what's really going to add energy for this next? bull market cycle, do you think? Defi will eat the OTC does, then it will eat the centralized exchanges. And it's not going to be this massive one thing that comes out of the blue and just changes the industry completely. It's going to be the stuff that we've seen in the past, just composability building on itself, you know, culture and communities building on itself. And, you know, it'll happen slowly and then it'll happen all at once.

And I really think that a lot of the U.S. concerns about using DFI are starting to be resolved. and like that combined with real layer two experiences will effectively make Defy competitive decentralized finance in effectively always, minus the KYC. And so going into Q1, Q2 of next year, I expect layer two is to be up and running. And I think that's when we really start to see our next inflection point. The next three months kind of feel like, you know, everyone's still building, you know, DYDX is moving to layer two, synthetics is moving to layer two, some other ones are moving to layer two. and I think that will be kind of, you know, Q1, Q2 will be when things really start to take off from

from attraction and user perspective. But, you know, I will say the other thing is, you know, if something like serum or something like, well, I guess basically just serum is successful, you know, that could really accelerate the industry and the narrative of ETH as a settlement layer in a way that would be positive as well. You know, I don't think this is there or some game. but I think it really usually the stuff that you don't think of is the stuff that ends up mattering and we're kind of all eyes on what that might be. So it's kind of this probability cloud of potential outcomes and you're kind of trying to guess

which one might come true now but making bets on all of them. You mentioned a few things to get specific. You mentioned a teller, I think, a fractal future swap. These are unreleased defy primitives. understand that. You want to tell us about one of those? Just pick one and tell us about something new. Yeah, fractal is probably the newest one. So fractal is currently a centralized company. It's the largest market maker in DFI. It's the largest market maker on zero X. It's led by a really sharp guy named Carson, who's a physics PhD, McKinsey guy, but just, you know, absolutely

hilarious and loves to mix it up into generate DFI circles. And really, like, you know, we met them and they were like, yeah, you know, we're trying to do this centralized market maker thing. You know, we're trying to, you know, maybe, you know, get bought by jump or something in the next few years. And we were like, hold on, hold on. Like, let's turn this into a protocol. Like, you know, market making is a primitive that should exist in defy today in the sense that it is a market neutral strategy that, you know, everyone is paying an arm and a leg for if you're a project trying to get market made on a centralized exchange. you know, this should be a public good for people trying to serve and get liquidity, just like

Uniswap is a public good for projects that want permissionless listing. And so, you know, there's so many hard problems with fractal that we're working on right now. You know, how do you put the trading strategies? How do you put the logic on chain? You know, what's the best way to govern this? You know, this looks like kind of an on-chain fund. How do we shift that narrative to be, you know, more of just this is a traditional market maker? How do we do off-chain computation? How do we build exchange relationships that will allow something like a Dow to trade on it. I think that's most of the new ground that we're breaking. But if you look at the Citadel's, if you look at the jump tradings of the world, if you look at any of these really large market makers, these are

five to ten to $15 billion businesses. These are huge. And they're really the fash of the centralized exchange and traditional finance world. And so I think building that and building that in a high quality way that can be community run as a public good, you know, something that we're really, really, really excited about. And the team is just like extraordinarily talented. And yeah, we, we just led their last round. And I think that it'll probably be, you know, another six or 12 months before they get out of the gate. But, you know, building those fundamental primitives into defy is just something that people need. And, you know, we hear it from our portfolio companies. And that's just generally the first sign that we look to as in terms of, you know, this is really neat.

needed. So super excited about fractal and those guys. And I think that, you know, in a space where everybody is just kind of forking and copying each other's code, you win points for creativity and you win points for thinking a little bit further into the future. And I am really hopeful that fractal can be something special. That does sound exciting. Vance, this podcast episode has been absolutely insane. Thank you for joining us. I want to end with this. This is always fun. You strike me is someone who likes to make predictions. We'll see if that's the case. And at the start, you talked about leg one of your three-leg thesis at framework is,

look, the total market size, the TAM of this entire finance industry is absolutely massive. It's measured in trillions, T with a T. Let's talk about predictions by the end of this cycle. These things always play out in cycles, whether the cycle's one year or 10, years as it could possibly be. But at the end of this cycle, what are we going to see in terms of total value locked in defy? What are we going to see as far as market cap of defy protocols, market cap of ETH, market cap of BTC? Those are the things I think I would be most interested in hearing about. Yeah, I think in this next cycle, call it the next 24 months, you know,

You know, we'll get to $10 billion, and then it'll look like, you know, that was forever ago. I think we'll probably eclipse probably $100 billion, maybe something like $500 billion, just in terms of total value locks in Defi, especially as, you know, things like, you know, curve and compound and AVE really start to get their hooks into the traditional finance ecosystem. You know, that combined with a ton of liquidity being pumped in the market by central banks, I think is kind of the perfect storm. or just defy at large. Wait, let me make sure I got that. So you're saying total lock value right now is about $6 billion up from about $1 billion in February. And you think by the end of this cycle, 24 months, we could be as high as half a trillion? Yeah.

Yeah, I mean, I don't know that's unreasonable to assume. I mean, there's this chart that we have where it's like, you know, defy today, size of Ethereum, size of Bitcoin. size of traditional finance. Like, like we're not playing for DFI just being this niche thing. Like we're playing for DFI integrating itself into CFI in a way that

that people don't fully understand could happen. And that's why, like, when I illustrate the size of the total dressable market for finance, I'm not just illustrating the size of crypto. Like I'm illustrating the size of, you know, traditional trading infrastructure. And so, you know, I think we'll get to 10 billion.

We'll blow past that. We'll probably get to 100 billion. And then, you know, it really depends on where Bitcoin and Ethereum go. You know, if we get to $100 billion and then Ethereum quadruples, like, you know, we're pretty much looking at a new asset class in a way that really has not been described before. And so, I mean, my personal bias is that people have trouble thinking in terms of exponential

regression. Most people think in terms of like linear step changes. And so, you know, I'm hopeful that we get to $100 billion. and then optimistic upside is 500. All right. Hit us with ETH market cap and Bitcoin market cap 24 months into the cycle. Oh, man. ETH market cap.

I mean, you know, that's tough. I think, you know, we'll be looking at, you know, probably, you know, 500 billion trillion dollar protocols at some point. I don't know if it's really going to be in this cycle. It could very well be. But like, you know, the market opportunity for this, and it just seems odd to talk about because it's like, you know, three guys on a podcast in a relatively niche industry.

But like this is the promise of this technology is actually becoming this neutral sediment layer that people all around the world actually use. And so, you know, I wouldn't be surprised to see, you know, a couple of these protocols become a truly. million dollars, you know, at some point. So here's one for you. Ether flippinging Bitcoin. Is that on the table?

I mean, you know, personally, I've never been a gigantic fan of Bitcoin. I think there's just some logical absurdities on just like its general sustainability. And I'm much more bullish on more expressive platforms that have Internet native culture. So I do think that will happen at some point. You know, when you have things like staking, when you have things like, you know, ETH, ETH two, phase one coming out. It feels pretty, you know, undeniable that the potential of Ethereum will be known by the wider market. So, you know, I feel somewhat confident in saying that, yeah, ETH will flip in Bitcoin at some point in this next cycle.

Bullish. Vance. Yeah, bullish, definitely. Vance. David, you and I need to get ready for some new bankless podcast, visitors and listeners. everything Vance said comes true. It's going to be a crazy 24 months. Vance, it has been an absolute pleasure. This has been a load of information. I think the bankless nation is really going to enjoy it. Thanks for joining us. Awesome. Well, thanks so much, guys. I really appreciate it.

All right, everyone. This has been episode number 28 with Vance Spencer that is from Framework Ventures and action items today, guys. I mean, you've heard us take some time to digest all of this. That would be my first action item suggestion because there's a lot here. Maybe listen to the podcast again, maybe a third dime at half speed if you want to pick up everything. Also start to get involved in these communities. Do what Vance and framework are suggesting except on your own, on a micro level, get involved in the Wifi, get involved in Yam governance proposals if you want, get involved in synthetic governance, just to see what these networks are all about.

That is the bankless way. and that's how you start to understand what these tokens are, what the investments that you're making are, is by getting involved, getting active in these networks. We've also even put out a ETH validator, how to join as an ETH2 validator in TestNet. That's a way you can get involved as well in Ethereum 2 and what's going on there and understand the latest state of the test net will include that as a third action item and a link to that in that that was written bankless just last week. Guys, as always, this is not financial advice.

Risks and disclaimers, ETH is risky. So is crypto. So are the assets we talked about today. If you choose to use some of these protocols, remember, you could lose what you put in. There can be hacks. There can be bugs. But we are headed west.

This is the frontier. It's not for everyone. But we are glad you're with us on the bankless journey. Thanks a lot.