Bankless - 59 - Uniswap | Hayden Adams

Starting point is 00:00:01 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. I'm Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. David, we finally got him. Hayden Adams on the podcast. Ladies and gentlemen, we got him. Hayden Adams, the creator of Uniswap. We go through the entire history of Uniswap, starting when it was just, just a blog post from Vitalik on Reddit, I think, going into Hayden getting laid off and being

Starting point is 00:00:48 convinced by his good friend Carl Floresh that he's going to all of a sudden become an expert on, you know, Ethereum building and Defi, and turns out that's exactly what happened. And so Hayden takes us through the story of Uniswap from inception to where we are today with Uniswap V3 to where we are going tomorrow, which is Uniswap being the largest asset exchange platform in the world. It's been a fantastic story. And there's still. many different detours and turns that we take because it's interesting every step of the way. And there's so much value to be derived from this conversation because not only is it the story of Uniswap, but it's the story of Ethereum at large as well, because it's such an emblematic

Starting point is 00:01:27 of what it means to build something on Ethereum. I had a fantastic time talking with Hayden today. Yeah, I feel like this is going to be one of those legendary stories that the world hasn't yet discovered, you know? Like Steve Jobs and Steve Wozniak in their garage, right? In Menlo Park that area. And we're like Bill Gates, the story of Bill Gates, or like, you know, Mark Zuckerberg, Facebook, all of these things. Now that says bad connotations these days, but it's that important and it still hasn't escaped in mainstream. This is one individual, very first software development project, able to disrupt the entire financial economy by building code on top of Ethereum. No one believed that this thing would work. This was at a time

Starting point is 00:02:10 when Ethereum was dead, and lo and behold, it just surpasses in the last six months, surpass the volume of Coinbase. And if you listen to Hayden, you come out of this episode incredibly bullish, you come out of this episode believing that Uniswap could one day surpass the volume of traditional finance, like S&P 500 and NASDAQ. Such a compelling story, such an Ethereum-centric story, so honored to be one of the ones kind of talking about it early. This is like an anthology.

Starting point is 00:02:38 It goes through the entire timeline. of Uniswap. That's sort of the first half of the episode. And the second half of the episode, we get more into Uniswop V3 and the details. And boy, are there a lot of details around Uniswap V3? It's very clear that Hayden and team have thought about this exhaustively. We talk about the sushi vampire attacks. We talk about the Uniswop stimulus package, the Uniswap AirDrop, as it was, 4.5 billion in value to 500 different Ethereum accounts, like crazy stuff. We talk about his reasoning for licensing. And core to this entire conversation was one through line, David, which was, what are the values of a decentralized financial system? What are bankless values? And what does

Starting point is 00:03:22 that mean? What does it mean to instantiate that in code on Ethereum? What does it mean to instantiate that in the Uniswap protocol? So really great episode. Definitely worth the wait. And we're super excited to bring this to you guys. To me, the cool story about Uniswap is this dance between the relationship of the values of Ethereum and also providing financial tools to the Ethereum community and the greater world at large while also inspiring bottom-up community ownership. There's so much value to be derived here. So let's go ahead and get right into the interview with Hayden. But first, we'll talk about some of these fantastic sponsors that make this show possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in

Starting point is 00:04:04 asset exchange infrastructure. Instead of a cumbersome order book system, where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswop ecosystem is the Uniswap Grants program is now accepting applications for grants. We have been saying this for a while and we'll say it again. Dows have money and they are in need of labor. If you think that you have something to contribute to the Uniswap Dow, apply for a grant to Uniswap.

Starting point is 00:04:43 Just look at the size of the Uniswap treasury. It's almost $3 billion. This mountain of capital is looking for labor. Do you have something of value to contribute to the Uniswap Dow? No matter how big or small your idea is, you can apply for a UniGrant at Unigrants.org and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswap to be a sponsor for bankless and you can do the same for your project. Thank you, Uniswap, for sponsoring bankless. Metamask is your go-to wallet for the bankless journey.

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Starting point is 00:06:03 Download Metamask for desktop or mobile. now at metamask.io and start swapping. All right, bankless nation. We are super excited to have our next guest, Hayden Adams, the legend, the creator of Uniswap. Guys, this episode has been one year in the making. We've been asking Hayden on the podcast for 12 straight months. Now we have them. We had aggressively pestering on Twitter.

Starting point is 00:06:29 We had Mark Cuban first, you know, and we were faced with a dilemma, whether to have Mark Cuban or Hayden first. We had Mark Cuban first, but now we have the long-awaited podcast with Hayden Adams. Hayden, how are you doing? I'm great. Really happy to be here. Really happy to be on the podcast. And I'm definitely sorry that I brought you a few times on saying that I was going to come on and then not and canceling and pushing it back. It just makes this all that much better because we just like wanted it so much.

Starting point is 00:06:56 You know, you're building the suspense. And, you know, I think the community is really excited to have you on. So, David, I think we're going to do this podcast as kind of like a timeline. of events. So do you want to kick us off with the first milestone in the timeline and we'll run through it? Yeah, absolutely. Hayden, I believe the genesis of Uniswap started with you getting laid off. Can you tell us about that part of the story and where things went after that? Yeah, definitely. I mean, to some extent, it started a little bit before that. I had a friend in college, his name is Carl, and he was super obsessed with Ethereum, incredibly passionate about it.

Starting point is 00:07:33 He would tell me to buy it back when it was, you know, a few cents. I didn't really care that much about it at the time. I wasn't that interested. I don't think. I was studying mechanical engineering, and I sort of had a planned path for my life, I think. And so after I graduated college, I spent a – sorry, my chair is squeaky. Yeah, after I graduated from college, I spent a year working as a mechanical engineer, specifically doing computational fluid dynamics, which is basically just –

Starting point is 00:08:03 stuff with heat flow and we were working with car designs. But I don't think I liked it at all. I might have hated it. It just wasn't very interesting. You know, mechanical engineering is one of those fields where it sounds like it's very futuristic and it's actually mostly stuff from like Newton and like, you know, hundreds of years ago. And so I don't think I was very passionate about it. And, you know, fortunately, I got laid off because I don't think that I would have left. and at the time, you know, this was in the summer of 2017. And so Ethereum was finally starting to take off around then and had basically ballooned from maybe $1 to $2 to like $15 to $30.

Starting point is 00:08:44 And so it was starting to get some excitement in the Ethereum ecosystem. And I got on a call with my friend Carl, who had been working at Consensus. And then he had recently moved from Consensus to working with the Ethereum Foundation. He was writing the proof of state. smart contract for the original proof of stake Casper. And we basically got a call and he said, you know, congratulations, this is the best thing that's ever happened to you. You're going to become

Starting point is 00:09:10 an Ethereum developer. And I was like, well, I don't really have a, you know, software development background. You know, I had done maybe one or two coding classes as part of mechanical engineering, but very, very little. And so I felt like, you know, there's no way I could make this transition. I'm too far behind too late in my career. And, you know, what Carl really impressed on me, was that, you know, no one knew how to code smart contracts yet. And it was so early in the Ethereum life cycle that you could become, you know, what he said to me specifically is, you know, in one year's time, you're going to be a world expert on Ethereum. And I was like, probably not.

Starting point is 00:09:49 But, you know, I was kind of a little, you know, there was something really exciting about Ethereum. You know, the more we talked about it, there was sort of this, you know, the idea of, programs that can hold money, the idea of, you know, finance where no one controls it, the idea of, you know, you can send money and no one can stop you, and no one can kind of take your money. There was something really interesting about it to me, and so, you know, I decided to make the leap. I, you know, so I spent a few months basically just learning solidity, writing some initial smart contracts, writing a token contract, all that sort of thing. And then, And Carl pointed me to, you know, I had another kind of call with Carl where I was basically saying, you know, I'm starting to get it, but I don't feel like I'm making enough progress. I don't really know what to do with it at this point. And so I decided I wanted a project to learn on something that I could take a little bit further. And Carl pointed me to this blog post from Vitalik on automated market making. And that essentially outlined, you know, the initial idea of Uniswap, which is you can, you can make a smart contract.

Starting point is 00:10:59 that has this X times Y-E-12-K formula, and it will allow you to trade between two assets. So that's where it started, really. The interesting thing about this story to me is that the moral of this story, we're about to go through the creation of Uniswap v1, the creation of Uniswap V2, the token, Uniswap V3, optimism. But to me, the moral of this story happened at the very beginning, where you had this buddy Carl, who, for those that don't know Carl, his energy and optimism is absolutely infectious. And you were coming from the legacy world and you had skepticism as to your ability to build

Starting point is 00:11:35 and perhaps didn't have that optimism that Carl had about you being able to create something on Ethereum. What can I really contribute? I don't know how to code. And Carl's like, no, no, no, no, you're going to be an expert in one year's time. And perhaps your reaction was, how is that even possible? Yet here we are today with the Uniswap being the most successful, perhaps the most successful Ethereum application. It's an elegant beginning to this story. How do you see that beginning of the story and how it kind of played out? Yeah, I definitely think that it, you know, speaks volumes to what Ethereum is and what the Ethereum ecosystem is. I definitely didn't do it alone and there was definitely so much along the way. But all of it kind of points to, you know, the power of Ethereum and

Starting point is 00:12:15 the power of, you know, decentralized finance, which is really, you know, for one, it was because it was a small community at the time, it's still kind of a small community in some ways. was very welcoming. And so everyone you spoke to was very passionate about it and was very welcoming and inviting and basically just wanted to bring more people in. So Carl wanted to bring more people in. And so he kind of sucked me in to the, you know, into building on Ethereum. But then there's kind of this other aspect of it, which is sort of a more almost a technical aspect of it, which is that you can build applications where you don't need to trust, you know, anyone. And that's just a very important part of the story, which is that it didn't, what I did wouldn't really be possible

Starting point is 00:13:00 in traditional finance because I didn't have a reputation to, you know, that would allow people to trust me with their money. And what was nice about Uniswap, right, is it was an application and anyone could, you know, read the code for themselves. It was fairly simple. It was, or rely on other people who had read the code, that this was safe to use, and people were willing to put their money in it and they didn't have to trust me. They were trusting the code that I had written. And that is sort of what allowed it to grow so much and so fast. And I think it's just such an amazing property of Ethereum. And then I think that beyond that, just the kind of permissionless nature where anyone can build on top of it, where anyone can participate in it,

Starting point is 00:13:47 definitely was another aspect, which is sort of fundamental to what Ethereum is. is, which made it possible in the first place. So you have been given this project from pointed to out by your friend Carl. Say, hey, there's this blog post from Vitalik about AMMs, this X times Y equals K curve. And then you start, you just start tinkering in solidity and start building this thing out. Where does the story go from here? Yeah, I think that what I was, you know, as I started tinkering with it, at first it was really just, I want to learn how to write smart contracts and I want to learn how to create web interfaces.

Starting point is 00:14:20 And so the very first version was just me, you know, writing some simple code, learning kind of the basics of web development. It was very much the way I viewed it was a learning experience for myself. Definitely, as it started to form, once I had a initial proof of concept, which was this, I don't know if you've seen that version of the site. There's a sort of pre, like early proof of concept version of it, the retro version. Once I sort of got to that point, what I did is I started to compare. to other projects in the space at the time,

Starting point is 00:14:53 and the differences between them. And, you know, something that basically the primary decentralized exchange at the time was Ether Delta. And EtherDelta felt very different from Uniswop. You know, Uniswap had this aspect. It was sort of like a very confusing user experience. It was very, like, complex to use. I don't have a very, actually before, you know,

Starting point is 00:15:16 I had this mechanical engineering background. I didn't have any finance background whatsoever. And so to me, it almost felt a lot. lot more intuitive for my own use. And so I started to kind of get a feel of this like ux implications. And then the other thing that I started to get a feel of was, and this is maybe more important, is the underlying properties of decentralization

Starting point is 00:15:35 and censorship resistance and permissionless. You know, basically all existing decentralized exchange platforms that were kind of either in the works or existed at that time didn't really have the same underlying properties of Ethereum that I cared about. Right? You know, I cared, you know, the properties of Ethereum that excited me were the fact that you didn't have to trust anyone, the fact that it could never go down, the fact that it was

Starting point is 00:16:02 permissionless. But when you looked at things at the time like, you know, Ether Delta, it didn't actually have those same properties. And so I started to view it not necessarily as, you know, okay, this is a way for me to learn, but it was also, you know, what does it look like to build an application on top of Ethereum that has the same properties as Ethereum itself? that everyone cares about. At what point in your story did you realize that this uniswap thing

Starting point is 00:16:25 could be as big as it is today? Like, when did this go from a pet project for you just learning to code to perhaps this is something that can change what Ethereum is? I think we need to, yeah, I think that we need to accelerate almost two years in this story. Because, you know, everything I'm talking about was basically early, like late 2017. And I'd say that, you know, throughout 2018,

Starting point is 00:16:50 basically, you know, my story was, you know, traveling around every Ethereum event I could, meeting as many people in the space as I could, starting to build out Uniswap into a more complete version. You know, I got this Ethereum Foundation grant was definitely a pivotal moment for it, where, you know, I now had some financial support for it. That was definitely important at the time. And I also had almost a responsibility to build it where, you know, people gave me money to build it. And now I was like, okay, I actually have to take this a little bit further. And so, you know, I basically resolved on getting a version to Mainnet, getting a version that felt production ready.

Starting point is 00:17:29 And I, you know, I set out to kind of accomplish all the tasks that were needed, whether it was, you know, obtaining an audit, hiring contractors to build an interface, writing the white paper. And so, but it's still all along that time, I didn't really know how it would be perceived. It's definitely like a little... Just on that, Hayden for a minute. Like, can you tell us about that funding? So, like, how much was it?

Starting point is 00:17:48 And where did it come from? I saw very little bit personally, but, you know, there was definitely kind of a few ways that it got financed. So the Ethereum Foundation grant, you know, it was sort of written out as $100,000. Technically, it was $50,000 plus 100-something ETH. Basically, it was the cost of an audit. And the audit ended up that was denominated in ETH. And so I just asked for the ETH amount. By the time I received the payout, the ETH had gone down something like, you know,

Starting point is 00:18:18 75, 80%. Sad. So it ended up much close at like $55,000 to $60,000. But it did, you know, and I think that the other, you know, there was a few people who kind of helped me out with small personal grants along the way,

Starting point is 00:18:33 such as, you know, that guy, Pascal, who was mentioned in the blog post and got a grant from balance at one point. And I got a, I think none of that money. I didn't see a single penny from the grants personally. I basically was, I had bought a little bit of ETH in early 2017, and I basically just was selling all my ETH and living off of it. And so I kind of basically sold all of my ETH to live while building Uniswap,

Starting point is 00:19:00 which was, you know, I guess it was the right, I guess, you know, it ended up being the right gamble, but, you know, yeah. Were you aware of the gamble you were making at the time? Did you think that, oh, this could perhaps come back and really helped fund my life or what did you think you were doing? I think it was more like I needed to pay rent and eat food and I wanted to keep building uniswap. I'll say that the other, you know, there's financial support, but there's kind of maybe the more important thing, which was a community support and and you know, support from kind of other contributors. I definitely had, you know, an example

Starting point is 00:19:38 would be Khalil who's, you know, the designer at Uniswap and kind of has become much more known in the crypto industry for his design work. He was helping out on the project actually as early as, I believe, December 2017. So he, you know, I basically paid him a little bit, but not very much as a contractor for early design work and early front-end work. I also, you know, paid some other developers, but in part they were contributing with their time as well. And, you know, people like Carl and people like Vitalik who gave me feedback and introductions in the space, definitely, you know, the sort of Ethereum community who supported me and, you know, inspired me to keep on building it, was super instrumental to it. And, you know, maybe even more valuable than any of the financial support that I got

Starting point is 00:20:27 was, you know, going to my first Ethereum conference with EdCon in Toronto. And I met so many people there. You know, I met, well, I actually, I met a few of them the day before, but I met, you know, Dan Robinson. I met, you know, Andy Millennius, who was a CTO at Maker Dow. I met Phil Dyn. I met all these people who kind of helped bring me into the space and, you know, we're very generous with their time and their advice. And all of that was so incredibly important. So I want to get kind of a preset on this timeline of events we've moved through so far. So 2017, summer 2017 was when you got laid off, right? And Carl is sort of making the pitch. All this time were you getting plugged into the community and you're writing sort of the first prototypes of Uniswap? That happens.

Starting point is 00:21:14 somewhere in the 2018 or so time range. And then the Uniswap launched, right? So November 2nd, 2018 was when Uniswop V1 launched. And I want folks to understand sort of the backdrop of this. The backdrop, Hayden, you were kind of alluding to, is we had these things called decentralized exchanges. But to your point, Hayden, they weren't totally decentralized. They certainly weren't permissionless.

Starting point is 00:21:40 an operator had to sort of add the assets. They weren't fully on-chain, so the order books off-chain. And here you are in 2018. The market's kind of dead, right? Like, the Ethereum project has failed, is what the market is saying. Defi did not exist. Defi, yeah, DeFi was not a thing. Maker was just like sort of a little bit there, but not fully there.

Starting point is 00:22:02 I don't even think they had their single collateral dye out. Maybe they did. It was one month old. Okay. So all very brand new. And what you're doing in that backdrop is you're bringing something called an automated market maker to the fold, which is a totally new take on decentralized exchanges. Or on exchanges, period. It's not an order book type of exchange. And you're deploying this thing. Can you talk about sort of the context of when you deployed it on November 2nd and sort of what you expected?

Starting point is 00:22:33 Yeah. I think that I didn't fully know what to expect. I think what I knew at the time, one was that Battalic was very smart. art and like the idea. And that on its own was like a huge like, okay, you know, if Vitalik thinks it's a good idea, I'm going to, I'm going to assume it's a good idea, or at least worth like, trying out. And then I think that the other thing that I knew is I knew that I knew the benefits of it. And I didn't, I knew that there were downsides. In fact, everyone I spoke to from the traditional financial world, to extent that I spoke to people from the traditional financial world, did not think it would work. Even, you know, some of like, what did they say to you? When you pitched an idea.

Starting point is 00:23:12 Well, they basically said that, you know, hilariously, some of the same things people are saying about Unitsvap V3 today, which is active market makers are going to, you know, beat out passive market makers. People who just deposit liquidity are going to, you know, slowly have their value drained over time. Basically that it was too slow to update prices. By that, I mean, you know, it updates prices in real time,

Starting point is 00:23:32 but if someone, you know, actively wants to change their price, then they're competing against arbitrageters. And it maybe takes too long to do that. So yeah, there was all sorts of reasons that it was never going to work. You know, it was too capital and efficient. What about Hayden even in the defy community? What were people saying? Because as I remember at the time, the idea was that decentralized exchanges were of the flavor of zero X and of ether delta.

Starting point is 00:24:01 And this idea of an automated market maker was even foreign within Defi. It was foreign within defy. I will say that I did, you know, and defy didn't exist yet, as we, yeah. As I said, but within Ethereum, I think that it did get a lot of support from certain people. I think that there was like a strong signal from Vitalik when he sort of supported it very early on that a lot of people picked up on. There was also plenty of people who said it wouldn't work every step of the way, for sure. But, you know, I also got a huge amount of support from people who were excited by it. You know, examples would be even like a mean who on day one.

Starting point is 00:24:37 So, you know, day one, I had about $30,000 of liquidity, which was put in. by people we kind of knew. And so I was terrified. It would be lost through a potential hack. You know, I did everything I could to avoid that, but I was still kind of terrified that there would be real of money at stake. And then the second day, someone introduced me to me and he message me. He was like, I'm thinking about putting a million dollars a day.

Starting point is 00:24:58 And I was like, I'm trying to sleep at night. And I would prefer you don't. But what I did know is that, you know, it had these sort of decentralization properties. that other things did not. And I basically wanted to figure out what is the value of those decentralization properties relative to maybe the potential weakness of the system, right? Maybe it isn't as capital efficient as an order book,

Starting point is 00:25:23 but it definitely is more decentralized in an order book. It's definitely easier to create a new market. It's definitely easier to create liquidity. Definitely lowers the barrier of entry. And I think that for me, that was enough just as a starting place. And then definitely, you know, I was overwhelmed with the response, the positive response that I received where, you know, despite it being like an insane bear market where everything was going down, I think that the one thing that wasn't going down was Unisob, Unisob traction during 2018. And seeing it kind of just, you know, exponentially grow in usage and traction was when I started to, you know, think that maybe there was something more.

Starting point is 00:26:08 there. This part in the story to me is a through line of the core deep Ethereum community members who really understood what was going on here versus perhaps the, you know, the legacy financial people that you talked about that only saw problems. I can definitely attest to the fact that I started paying attention to Uniswap because Amin kept on talking so highly of it. And I personally really respect Amin. And he was the person that really did a good job, you know, through Twitter. explaining the merits of this whole thing. And I do think that Amin ultimately did end up seeding the Spank, Eith, LP, and then also becoming very handsomely rewarded for that behavior, ultimately,

Starting point is 00:26:53 when the Unitokin came down the line. So there was that liquidity, but that was just for Spank and ETH. And I think the biggest most legitimizing event, I think in the early days of Uniswap was MakerDAO, or the people behind the Maker team, decided to move their MKR liquidity away from Oasis Decks into Uniswap. Were you a part of that story at all? So what's so awesome about the story from my perspective is how little involvement I had in actually growing the liquidity or bringing it to the platform.

Starting point is 00:27:30 It was really just like a natural occurrence where, you know, I think it resonated with people at the maker. You know, I had friends at Maker, but I actually have no idea who the major MKR liquidity providers were in the early days of Uniswap. I didn't know any of the early big liquidity providers, really. And it just kind of happened. You know, early use it, early kind of members of Maker Dow saw Merritt in it and put some of their MKR and some of their ETH in the pools. And, you know, it was a validating experience, especially, you know, early on when it started being, you know, becoming the number one market for MKR. And it was, you know, Maybe it was worlds behind, you know, things like Coinbase or even Ether Delta.

Starting point is 00:28:11 But it was, you know, the number one market for MKR is the number one market for die. Well, not die yet, but yeah, that was definitely a very validating thing. And by the way, just to speak to your previous point on the community and the bear market, there was something really special. You know, people who were around and building in the bear market were people who, like, truly believed. And I think it was like a really exciting time because of the bear market. that. You know, everyone who was there was there because they, like, shared the values of Ethereum. They weren't there to make money because everyone who was there had lost a huge

Starting point is 00:28:44 amount of money. And so, yeah, it was definitely, like, you know, an awesome time. And people like, I mean, were, like, really instrumental. I totally agree. Like, the tourists moved out and the settlers were there. The builders remained. And I, you know, before we get too much further in the story, Hayden, I want to ask this question because you keep going back to sort of almost core values of uniswap, trustlessness, permissionlessness, censorship, resistant. And I'm curious to hear, I mean, these are values that I think are inherent in the Ethereum platform. It sounds like you understood these very well at a fundamental level. And you talked about the Uniswap experience being worth trying just because they exemplified

Starting point is 00:29:23 those values. I'm wondering if that's something from like your personal life, like you just highly identify with these values, or if this is more an engineering mindset of, well, all of these other exchanges, decentralized exchanges, are trying this spot on the tradeoff spectrum. But what about this spot? I wonder if this has product market fit. Yeah, I think that it's a little bit of both. You know, I think that I'm personally very interested. I think I'm interested from an engineering perspective. I think it's really what drew me into Ethereum and, you know, helped me kind of, you know, Carl sort of advised me to do it. But the thing that kind of helped me make the leap was that there was something so

Starting point is 00:29:59 interesting a novel about, you know, I think that I definitely, you know, recognized problems within the existing financial world, or maybe just power structures in general that existed, where, you know, obviously, like, there was a huge amount, you know, a huge amount of wealth concentration, you know, there was kind of a huge amount of gatekeeping, you know, very few parties could participate in finance. And, you know, the idea of, you know, the idea of sort of a financial system that removed, you know, unnecessary middlemen, a financial system that, you know, helped more people participate and, you know, basically helped, you know, redistribute more wealth to more people, was, you know, something that I definitely believed in,

Starting point is 00:30:50 and still believe in very much. And it has been kind of always been a driver. And it was originally my driver to getting into Ethereum, but like you said, I don't view the Uniswap's values as different from Ethereum's values at all. I think that they're very similar. And every step of the way working on Uniswob, I've kind of taken my leave from Ethereum itself, from Vitalik, from kind of the decentralized finance movement, the broader movement. It's definitely going to be a throughline of this podcast and something I want to sit on for a while towards the end here. But let's keep going down this uniswap story. So we've got Uniswap V1 built on Ethereum.

Starting point is 00:31:30 We've got some early community members. Now there's a Uniswop community. You know, Amin is in this community now. And some anonymous MKR liquidity providers are in the Uniswap community. Uniswap community is growing. But with towards the, with Uniswap V1, what were the obvious things that needed to be addressed, that could be addressed? What were the shortcomings that you had your head on that you wanted to, to, to

Starting point is 00:31:53 By the way, just to add on that before, like, you know, some other really amazing things that started to happen around that time was, you know, people building projects on top of Uniswap. You know, probably the earliest example would be Conlan who built what eventually became Uniswop. He built this sort of analytic site. It was just me. I didn't have the kind of capacity for building an analytic site for Uniswap. And someone else came and built that. And as people started to spin up, you know, sites dedicated to kind of building on top of

Starting point is 00:32:23 of Uniswop, that was like such a huge push forward and such an exciting moment. But yeah, definitely, you know, I saw that as Uniswap was growing and, you know, I definitely saw that there was sort of demand for Uniswop, that there was something there that was worth pursuing further. And, you know, I decided I was going to pursue it further. And so, you know, that's kind of where the Seed Round happened. There was so many, like, I guess what I was 100% sure is that there's no way that I built a perfect system by myself with no finance or developer background. And so I knew that there were better versions of Uniswop that could be created.

Starting point is 00:33:10 And I knew that I couldn't create them. I knew I didn't want to and shouldn't create them alone and that more people could join in this. And so that's really what led me to, I didn't know what the long-term kind of structure of Uniswap would look like. I didn't really know what the long-term kind of community would look like. But I knew that it should be taken further. And at that time, I think that made the most logical sense was basically to raise money. So this brings us to like April, April or so, 2019. And you're talking about a seed round, which was led by paradigm, small amounts at the time, like a million dollars in the seed round.

Starting point is 00:33:44 Something to that. Or 1.8. Okay. Okay. So 1.8 or so. And before that, you didn't really have a team at all working on this. Hayden. Was it mainly you solo?

Starting point is 00:33:54 And this sort of allowed you to build out the team, think about a team. Yeah, from fall 2017 until spring 2019, I was the only person who was working on it full time. I had, you know, definitely, you know, you've probably read that sort of history of Uniswold blog post, which shows that there were sort of an army of people along the way who contributed and helped and encouraged and pushed it forward with me. But definitely until spring 2019, I was the only person who woke up every day saying, you know, what do we do an ex for unit swap and how do I kind of

Starting point is 00:34:27 improve on it and what can we do with it? And yeah, so, definitely the highest priority with the seed round was to have a few more people working full time on the project.

Starting point is 00:34:40 So this was, we're still in the bear market blues. We're still in the era of DFI just maybe being realized, but it's still, only the settlers have realized that all of the tourists are gone from the industry,

Starting point is 00:34:51 but these investments are being made. And you felt it seemed like at that time that, okay, there's something here. Amms maybe are a thing. This Uniswap thing has product market fit, still had fairly small. It was fairly small in terms of liquidity at that time. How much liquidity were we talking in 2019? I can check right now.

Starting point is 00:35:09 But I think that it was still in like the low millions, if even. Let me see what opening up if you on that uniswop. info. But let's see, spring 2019, okay, I had like about $8 million in it. So eight.

Starting point is 00:35:28 And the volume was... David's laughing, but like, that was impressive back then. It was like a whole new smart contract thing and had accrued $8 million in liquidity. Yeah, it was doing about, you know, a million dollars a day in trading. So around that time,

Starting point is 00:35:45 were you thinking about the seeds for what a V2 would look like? And what were some of the flaws which would be one that you hope to solve? Yeah, I mean, the first thing that I knew needed to happen was that people needed to not lose money when they traded on Uniswap due to bad Ux issues. And so they were like, you know,

Starting point is 00:36:03 I think that by far the first priority was, you know, so the first hire was, the first two hires were basically Noah, who's our engineering lead, and Khalil, who's our design lead. And basically we said about making it so that when people went to the Uniswop Interface, it became something that didn't feel like a hackathon project. The original Uniswop Interface was created in three weeks by a single contractor that I hired, just for context.

Starting point is 00:36:34 And so the very first priority was get the Uniswop Interface to a point where people really can trust it with their money. But then beyond that, there was sort of this broader question of, okay, there was definitely, you know, Uniswap V2 was top of mind, and what would a next version of the protocol look like? What are there, are there some obvious wins and obvious improvements to make? And I think that the most obvious improvements were, one, just overall, you know, architectural improvements, like code-based quality improvements. There were a few minor kind of bugs in the V1 code. I mean, it still works and runs today pretty well, but, for example, it never worked with Tether

Starting point is 00:37:10 because of this sort of token bug and it couldn't handle, you know, tokens had certain implementation details. It had this sort of, it, so there was definitely this like general like code quality architectural improvement. And then the sort of two other things that we were focusing on there was one, just arbitrary ERC20 or C20 pairs, which hilariously never ended up being that important. I mean, they're still like, I mean, they're important. They've, they're a decent chunk of UNISwap, but probably still only something like 10% of UNISwap today is non-Eath pairs. And then. Why do you think, do you have any comments on why do you think that is? Yes.

Starting point is 00:37:50 I think in part, you know, we were, this was, when we were working on V2, it was definitely before like Curve existed. And we definitely knew that there were going to be eventually ways to make Stable Coins more efficient, but we did expect, because Curve hadn't been out yet, we did expect this to at least be a big improvement for Stablecoin, Stablecoin Paris to some extent. And we did expect that to be better for stable coins. So that was kind of part of it. And that ends up not happening in part because, you know, more efficient stablecoin-focused

Starting point is 00:38:20 AMMs came out around the same time as V2. Or I think somewhere between when it was announced and when it was launched was when Curve came out. And then I think that the other point is that people really love ETH pairs. People in Ethereum like denominating an ETH, a lot of, you know, ERC20 tokens and DFI I tokens tend to track kind of a similar market movement with ETH and Bitcoin, I guess. The whole market kind of moves together. So I think people really like ETH pairs generally.

Starting point is 00:38:52 And so those are still, you know, by far the most popular. Although we'll see if that is the same in UNISWP V3. I think that the kind of final, you know, big change with UNSWB2 was definitely the introduction of oracles, which I think, again, I think that they've been wildly successful in some rights. But again, I don't know if, in some ways, We did a clubhouse talk the other day with Dan Robinson, and his hot take was that Uniswop v2

Starting point is 00:39:19 kind of failed at everything that it attempted to do while still like wildly succeeding, which is basically, you know, oracles never actually took off that much. I mean, they are now kind of second to chain link or kind of probably the most used Oracle system on Ethereum. And so they definitely have sort of led to this like Aligo-Stable coin boom, and there's definitely a few projects like Reflexer and Comble.

Starting point is 00:39:42 that are now using it. And so I think that Uniswap V2 oracles are really great. But at the same time, also, we never showed them the love that they necessarily needed to kind of gain this broader adoption. And maybe that's a kind of important point I can make about what we viewed Uniswap V2 at the time we were creating it, and then what it ended up being to us as a team. I think that when we were working on Uniswap V2 originally, we basically viewed it as almost the multi-collateral dye to maker a single, like the kind of equivalent of multi-collateral

Starting point is 00:40:14 dye to single-collateral die of Uniswap V1. And I think that what we realized very close to the launch of V2 is that actually it was just single-collateral die V2 and that we were going to need to work on this V3 version and that that was ultimately like the version that we had to build an ecosystem on top of. You know, we basically, by the time we had launched Uniswop V2, we were actually already starting to work on B3 and there was probably one or two very brief conversations where we were like, is it worth launching V2?

Starting point is 00:40:46 This V3 designed it so much better but what we realized is how much longer it would take to get there. We knew it was going to be just like a massive development hall. And so we basically decided launch V2 it's just a much more scalable infrastructure, just better infrastructure, much more scalable

Starting point is 00:41:02 to build kind of for Unuswap over this next year. But what we didn't do, is then spend, you know, what we had originally planned to do when we were building V2 is then start building up, like, participating in building out the ecosystem around it as a team, you know, kind of along with the community. And instead what happened is we immediately spent all of our time working on in Q22 V3 sort of full time.

Starting point is 00:41:26 And the community sort of built up the ecosystem around Unisivop V2 on its own. And so, yeah, that's kind of a, you know, something that maybe people don't quite realize about how V2 evolved. I will say that despite all that, I've kind of skipped pretty far through the timeline, despite all that, Uniswap VT was an enormous success in terms of growth and traction where it grew from doing a million dollars a day in trading

Starting point is 00:41:52 to a billion dollars a day in trading. I think that there was some really pivotal moments. I think September, was it September 20 of this year where Uniswap did more trading volume than Coinbase. Not on a day, not for an hour, not for a week, but for a full month. The trading volume was higher. And so definitely there was this explosion of usage of V2, but at the same time from how we were viewing the role of the protocol in the long term, I think that we just were already fully on the V3 train.

Starting point is 00:42:27 I want to make sure folks captured the significance of that. So you launched Uniswap in November of 2018, right? And then two years later, a couple months earlier, because you said September 2020, it's doing more volume than Coinbase is doing. That's what you just said. Yeah. I skipped a I guess we skipped a whole bunch to get from there. But like, I mean, you're stepping back for a minute. Does that surprise you? Is this like, like, why did this happen? Like, how did this happen? and why did this happen from a 20,000 foot view? Because that surprises me. And I'm honestly surprised Hayden that this story isn't widely known

Starting point is 00:43:10 or isn't widely told outside of defy in crypto circles. Yeah, definitely if you asked me in 2017, it would be shocking. If you asked me in 2018, it would be shocking. If you asked me in 2019, it would be shocking. If you asked me in like mid-way through 2020, it would be shocking. So I would say that up until it happened, if you would, you know, up until sort of maybe a few months before it happened, if you asked me when or if Uniswap is going to pass Coinbase on like a monthly trading volume, I would probably, you know, over time, definitely as it got more usage and traction, we started to see some of the real value of automated marketing. And I'm going to get into that. but and so I started to have some long-term you know AMM maximalism thoughts where like

Starting point is 00:43:59 hey this can actually be a real thing this might be how all trading is done in the future but that future didn't feel a few months off it felt a few years off still I think or like two years off maybe it didn't feel like something that was ever going to happen in 2020 I can say even even as late as like early 2020 you know I it seemed like two years off. But I think what we saw, I think what happened basically is that Uniswap opened up a world of permissionless innovation

Starting point is 00:44:33 that just moved so fast. And because of how permissionless the innovation is on top of in Defi and on top of Uniswap, it was able to move just so much faster than anyone could have anticipated. You know, the ability for anyone to kind of create a liquidity pool without needing professional market makers. The ability to, you know, not just not need professional market makers, you don't even need to have a technical background. We had an interface for it.

Starting point is 00:45:03 You simply deposit some tokens. You simply just like typing numbers in a field and you, you know, you hit create and in a created liquidity that existed forever for that asset. And, you know, projects that wanted to, you know, people, the projects that needed exchange as a subcomponent of what they were doing no longer needed to build an exchange. You know, MakerDAO very early on built their own exchange. They built OASIS. And ultimately, you know, they didn't need that because, you know, Uniswap became the kind of this sort of primary market for those assets. And so I think that just how easy. it was to create liquidity.

Starting point is 00:45:46 And not just self, like, it's almost like user-generated content versus sort of, you know, editorial content. Like, you know, think about like the difference of how fast New York Times articles can come out versus how fast YouTube videos can come out. It's like that, but with finance and money. And so the fact that, you know, anyone can create something and anyone can use it just lets it grow so much faster than, you know, sort of permission to financial models. And so I think that we saw this kind of explosion in Defi Summer. You know, I think that the big thing that came out of that was like yield farming. And what you notice about yield farming and sort of DeFi Summer is that, you know, the projects that are best positioned to benefit from that are projects that work for like this long tail of

Starting point is 00:46:37 assets and use cases. And I think that Uniswap was just like very well positioned to benefit from that because it works so well for the long tail. Because, you know, even like, you know, projects like MakerDAO and compound, which are decentralized and their defy, but they kind of rely on like pooled risk. And because of that, they sort of tend to only work for like a subset of assets versus uniswap where risk is basically split out on a per token basis or a per pair basis. And so, you know, anyone can kind of come in and join. And there's like no real pooled risk. Basically, any liquidity provider can take on whatever risk they want on an individual basis.

Starting point is 00:47:21 And so, you know, people who are, you know, providing liquidity on some new obscure asset aren't exposed to some other obscure asset. And so I think that that's sort of part of what happened is just this explosion of activity and use cases that was just so exciting. and I think it brought a huge amount of people into the space. And Uniswap was just like right there as the infrastructure that was needed to support it. And during 2018 and 2019, there was a very select, small, contracted group of people that really understood these things. Maker Dow came online in January of 2018, and Uniswap really came into its shoes really in early 2019 when all of this early liquidity came.

Starting point is 00:48:06 And that's when kind of collectively as a community, we all sort of. started to realize these things. And Hayden, I think I can, I think this is right, is then when you didn't, you didn't really know that, what you just said about the long tail of assets and enabling, you know, tools for anyone, that perhaps wasn't exactly something that you realized in the early, the earliest days of Unitswap and it only came about when people actually started to, started to use it. And as a community, we all kind of realize this collectively together as people started to use these things. I remember using Uniswop to provide liquidity for this POV token that I just minted for funzies and just handed it out to my friends.

Starting point is 00:48:51 And some people just wanted to buy it. And so they just went to Uniswap and they could buy this token that I had just minted. That's absolutely crazy. And another story that stuck with me was with my time at Realty where we had tokenized real estate, we wanted to make real estate liquid. And all of a sudden we had this market that we could just put our asset into, our relatively esoteric niche asset that had no alternative secondary market, we were able to tap into the power of uniswap without permission. And this really, the instantiation of uniswap, the existence of

Starting point is 00:49:25 uniswap, along with the other two kind of like king defy protocols in 2018 and 2019, Maker-Dow and compound, that's kind of where some of this early defy narrative really came out of. Like, We wouldn't have been able to talk about Ethereum in the way that we talk about Ethereum without Uniswap. How do you perceive Uniswops contributions to the conversation of Ethereum at large? Yeah, I definitely think that early on I saw Uniswop as this example project of, you know, a way to build an application on Ethereum that kind of mimicked its underlying properties. And I think that we just kind of ran with that. And so, you know, I think that we've always sort of seen Uniswap as an example of, you know,

Starting point is 00:50:07 at least trying to be an example of doing it like the right way if that makes sense, doing defy like the right way, which is like, you know, doing it kind of responsibly, doing it in a way where it's kind of holds on to the values that matter. And so, yeah, it's always been something that's been like incredibly important to us since very early on. And I definitely agree with what you said there,

Starting point is 00:50:32 which is like, you know, early people like yourself, who started to get more accustomed to it and understand it more, and who also shared those values really just contributed so much to its growth and its traction. And, you know, as more people started to understand it and kind of spread the word of it, you know, it was sort of like mutually beneficial to the space where like, you know, Uniswap benefited from it, but then, you know, maybe Ethereum benefited from it as well. Hey, guys, I hope you're enjoying the interview so far with Hayden.

Starting point is 00:51:03 We are about to get into the Defy Summer part of ETHYWOP's timeline. And we ask about Sushi Swap and what it was like to be on the Uniswap team during the whole Sushi Swap saga. And then we, of course, get into after that Uniswap V3 and spend a ton of time talking about what is really all, what is the innovation behind Uniswap V3. We talk about concentrated liquidity. We talk about the oracles. We talk about how Uniswap V3 is flexible enough to allow the... the market to shape the curve of the AMM and what that means. And then we finish off this interview with a conversation with Ethereum values and how Uniswap is

Starting point is 00:51:42 an extension of those values. And what Hayden hopes the long-term legacy for both Uniswap and Ethereum are around, to the world around us. Such a fantastic interview. But first, before we go any further, we have to take a moment to talk about some of these fantastic sponsors that make this show possible. Guys, we've entered a bull market. it now is the time to start building your crypto empire, and you should do it on Gemini.

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Starting point is 00:54:35 So 11 million in Series A round. So beyond your seed round, you're now Series A round with some of the same investors and some new ones. And then this event kind of happens on the end of DFI summer. So heading into D5 fall maybe, which is the sushi swap vampire attack. So this is where a competitive automated. market maker, takes Uniswap V2 code, forks it, calls it sushi swap, juices it with yield, and starts to acquire some liquidity. Pick up the story from there. Yeah, I think that, you know, maybe just to preface that, we kind of knew, there were actually other projects at the time

Starting point is 00:55:21 sushi came out. There were actually other projects that had been working on forking Uniswap in the background. And I think that they almost didn't end up launching. because of sushi and because of the traction I got. And so just kind of like a funny note is that we definitely were very aware that, you know, there was going to be forks of uniswap. And I think that, you know, we kind of viewed forks generally as fair play because, you know, open, open source software, open source license. What I think, however, I think specifically with sushi,

Starting point is 00:55:54 and not even sushi, but specifically chef Nomi, the guy on Twitter, the guy on Twitter, who was promoting it, I think that I was suspicious of him. And very early on, I had some tweets where I basically questioned his intentions. Right. I guess the way that Nomi was tweeting about Uniswap seemed opportunistic to me. It seemed, you know, it was very much like hostile and aggressive. You know, oh, Uniswap is controlled by the evil he sees. And like, it was very much like, you know, there was kind of Uniswap should be owned by the

Starting point is 00:56:28 community, which I agreed with, but what was kind of interesting is that the community that Nomi was talking about was not actually the Uniswap community. It was, you know, the people who are yield farming sushi tokens, which is a little bit different. I think that's something that was really exciting about the sushi swap saga was it showed how much demand there was for increased in community engagement with Uniswap or with, you know, AMM protocols generally. And so I think that it was definitely, you know, really exciting as well. There was a lot of interesting things happening at the time. And there was, you know, obviously a huge amount of traction. Ultimately, it was like a huge net liquidity increase to Uniswap before

Starting point is 00:57:13 and after the before and after kind of the migration occurred. But I think that something that I was always very cognizant of at the time and what sort of called how I viewed it was basically, you know, when Nomi was tweeting about, oh, you know, this is this is the more community-oriented version. What was kind of first in mind was that, you know, who is the Uniswop community? Because to me, it didn't feel like, you know, Sam Bankman-Fried and Kyle Simani were the Uniswop community. It felt like the Uniswop community was the people who had contributed and used it over the years, right? The liquidity providers, you know, Ami, like all these people, that was the Uniswop community.

Starting point is 00:58:01 And so a more community-oriented version of Uniswop would be one that kind of brought those people into the process. And so I think that, you know, for a long time, definitely we had thought about a token and had been considering it. But definitely there was sort of an acceleration of that. From our perspective, seeing how much demand there was for the community version of Uniswap.

Starting point is 00:58:21 And so that is definitely kind of one of the things that led into the launch of Unswap governance. So would you mean to say that you guys weren't actually thinking about a token as much as you were after the sushi swap event? I think that there was definitely something that like, I mean, definitely tokens in general, right? The idea of a token had been around forever, right? When Uniswop first came out and V1, like, you know, there was thought of a token, right? Because it's a project on Ethereum and tokens exist on Ethereum. So I've always sort of thought about it. And I think that, you know, even if you,

Starting point is 00:58:53 it was things that I had considered, you know, even if you see some of that kind of, uh, you know, how we kind of talked about in the V2 announcement. We started to talk about community. It's like, it's things that I had considered, but I think that, you know, the sushi Shihabh Sadi definitely revealed how much the community wanted it. And I think that that was like a, you know, so it definitely made us much more interested in pursuing it as, as a viable thing much, much sooner. And so definitely it, to some extent, like, yeah, there was, there was no final

Starting point is 00:59:28 decision on whether or not there would be a token until, you know, after sushi had started. And so we definitely moved quite fast on the creation of, you know, the governance contracts. And yeah, it was a busy few weeks for sure. We definitely want to get into the conversation of the token, obviously, because I was such a monumental event in defy history. But I want to hang on sushi swap just a little bit longer. If we were a fly on the Uniswap offices, if there were offices, because we were, because by now we're into COVID times.

Starting point is 01:00:00 What would we have heard from the conversations about the Uniswop team about the sushi swap events? I think it's kind of what I said early on. It's kind of what I just said in the past, he said, like, it's basically, you know, general suspicion around Nomi specifically, definitely some excitement around the community's engagement and interest in participating

Starting point is 01:00:23 and the sort of kind of traction that was happening around it. So, yeah, I think that that was kind of the two main, the main things that we were kind of thinking about in general. Yeah. And for what it's worth, the suspicion around Nomi was definitely not unjustified. You know, he did, like, you know, do the rugball thing. And then, of course, there's sort of what happened then and then where it is now, which is obviously a little bit different, for sure.

Starting point is 01:00:54 For those who are not aware of the chef Nomi history, this is a, a pseudo-anonymous character who started Sushi Swap, forked the original code, and then Rug pulled, that's crypto language for, stole some of the funds, eventually gave some of it back. That's kind of how that story concluded and the community lived on. And Hayden, how would you describe the relationship between Uniswap and Sushi Swap today? These things, in my opinion, fill different niches. How do you define the different roles provided by these different projects? and what do you think that's going to be like growing along sushi swap moving into the future?

Starting point is 01:01:32 Yeah, I think hilariously, like, I think if you spend all day on crypto-titter, you might be, like, shocked to know that we don't really, like, we think about other competitors probably just as much, if not more than sushi. And they're not like, you know, like, we don't probably don't think about them nearly as much as a lot of people would think. I definitely think, you know, what we tend to focus most on, you know, I, I think that the people we view as maybe the strongest competitors are more things like Binance and things like Coinbase, to be honest.

Starting point is 01:02:04 And I think, you know, one thing, in terms of sushi specifically, we are very curious what they're going to do next. From our perspective, Uniswap V3 is just like such a massive improvement that, you know, something that looks like Uniswap V2 can't really compete with it in the long run from my perspective. And so I'm very curious how they respond to that. Or if they, you know, from what I've seen so far, there's been a few things that they've been doing, one that they've been kind of branching out away from exchange and AMM with their sort of forays into lending. And then the other thing that they seem to be doing is kind of branching out into Ethereum killers and basically bringing

Starting point is 01:02:49 Uniswop v2 to, you know, BSC and Solana and Phantom and these sort of other kind of, kind of of EVM chains. So that seems to be what they're focused on right now. But I guess we'll see. Different focus from Uniswap. I take, by the way, you said that. We'll get into that when we talk more about V3. But just one of the last milestones on our timeline here is September 16th, 2020. That was the date of the Uniswap AirDrop. And I think everyone who had been active in DFI remembers this date. Because if you're using DFI, one of the first things you do on DFI, like as as soon as you take custody of your keys, you get off a centralized exchange, you're doing something with Uniswap. That's the first app everyone uses. And the beautiful thing was, if you did

Starting point is 01:03:36 anything with Uniswap, if your private key from Metamask made any exchange on Uniswap, you got a token, like Oprah Winfrey style, right? You get a token, you get a token. Including if you, the only thing you did on Uniswap was make a transaction. Oh, exactly. So we, we like, we like, There was something like a thousand accounts that had only made failed transactions. So tell us about the stats here. So you're even supporting the failed transactors in Uniswap. But this was a very wide distribution to what is essentially the fledgling defy community.

Starting point is 01:04:10 All of the settlers that we talked about, very few of the tourists were using Uniswap. But all of the settlers were kind of using Uniswap. How big was thisirdrop? And can you talk about the design and like your thought process going into that? Yeah, I mean, in terms of how big it was, I believe it was 150 million tokens, which are currently valued at about 30. So about what's current value is somewhere in the realm of $4.5 billion is how big the uni retroactive distribution was. In terms of at the time that it occurred, it was more in the realm of $450 million. I think that they were valued at about $3 at the time.

Starting point is 01:04:53 And across how many accounts was this, Hayden? I think it was over 500,000 accounts. So something that we were so excited about going into the launch of USwb governance was, you know, Uniswap had something that no one else had at that time. And it was like a long history of real user, of a large amount of real users. You know, no other project had hundreds of thousands of users. And so, you know, definitely it was super exciting. When we were kind of designing it, there was sort of, you know, how do we wait against, like,

Starting point is 01:05:25 swappers versus versus liquidity providers. And early on, I think we were very like, you know, kind of like liquidity provision oriented. Oh, they're the people who took on the most risk.

Starting point is 01:05:37 But at the same time, we kept kind of coming back to like, we really want this to be like owned by the community. And there's so many more people who participated in swapping. They're kind of allocating a significant amount to the swappers. Like there was such a, like so much fewer LPs that even though they got like a kind of less

Starting point is 01:05:55 a smaller portion of the distribution. Individually, they were like very, very, very well rewarded. And so kind of allocating a huge amount just to evenly spread across all the counts that had ever touched unit swap was really exciting. And it definitely, you know, some of the stories that came out of it were really incredible to me. You know, people were kind of, you know, some examples of really awesome stories where like, you know, someone reached out about a class of students in rural Turkey

Starting point is 01:06:21 where they had all kind of, their teacher had got them all to like try. making a trade on Uniswap, and suddenly they all had, you know, more than a year, like, more than their full tuition's worth of, worth of tokens. Or there are people in, like, the Philippines who were, like, playing Axi Infinity, and they received, you know, two-year salary worth of tokens. So definitely there was a lot of really, like, cool stories that came out of it. Or even, like, smaller ones, like, people who, like, were like, oh, I bought my engagement ring, or, you know, I bought a PS5. Like, definitely a lot of really cool stories that came out of it. And, and then, The other kind of cool part is that, you know, it brought a lot more people in and engaged them.

Starting point is 01:06:59 And I think on the first day or the second day, I think Uni was maybe one of the, had the most unique account holders of any token aside from maybe one other on Ethereum. So it was definitely a really cool, exciting event. So let's zoom out really quick because I want to backpedal into the conversation of the shared values and ethos that Ethereum brings. And Hayden, at the start of this podcast, you talked about the different ways that Ethereum and Deepi can redistribute wealth. And hopefully that is a through line of not just early Ethereum, but all of Ethereum into the future.

Starting point is 01:07:30 And so as somebody who built this application that eventually had a token, which is then collectively now worth over $4 billion of distributed funds, how does it feel to have created something that was able to put $4 billion into over 100,000 individual people's hands? Like, pat yourself on the back. Like, how does that feel? I mean, definitely so much of that value was built by, like, the Ethereum community and the community of people around it. I think it definitely is very inspiring to see, like, how much had been built on and around Uniswap by the community. And the community of not just, like, Uniswap, like, the whole Ethereum community, just, you know, so, like, there's quite literally hundreds of applications building on top of Uniswap.

Starting point is 01:08:14 We finally started tracking our integrations and, you know, somewhere in the world of 300 plus, maybe more, different applications that are. building on top of Uniswap. And so, yeah, it's definitely incredible to see all the kind of excitement and interactions and, yeah, it's mind-blowing how fast things can move in Defi, for sure. So the frequent metaphor that people use to try and explain what the Uniswap AirDrop is to people that are unfamiliar with Defi is that it's like if you were riding for Uber or driving for Uber and then Uber would just drop you some equity. Or, you know, if you're the user of Facebook, you would just get Facebook equity for using the application.

Starting point is 01:08:59 And this has been a great through line, a great narrative boost to Ethereum at large. My question to you is, do you think that this event will actually result in the long-term perception shift of humans at large and how we deal with equity with the applications or companies or whatever's that we use? Like, do you actually think that you have shifted the Overton window?

Starting point is 01:09:22 I'm not sure. So I think that sort of how we view it is more through the like lens of governance and community kind of ownership and community building. And how that can best be done in sort of a decentralized manner. You know, how protocols are kind of like, you know, how do people kind of coordinate with protocols? And I do think that, you know, Uniswap has the chance to be very, very. impactful on that front. One way to think about what, you know, UNSWOP governance can do, the better way to think about it is like what can't UNSWFWF governance do? And then you can imagine it can do literally anything else. Like what UNISWF governance can't do is, you know,

Starting point is 01:10:07 steal all the funds from UNSWP protocol, right? Because, you know, the smart contracts are immutable, they're kind of non-custodial. So, you know, The Uniswap kind of protocol is truly sort of permission system decentralized in this way where, you know, or sorry, truly like trustless in this really meaningful way. And it was always very important to preserve that. And so when you think about like what role does governance have, I think that the role the governance has shouldn't be to be a custody provider, right? And it's not, right? And so the role is more like, well, what can't be done entirely through on-chain smart contracts? Well, that's kind of governance roles.

Starting point is 01:10:57 Anything that can be automated in smart contracts should be automated in smart contracts. And then what can't be automated in smart contracts is sort of this coordination and kind of incentivization and kind of community growth thing. like that's the thing that's sort of this coordination that is that they can't just be kind of automated right like humans building things can't just be kind of you know built into a smart contract in or it can be but you kind of have to have like some method of coordinating people and I think that that's generally a thing that is maybe sometimes lost in Ethereum right now is the importance of like humans and social movements and and uh you know people with values building things um like there's sort of this sometimes this tendency towards like code is law and like

Starting point is 01:11:52 you know nothing should ever change and everything has to be completely automated forever but there's always there's always going to be a human element because we're all human beings and like uh that's kind of the role of on like a very philosophical level like the role of like the role of kind governance is sort of try to coordinate the human element of a decentralized ecosystem. Absolutely. I think people even forget, even with base protocols like Ethereum, there is this layer zero. There is this social layer to the system writ large. So here we are in the story. We've gone through kind of the legacy of v2, uniswap v2. And I feel like this is sort of almost the time in the episode where we get to talk about the thing that we teed up the entire

Starting point is 01:12:40 time. Because up to this point, the way you've talked about V2 has been sort of an unfinished project, right? Like you had bigger, wilder ambitions, almost like Uniswap V1 and V2 were sort of a beta version, right? Sort of just a smaller instantiation of what the vision could be. Now enter V3. And I know this is something that. you've had to keep tight lips on for a while, or I guess the Uniswop team has chosen this approach to keep us all shrouded in secret. But last week, you announced it to the world.

Starting point is 01:13:16 You announced the launch date, which is May 5th, which we're super excited about. You also launch some of the key details that would be contained in this thing called V3. And this is really more, if V2 is like a point release upgrade, this is a whole new version of Uniswap. It's almost like a whole new vision. And I'm not sure that I entirely understand all of the elements of it, Hayden, to be honest.

Starting point is 01:13:40 So why don't you start by telling us, in your own words, what is cool about Uniswop V3? Yeah. So maybe a starting place is like what is the goal of Uniswap V3? And I think that the goal of Uniswap V3, you know, there's sort of been a lot of kind of like automated market making has been almost disproportionately successful. to the sort of capabilities that they provide. And that comes out of the fact that they sort of offer these new innovative things that traditional, you know, exchange models can't offer, right? This sort of ability to incentivize liquidity, the ability for more people to participate,

Starting point is 01:14:20 the kind of ease of providing liquidity, like all these kind of things are what makes it possible, what make its success possible, despite the kind of early reasons people said it would fail, which is, you know, issues around flexibility, issues around capital efficiency, issues around like, you know, yeah, just like efficiency of the system in general, right? Like the kind of amount of capital that gets wasted, the sort of difficulties with expressing opinions, or like Uniswavvy II kind of forces you to take very specific bets. Or people are always like, oh, it's a short straddle,

Starting point is 01:14:57 oh, it's like you're betting on mean reversion. People have all these things that they say that you're doing when you're providing liquidity on uniswap v2. And the point is that it generally is forcing tons of people to share the same strategy. And the problem with all AMMs before uniswop v3, and there's kind of various ones that have started to add more flexibility, but the problem generally is that there's always a cost

Starting point is 01:15:23 to expressing your opinions imposed on the entire system. And what I mean by that, is that, you know, or there's always, first off, like, as a general point, there's no single price curve, right? You know, AMM's general, right? They create this sort of price curve that automatically sets prices, and it sort of automatically controls the rate at which they update. And there's all these sort of, and there's several different projects. There's uniswap, which has this very neutral curve of evenly distributing liquidity between zero and infinity. then there's projects like curve, which sort of warp the shape of the curve, such that the price

Starting point is 01:16:04 updates slower when the price is closer to the price of one. And then it kind of, so like the curve kind of flattened out and then like spikes towards zero infinity. And then there's like, you know, projects like balance, which also kind of let you modify it a bit. But the general problem, right, is that there's no one curve on a per pair basis. You know, if you imagine a giving trading pair, there's no one curve that can like optimally there's no one curve that can optimally serve all trading pairs. And then beyond that, even within a single trading pair,

Starting point is 01:16:32 there's no one curve that can optimally serve all liquidity providers. Because liquidity providers have individual preferences. First off, pairs have individual market properties, different sort of volatility, all of that. But beyond that, individual liquidity providers have different expectations for what the market properties for that pair will be. And so ultimately, you know, if you expect an asset, moves up, if you're very confident an asset will move up in value, versus if you're very confident

Starting point is 01:17:01 an asset will move down in value versus if you're very confident that the asset will move flat, how you would want to provide liquidity is very, very different. And you could imagine, like, a very naive approach to kind of solving this expressiveness would be basically just through external aggregation. That's kind of like the balancer approach, which is like, okay, people can provide liquidity in a bunch of different ways, or you could almost imagine, like, Dex aggregators that are aggregating your curve and Unitswap and Balancer, and you kind of have this sort of different, you know, aggregation across it. But the problem there is that you have this very hefty aggregation cost,

Starting point is 01:17:38 where very frequently it's not worth the cost of checking it, because Ethereum is like a resource-constrained environment, it's very frequently not worth the cost of checking two places because that doubles the network fee, or sometimes it more than doubles it. And so what Uniswap V3 really aims to solve is, bringing the expressiveness that's needed in liquidity provision without without kind of introducing this aggregation cost per preference that's expressed, if that makes sense.

Starting point is 01:18:09 So Uniswop v3 kind of has this very efficient way of batching every single person's preferences into a way that you can kind of aggregate across an infinite amount of them while still supporting efficient trading. So let me try and spit that back at you. and see if you like my summary. To me, the infinite malleability of uniswap v3 goes from what uniswap v2 is, which is here's your price curve.

Starting point is 01:18:37 Attention to trading pairs, ether die. Here's your price curve. It's x times y equals k. And then with uniswap v3, the infinite malleability of being able to generate more parameters around where liquidity providers want to or how to provide liquidity, All of a sudden, instead of Uniswap dictating what the price curve is,

Starting point is 01:19:00 it's the market discovering what the price curve should be or could be that is optimal for those specific trading pairs. So all of a sudden, because of the programmability of the expressiveness of Uniswap V3, what you said is it gives the option to express opinions about the future outcomes of assets. What that does is that generates a unique price curve for every single trade. pair and that price curve is going to be determined by the market participants who think that they have the optimal price curve. And naturally, the market participants that are correct are the ones that are ultimately going to dictate what that price curves looks down the line.

Starting point is 01:19:41 How does that definition land with you? Very, very close. I think the only thing that I would add is that the market participants who are correct are probably the ones who are going to do the best, which is maybe the only kind of flip. There's no necessarily right way. The whole point is that there's no single right way to provide liquidity. Right, yes. And the market might conform around an opinion that's ultimately incorrect. And, you know, maybe there would have been a better distribution, but, you know, there's, there's no way to perfectly know that.

Starting point is 01:20:09 And so it's more just like anyone who wants to provide liquidity can now, you know, provide liquidity in a way that better expresses their opinions. If you think, you know, Ethan is never going below $1,000 again, not investment advice, but if you think that, you will want to provide liquidity in a very different way from, if you think ease is never going above above 3,000, right? And so like, there's like different ways that you'll want to provide liquidity if you have different preferences. And I think that there's definitely a lot of kind of right now, there's a lot of sort of early

Starting point is 01:20:37 confusion about about what it will look like and how people will be able to kind of understand it enough to express their preferences. But I think that that's sort of just kind of follows the kind of how you've have always been, which is that like it takes you a while to understand it. But then eventually it's going to be understandable. And then more people are going to be able to participate. The same way that no one understood V1 when it launched. And then as you were kind of talking by D-Eye Summer,

Starting point is 01:21:00 there were all these people who understood it and were able to engage it. It might be a little bit of a similar process where it takes some time for people to understand how to express their preferences, but then they will be able to express those preferences. Maybe one other kind of lens to just talk through this quickly is like capital efficiency, like price risk.

Starting point is 01:21:20 There's sort of these two fundamental things that people have always talked about. in the AMM space. You know, I invented this word in permanent loss. Some regrets at times. What would you have rather called it? I mean, some people have said it should be called, like, you know, prior unrealized loss or, you know,

Starting point is 01:21:41 maybe let me just define what it is and then talk a little bit about it in the context of slippage. You know, what impermanent loss is, is basically the price risk you take on as a liquidity provider, like inherent to providing liquidity. One way to think about what you're doing when you're providing liquidity is you're essentially saying, I'm willing to sell tokens on either side of the market price, right? In V2 at least.

Starting point is 01:22:05 You're always willing to sell like an equal amount on either side of the market price. What that means is basically if a token is going up in value, you're sort of selling that token and raising the price a little bit every unit, like every unit of that token you sell, you raise the price of the next one by a small amount. And so you're basically like selling tokens as they're rising in value. or similarly, as a token is following in value, you're kind of buying those tokens as they're following in value. And so this kind of concept of impermanent loss

Starting point is 01:22:32 is essentially the idea that if you buy a token at a lower price and then it rises in value, it would have been better to not, or sorry, if you sell a token at a lower price and then it rises in value, it actually would have been better to not sell it, wait for it to rise in value and then sell it at a higher value.

Starting point is 01:22:52 or just hold it in your wallet because it's now worth more. The flip side, though, and the reason that I kind of had this term, impermanent, is it kind of gets at this idea of, well, what if the price falls back down to where it started? If the price returns to where it started, it actually wasn't a bad idea to sell it at a lower price because it eventually returned to that price, and you sort of, like, if the price returns back to where you started,

Starting point is 01:23:19 you just end up back where you started. And so it wasn't a bad idea to buy or to sell on the way up in the first place. And, you know, Uniswapv2 always had this sort of trade-off between this, you know, if you enter at one moment and exit at another moment, at that moment, the kind of amount, the difference in prices, sort of that impermanent loss or unrealized loss becomes realized. And at that moment, what you want is you want to have collected enough fees to kind of offset the downsides for selling some tokens at a suboptimal price.

Starting point is 01:23:48 But if you think about it's worth noting that AMMs are like a two-sided marketplace. And there's another participant in the system. And that's the traders. And people kind of, so some reason people always forget about traders in AMMs and only think about it through the lens of liquidity providers. If you think about it from the trader's perspective, what is a trader wrong? Trader wants to buy tokens at a good price. And if there's some sort of, like if there's a current market price for that token, they want to be

Starting point is 01:24:16 able to buy as many tokens as close to that market price as possible. And so if you think about it from that perspective, you know, if someone, the more tokens that a liquidity provider is willing to sell closer to the market price, the better rates traders are getting. And so that's like the other side of the sort of marketplace, which is like, you know, the less price risk a liquidity provider is willing to take on, the less impermanent loss of liquidity provider is willing to take on, the worst rates traders get. because if they're willing to sell less tokens closer to the market price, that means the person trading is able to buy less close to the market price.

Starting point is 01:24:53 And so it's just worth noting that how much price you're willing to take on directly impacts how much trading volume you can support and how good the prices can be. And so there's just this like, we call it like an iron law tradeoff. It's just a tradeoff matrix of how much am I willing to sell close to the market price. the more you are, the better rates, the more price risk. The further away, the less price risk, the worse the rates. And, you know, there's no right answer, right? That's once again, why we have to create this expressiveness. That's why you have to make it possible for people to choose for themselves how much price risk they were willing to take on versus how much

Starting point is 01:25:32 trading volume they want to support. So, Hayden, how does this tie into capital efficiency then when you give everyone those choices? Yeah. I mean, there's some like really easy things to kind of say here, which is, you know, I wish I had written down some numbers to give, like, examples, but, you know, you can imagine, like, very early on when we were working on Unswap v3, something that we realized, and I don't remember the price of ETH was probably, like, in the $200 range, but we realized something about, you know, you have, say, like, $10 million in the, in the ETH die pool, and what we realized is about, like, a quarter of the, the liquidity in those contracts existed for buying ETH below the price of $2.5.5.5.

Starting point is 01:26:14 $10, you know, when Heath was like $200. And like a quarter existed for like buying, selling eth above $5,000. So you have all these like inventory in the contracts that are like sitting on these sort of obscure edges of the smart contracts, just waiting for prices that might never be reached. And so, you know, when you think about people focus a lot on impermanent laws, which is like, oh, I sold some tokens and I didn't get the optimal rate. But they're forgetting the kind of other maybe more important. component of it, which is what we're calling inventory risk, which is basically, you know,

Starting point is 01:26:48 Uniswap V2 made you hold 50-50 value in two tokens. And essentially what you do when you put, let's say you put in like, you know, $1,000. Essentially you're putting in $500 on ETH to die. You're putting in $500 for buying ETH at, you put $500 of die to buy ETH at every single price between the market price and zero. And it's evenly distributed. And then you put in $500 of ETH to sell at every single price. single price between the market price and infinity. And so you have like a huge amount of capital

Starting point is 01:27:20 that's just completely wasted on the fringes because if you never expect those prices to be reached, any capital that goes there is just a complete waste. And, you know, this kind of effect is massively compounded for things like stable coin. Stablecoin pairs where, you know, you expect the vast majority of trading to happen in maybe a 1% price movement, maybe less even. And so the fact that, you know, something like, you know, 99.9% of capital, like, exists for prices that might never, like, rarely will ever be reached is just completely like, just like a massive waste. And I guess I want to tie it quickly back to the inventory risk, which I was mentioning, which is, you know, some people provide liquidity on ETH to die and maybe have a very high degree of confidence that ETH will go up in the future, in the near future. Some people provide liquidity and have a very high degree of confidence, ETH will go down. some people provide liquidity and have a very high degree confidence,

Starting point is 01:28:13 Heath will be flat. And because of that, like, with USWLB3, there's now three different ways you might want to kind of provide your liquidity. As I had just mentioned, you know, 50% of the capital in V2 basically is die liquidity buying it below the market price. But what if you don't expect ETH to go down, then why are you, if you're expecting ETH to go up, then why are you holding Dye in a smart contract to buy

Starting point is 01:28:40 ETH at low prices. It's just wasted capital and it's exposure to an asset that you don't want to hold. On the flip side, if you think that ETH is going to go down, then all the ETH that you're holding for selling, you know, at a price of $10,000, why are you holding ETH to sell $10,000 when you think ETH is going to go down? That's like nonsense. So in UnisovV3, you could essentially imagine, there's two different ways to think about it. One way to think about it is you could take sort of, if you sort of constrain the price range in which you expect most trading activity and the price to kind of stay within for a given period of time, you can almost imagine all capital that's wasted,

Starting point is 01:29:21 that's kind of sitting outside of that can basically be removed. And so, you know, you might be able to provide liquidity with, you know, basically put in 25% or 10% of the value that you would have to put into V2 to create the exact same exposure, support the exact same amount of trading that you would in V2, with, you know, maybe 10% of the capital, 20% of the capital, whatever it is. The other way to think about it is maybe you have a very high degree of confidence that, you know, the price will stay around the market price and be a sideways market for a long time.

Starting point is 01:29:49 Then you can actually maybe rather than putting, you know, less underlying capital to create the same effect, you could put the same amount of underlying capital to create a much greater magnified effect. And so, you know, rather than putting in, you know, $100 instead of $1,000 instead of the same effect, you could put it in $1,000 and create 10 times the effect. And so being able to create, you know, massive amounts of liquidity. And when we talk about, you know, how amplified this can be, an example would be if you were to provide liquidity only between, say, 99.9.9 cents and a dollar and 0.1, which you can do on like a stable coin,

Starting point is 01:30:25 with $1 million in Uniswap v3, you can create the exact same amount of liquidity that you would, and it takes on the same price risk, but still, that you would need $2 billion in Uniswap V2 to create. And so you know, you can basically put a million dollars in, and as long as it's trading between that price range, the sort of effect is completely identical in terms of price risk, or sort of completely identical in terms of like impermanent loss and fees earned and liquidity created as $2 billion in like a DUSDC V2 pair. But all the remaining, you know, whatever, like, you know, the massive, there's like a huge amount of capital that you now can kind of allocate to other things. Anyway. So, Hayden, I, um,

Starting point is 01:31:07 My mental imagery for this and one we've used before is like, you ever see that like clips from the old TV show of Robot Wars where you've got like these people are constructing these mechanical robots and you put them in like an octagon and they face off and they fight? My like imagery model for this is this is what's happening with automated market makers and with exchanges, right? You have these different protocols and they're all trying to win at this whole liquidity war. And so you've got uniswap over here with its version of its curve, and then you've got curve over here, and you've got balancing, you've got all of the others, and they're all kind of competing for this liquidity in this robot wars game. What I think you've done, and maybe this is how I understand what you were saying earlier.

Starting point is 01:31:54 You said earlier in our conversation that uniswap v1 and v2 is almost similar to like single collateral dye, right? And the new uniswap v3, that's multi-collateral die. What I think you meant there is, with Uniswap v3, you can essentially be any curve. You're not just coming into the robot war with like a buzzsaw and attacking another robot who's got like a blow torch. You've now got all the weapons. You've got the buzzsaw. You've got the blow torch.

Starting point is 01:32:20 You've got the thing that's going to destroy the top of the other robot. You've got all of the weapons at your disposal. And the market then chooses what the most efficient weapons are going to be. So you don't even have to plan and aggregate all of these strategies together. You don't have to have individuals come and say, this is the curve. It should be a human being who does that. You just basically get the market makers to decide, right?

Starting point is 01:32:44 Because the market makers will pick the optimal weapons and optimal strategies to optimize your uniswop robot. Weird analogy, but for some reason that works for me. How does that land? I dig the analogy. I pretty much agree with you there. It's, you know, it basically, just opened up this whole range of, you know, almost existing projects could almost be

Starting point is 01:33:08 build themselves on top of Uniswold. Like if existing projects are kind of like specific, you know, market making strategies, then those could be expressed through Uniswap B3. And so, you know, I would be like, so I think that we're going to start to see, you know, a movement from projects that are kind of trying to build their own way of market making to projects that are basically using Uniswap V3 as a way of expressing market making strategies and getting people to adopt. them who kind of share common opinions. And so definitely, yeah, it goes from this sort of, you know, single use case or this sort of single curve to this just anyone can create any curve within it.

Starting point is 01:33:46 And in a way that's like, you know, huge amount of props to the engineers who built it, that's actually quite efficient on Ethereum, which is hard to kind of overstate how much work it was to get there. Like we had the designs, you know, pretty well fleshed out maybe by like, you know, nine months ago, 10 months ago. But making that kind of an efficient system, making that, you know, yeah, making that efficient was just a massive, massive task. But it's here now. And I think that we've seen like a lot of interest from the community. You know, something that we, you know, something that's maybe very different from how Uniswap might be now versus. how it was before, is before it was like iterating to the version of the protocol to build

Starting point is 01:34:36 the ecosystem on. And now it's like, it's not to say that there hasn't been an ecosystem that's been building, but it's like now there's this like real moment where the community can come in and kind of build all, like there's so much that needs to get built on V3 because of how much more expressive it is, because it's more complex. But ultimately, like in the long run, it's like the most flexible, most kind of long-term, uh, oriented, AMM design that exists, right? It's kind of, we're trying to be forward looking with the design and like, what will be needed, you know, three years, four years from now. And, and so we're not expecting, like, some massive overhaul, like, oh, we can, like, we don't have another, like, 1000x improvement

Starting point is 01:35:17 on AMM up our sleeve. Like, the point from here is, it's up to the community to kind of build out, you know, what market making and liquidity provision looks like on top of this. One thing I think that the community needs to build out, and David's going to get to this question, is, like, liquidity for some of these positions because they're NFTs. They've moved from ERC20s to NFTs, and we'll get to that in a minute. But before we do, Hayden, just like one, I guess, downstream effect of sort of unlimited curves is that rather than everyone is sharing the same dumb strategy as an LP might today, this is really going to professional. commercialize liquidity providers in that you have to be armed with the best strategy if you're

Starting point is 01:36:00 actually going to make money at this liquidity game. What are the implications or downstream effects of that? Some people have said, well, you know, one negative effect is possibly this no longer democratizes providing liquidity to the protocol because the experts and the pros and the like they'll do all of the all of the work here. Any thoughts on that? Yeah, I have so many thoughts on this. wrote some notes about it. I'm going to try to get through everything because there's like a lot to unpack here. And I think that, you know, just like some high level points would be that like, first off, like, you know, if you're democratizing by forcing people to provide liquidity with suboptimal strategies, that's like not a long-term winning method of like, like that's not an efficient

Starting point is 01:36:46 marketplace. That's not something that will win in the long run is, oh, well, we're going to force everyone to use inefficient strategies because that's the only fair thing we can do. do. Like that doesn't make sense and it doesn't work. I will say though, like despite the kind of recent narratives that have come out of V3, I think a lot of that comes out of, you know, complexity and how early on it is, sort of similar to how I mentioned, you know, V1 was received. In the very long run, and I can kind of back out from some of this stuff, but in the very long run, I'm incredibly, incredibly excited and optimistic and bullish for passive liquidity provision. And, you know, broadening the user base of who provides liquidity.

Starting point is 01:37:28 I think that, you know, if you look at, like, there's sort of this analogy that we like to talk about by we. I mean, probably a lot of it's me and Dan Robinson, but, you know, other, yeah, and kind of other people on the team is, like, you know, if you can kind of compare, like, passive investing strategies to active investing strategies in the history of them, which is like, you know, if you went back, you know, 50 years and he said, oh, in the long run, like, active money managers are going to get out-competed by,

Starting point is 01:37:57 by, like, you know, retail clubs who invest a small amount and everything, you'd think that they were crazy. But what you saw with index funds is that in the long run, you know, very few active money managers, like, out-compete these sort of, like, you know, kind of broad indexes that, you know, most people have their money parked in, where everyone kind of investing a little bit in everything somehow is, like, for the vast majority of wealth, it's like how investing works. And I think that we have some like very long-term views on this happening with liquidity provision,

Starting point is 01:38:31 which is that like, you know, rather than, you know, you're sort of like over time, like, complexity in market making often comes from sort of, especially for like very volatile assets. And very sort of like very volatile, like the most popular kind of like short-term. of assets, especially volatile assets. That's where, like, it becomes very difficult for passive market makers to compete. For very low volatility assets, like stable coins and, you know, or in the traditional world, you can imagine, like, fiat, like, euro to USD, that sort of thing. Like, there, the passive strategies are going to be just, like, simple enough that I think

Starting point is 01:39:10 passive will out-compete active by having, like, lower margins to participating. And, you know, what we really expect to see over the long I kind of talked about Unisop being like a forward-looking protocol. Over the long one, we kind of anticipate crypto becoming less volatile. If it's successful, it will realize its value. Right, right now it's all this potential that we see. But over time, it will realize its value. And a lot of things will become a lot less volatile. We're not expecting these like 30% single day movements on like the biggest assets in the world. Like if Ethereum is the biggest asset in the world in the future, we're not expecting it to move 30% in the day. Right. And, and, like, and the biggest assets in the world,

Starting point is 01:39:51 So it's worth noting that these things will become less volatile over time. And as they become less volatile, passive dominance becomes a lot more feasible and possible and likely. I think that there's kind of a few other points, which is, you know, as I mentioned, like, active ALPs kind of do best on volatile and, like, very popular assets. And that's because, you know, active LPs, right, they have high overhead. is sort of a cost to kind of adding on new strategies, and they don't want to take writ, and it's not worth basically them participating

Starting point is 01:40:26 in the sort of long tail of markets. And to kind of go back to that sort of user-generated content, YouTube-type analogy, you know, there's no way, Uniswap has had 35,000 pairs deployed to Uniswap V2. And like, how, like, just to like, like, how many trading pairs do, you know, professional market makers,

Starting point is 01:40:47 are they actually going to basically, want to hold inventory in and provide liquidity on. And so there might always be this like room for, you know, active LPs to come in. And there might always be an area where they do dominate, which is like sort of the subset of assets where it's very profitable for them. The subset of assets, they're still very volatile and hard to do optimal strategies. But it's even, it's, it's also worth noting that that's not automatically a bad thing.

Starting point is 01:41:13 if active LPs are coming in and offering better prices, if active LPs are coming in and offering better prices on more risky assets, that means traders are getting better rates on more risky assets. And so, you know, the fact that like active LPs can kind of come in and better serve traders in more volatile markets, like I don't know if that should be viewed as a purely bad thing. I think it's viewed as a bad thing in part because there's sort of this fear that there won't be a place. for passive liquidity provision. But I guess what I'm trying to say here is that, like,

Starting point is 01:41:48 on low volatility markets, which we're expecting to be more dominant over time in crypto, as well as on the long tail, passive is going to dominate on all of that. And I expect that to be far greater value than the sort of subset of volatile, but very popular assets. And we'll see. And the fact that active comes in there,

Starting point is 01:42:05 I don't think should be seen as a purely bad thing. I have a few more things to say. I know I've been talking about this for a long time. As mentioned, I took notes. this one. Yeah. So, Hayden, let's zoom out a little bit and talk about some specifics. So with Uniswap v3, we have this maximally expressive AMM curve versus Uniswap V1 and

Starting point is 01:42:25 V2, which was a fixed, locked, rigid price curve. And with all, you know, engineering, there's tradeoffs, right? So now that we've unlocked expressivity and uniqueness in strategies for LPing in Uniswap, what that does is that makes the LP positions for these Uniswap LPs non-fungeable, right? one strategy is not the same as another strategy. So no longer do we have the ERC 20 LP tokens, which have historically been extremely awesome as collateral inside of applications because of how they are fungible. But now they are fractured into NFTs, and each one is different, which means that we've kind of lost this ability to use these NFTs as homogenous collateral

Starting point is 01:43:07 in DFI. But we've also lost the ability for lazy liquidity providing, which is one of the things that was really touted as one of uniswops v1s and v2's best features. It's like, well, it democratizes access to LPN. But kind of what the throughline here is what we're saying is that it's only democratizing access to LPN because it's actually really inefficient. And it just forces everyone into this really inefficient strategy. And so moving forward into the future, I see a world where these market makers are competing with various strategies. And these strategies are instantiated in the NFT strategies. And rather than being individuals competing to generate the right strategy and therefore the most optimal NFT-LP position,

Starting point is 01:43:50 perhaps this is actually better served by other protocols on Ethereum. Perhaps something like a yearn vault or other, like when we've seen a set protocol do robo-trading and other social trading where people will compete on their strategies. How do you, do you see this, the demand, and there's immense demand for lazy L-P, right? Just here's my capital, generate yield, generate as much yield as possible. Do you see the application layer of Ethereum coming to facilitate this need of a recombining fractured liquidity in NFTs and also providing lazy liquidity solutions? Yeah, so absolutely. And just to like step, you know, to back up a second. So,

Starting point is 01:44:33 well, maybe don't need to back up that far. First off, something that always gave us a huge amount of comfort building Uniswap V3 when it came to this topic is that Uniswap V2 is a subset of Uniswap V3. You can take the Uniswap V2 strategy in V3 very easily, and then you can very easily make that fungible if you want. It's worth noting that, of course, then you are competing with more active people who are concentrating their liquidity and maybe earning higher returns closer to the market price, but it's also worth noting that Uniswap V2 LPs were always eventually going to compete. with more efficient liquidity provision.

Starting point is 01:45:14 And to be honest, I would rather, it will still be better to take the V2 strategy in V3 than to keep your liquidity in V2 because once V3 starts offering better prices because it has sort of more concentrated liquidity, it might not be worth the aggregation cost of trading across V2 and V3 simultaneously, versus if you take the V2 strategy in V3,

Starting point is 01:45:42 you're actually kind of getting a free aggregation with all the trading through V3. And so like you were always going to be competing with V3 if you're still going to be competing with V3 if you stay in B2, but in a way where the aggregation has an additional cost to aggregating you. And so V3 is offering better prices already,

Starting point is 01:45:59 you're getting no volume instead of, you know, some percentage of volume while taking on the same sort of price risk either way. So there's sort of just like this subnote of like, I've kind of seen various people talk about how, oh, maybe we'll stay in V2. But really, you know, as V3 is a subset of V3, there's almost no reason to ever do that. In general, though, you know, as you mentioned, there's just no way, right, to kind of treat all liquidity as identical when not all liquidity is doing the same thing. So there is no way to preserve, like, fungibility across all liquidity in a pool.

Starting point is 01:46:39 Some interesting things though, however, is you do still have a measure of who is providing liquidity, where their liquidity exists, whether or not it's currently in range. And so one thing that, you know, fungible liquidity is used for that maybe people are worried might not be possible is something like liquidity mining, where you're like kind of evenly paying out, you know, some new token to existing LPs on a pair, sort of prorata proportional to their contribution. What's interesting to note is that it is entirely possible to create an NFT position manager where someone can deposit an NFT and basically the way that liquidity is tracked, we have enough sort of data to create a liquidity mining system where you can back out how much liquidity, like, you know, how much any individual liquidity provider provided liquidity and like over a period of time and for like how long, like you can basically back out whether or not someone's liquidity was in range.

Starting point is 01:47:33 So you can essentially do liquidity mining across all LPs, even if they have non-fungible positions, in a sort of fair, equal way. But I think that what gets sort of maybe another sort of aspect. So the liquidity mining thing is already kind of possible and doesn't really need to be rethought or made fungible to do it that way. But I think that the other things that David's talking about, which is like, you know, using liquidity as collateral, or even just maybe there's two things. One is using liquidity as collateral, and the other thing is basically just, you know, no-thought liquidity provision.

Starting point is 01:48:13 How do I provide liquidity and not think at all about what I'm doing? There's sort of a few things. One, there's a huge amount of room for teams to come in, and we've already seen an outpouring of interest from various teams across the space to come in and design these strategies of kind of different expressive ways to provide liquidity. And, you know, those include urine, but there's also sort of a whole range of other projects that are thinking about it.

Starting point is 01:48:38 And there's some notes, which are, one note is basically, you know, no thought liquidity provision might be more suited towards less volatile pairs. And so to some extent, you know, it's possible that some of these more risky pairs will see, like, less people doing sort of no thought liquidity provision. But at the same time, you know, it's possible that people are, there are people who are down to think about it and other people just want to, you know, trust someone else to think about it for them, or trust a series of people to think about for them. And that's where you have this kind of, you know, vault-style U-X, where it's definitely

Starting point is 01:49:10 possible to have sophisticated parties managing liquidity and managing strat, like sort of long-term strategies and, you know, other people just adopting them. And so I think that we see like a huge, a very large amount of room for that. One way we're thinking about the UX of V3, you know, we're kind of doing interface work on it right now, we have this kind of initial interface, which is basically just fully expressive, which basically gives you full access to every feature in V3. And that's kind of like the starting place that you build everything else on, which is like, it needs to be possible to, you know, provide liquidity within a bounded range

Starting point is 01:49:47 for a given fee tier, you know, all that stuff. And then, you know, the next step is basically, okay, well, what if people kind of want to sort of, maybe some people want to manage it themselves, but sort of want to have like sort of preset types of understand, like, I'm more bullish on this token. I'm more at risk-averse to that token. It's possibly, you don't need necessarily a vault U-X to kind of express that sort of opinion of, I think, if you think ETH is going to go up over the next year, you can tweak your sort of, you know, we're thinking about them, we're kind of considering them almost like templates, but almost designed, like, pre-built strategies, which aren't managed on chain or

Starting point is 01:50:26 automated, but instead you basically, like, preset sort of how you provide equity, and maybe you update it once a year or once every three months. It kind of depends on like their time prize that you're thinking on. And it sort of expresses your opinions a little bit better. And then the final step is these sort of more managed active ones, which are kind of continuously keeping more liquidity closer to the market price, maybe earning higher fees, taking on a higher risk for sure. And so there's kind of a world for all these different things. And, you know, we want to kind of contribute to that. But we also think that there's like so much room, you know, all the, the whole world of like, oh, we're going to build these competing AMMs. I think that that whole

Starting point is 01:51:05 world should now be like, oh, we should be able competing AMM strategies, but just we don't need to build the AMM. We can just build the strategies. So yeah, I think that, you know, I'm incredibly excited for what's going to be built on top of it and, you know, how the community will come together to kind of solve these problems. Hey, now, I really want to quickly touch this subject before we, we move on to the future of Uniswap, but there are three fee tiers, three specific fee tiers in Uniswap v3. Why just three specific ones and not a spectrum? We ran the whole gamut on this one. We explored every possible option. Maybe to just like make sure everyone, like people listening, understand why one or the other

Starting point is 01:51:47 and what this sort of tradeoff space is. While we have gotten to the point where we, you know, Well, Uniswapv3 solves this problem of, I want to sell more tokens closer to this price or to that price. When it doesn't solve, and sort of still like pro rata splits out, like, you know, it still kind of lets you kind of earn fees pro rata proportional to the amount of liquidity you're contributing in a given range as opposed to, you know, just underline capital. But you still, you can't disproportionately reward some LPs over others. All LPs still, there still needs to be like a common shared fee relative to the amount of risk you're taking on. And what that fee should be, kind of similar to like, you know, the sort of fundamental problem. Like there's no necessarily, there's no single right answer to it, right? It's basically based on the sort of risk tolerance.

Starting point is 01:52:38 It's based on the sort of, you know, volatility of the asset. On the flip side, you know, something that's so incredible about Uniswold v3 is it solves, as I kind of mentioned earlier, it solves this like aggregation problem where people can take on unique strategies and they're all perfectly aggregated together. So, you know, the balancer v1 approach was essentially we're going to, you know, I'll let anyone deploy a pair with any fee. But our concern about that approach is essentially that it leads to too much liquidity fragmentation. Sort of having a fee level that if there's an aggregation cost to having a fee level at, you know, 0.3% and also at 0.32% and also at 0.35%. Like, there's sort of this inefficiency from that, this aggregation inefficiency.

Starting point is 01:53:22 in. So what we really wanted is to encourage liquidity to kind of congregate at sort of distinct levels where the aggregation cost outweighs the kind of sort of marginal difference between sort of minor, like being somewhere in the middle. So, you know, we basically set it to, we set three initial fee tiers kind of designed for, you know, the 0.3% of Uniswap fee two, I think has worked far better than people could have possibly imagined. You know, that was one of the things people said Unuspot would never work is because it only had a 0.3% fee tier. But what you see is it's currently doing a billion dollars of trading, has $5 billion of liquidity, and it actually works pretty nicely for a huge amount of assets. And so

Starting point is 01:54:04 the way we're thinking about it is like we want liquidity to kind of aggregate at specific levels that makes most sense on a per pair basis. And so the 0.05% fee tier is like this like like like like kind of assets. We're basically expecting all of them to go in there. 0.3% is kind of this like un-swap V2, like catch them all. Generic, right? Generic.

Starting point is 01:54:25 And, you know, then this 1% is maybe for these sort of more niche youth cases, super high risk, super sort of short term, like things that are only around for a short amount of time so you need more fees. There's sort of this like high risk fee tier or higher volatility. And it's possible we need more in the long term. And this is something that actually

Starting point is 01:54:42 Uniswap governance will be able to add on additional fee tiers. But what we don't want, like, you know, we could have added, say, a 0.2% fee tier. But our sort of current guess is that like the kind of inefficiency of having a 0.2 and a 0.3, that of aggregate and across that will outweigh the benefits of having this sort of slightly more expressiveness.

Starting point is 01:55:05 And so that's kind of where the fee tier kind of come into play is. It's sort of this general tradeoff space. So before we leave V3, we got to talk about oracles. And I was curious you referenced oracles in the context of of V2 and you were saying how, you know, Dan Robinson, you guys were talking about how they kind of work, but they're not optimized. But to me, I was always wondering if oracles in Uniswap were almost like a byproduct, like a public good, right? The Uniswap protocol itself provides liquidity, it provides, you know, trading. Oracles are just kind of a byproduct or an afterthought,

Starting point is 01:55:41 a public good for the ecosystem. Is that how you view them and how are oracles changing in V3? So maybe this really high-level point that I don't see talk about nearly enough is that, you know, the sort of current thought on how, like the kind of current approach to oracles. I don't know if I should say projects by name, I might, you know, but the kind of way that these sort of, like, the way that a lot of people think about Oracle is basically bringing off-chain data on-chain. And when it comes to the price of decentralized, like, when it comes to like centralized assets, that makes a hundred percent sense. When it comes to bridging real world assets and centralized things to the decentralized world, that makes sense. But if we create a world where 99.9% of all trading happens on chain, on decentralized platforms, then why do we need these sort of bridge things that bridge data from a centralized world to a decentralized one when the trading itself, the trading activity actually already happens on chain?

Starting point is 01:56:46 And so for assets that have their training happen on chain, you know, there's no reason for people to be like bridging that data or interpreting, like you basically can just directly check the data yourself. And so in doing so, you're not adding on any additional trust assumptions. There's definitely like various like, you know, what is the cost of attacking this considerations, but you're not adding in these sort of new outside like dynamics to it. You can basically create sort of self-contained, fully on-chain, sort of, there are orgals where you don't need to really think about, you know, these sort of, yeah, kind of who's reporting the prices, or if there's sort of some, like, you know, mechanism around that, it's more like, oh, the smart contracts can just natively check the prices

Starting point is 01:57:33 and what prices they were trading it on-chain. And in a world where un-swap is the primary market for an asset, there's no real reason to be bridging data from finance or whatever. part of my question at the lead-off was whether uniswap views oracles as a public good or is it fundamental to the protocol itself right right right right so i think that i've used it as a fundamental to like sort of a fundamental part of being of of any sort of you know trading protocol or any sort of exchange is providing price discovery and having that be useful externally right like the way that you know sort of oracle aggregation products work is, you know, they're taking prices from off-chain exchanges, they're putting

Starting point is 01:58:15 them on-chain essentially. You know, and so part of providing, you know, providing trading is also providing price discovery. And so I think that, yeah, it is basically this, like, public good for the rest of the community. But in a way that really benefits UNISWOP as well, because it enables all these things to be built up around it. And so we do view Oracle's as incredibly important to UNISWOP because, you know, if it enables

Starting point is 01:58:36 more things to be built on it, more decentralized, more trustless things to be built on that sort of drives more value back to the network ultimately in the long run. So it's kind of like a network effects thing. It's kind of like aiding the community and building more products. You can even think about like all these Algo stable coins. They all use uniswap T-wops because they're sort of, not all of them, that's probably, but most vast majority of them kind of came out of being able to have on-chain price. It's definitely on-chain Oracle that is censorship-resistant and trustless. It's definitely like a core primitive that Defi needs. to run on top of, but what's different about the oracles in V3 versus V2?

Starting point is 01:59:15 Yeah, basically the difference about Oracle's in V3 versus V2 is that they're massively easier to use and to integrate and they expose a lot more data at any given moment. I think that this was actually, I listened to your kind of breakdown of V3, and I think that this is maybe the one area you guys got a little bit wrong, was like, you know. That's generous because we felt like we got more than one wrong. Doing okay. But basically, you know, we kind of came up with this in v2, this model where you sort of basically have this stored price accumulator where you check the value at one moment. And if you check at some other moment in the future, you can get like a perfect average across that period of time.

Starting point is 01:59:54 And that's sort of the starting point for Uniswap V3. Uniswap V3 has that as well. And so you can already, you could check one moment, you can check a year later, you can check two years later and get a perfect one year or two year average. You can also check 10 minutes later, get a perfect 10 minute average. However, there was this kind of constraint with V2, which is that you need to check at the exact moment that you need to average across. And so if you want a one hour average in Uniswap v2, you have to check at one moment, at the start of that hour, not just any hour. You have to start at the start of the hour to get the checkpoint. You have to check again at the end of that hour, and you average across that.

Starting point is 02:00:28 Uniswap V3 oracles basically stores this kind of array of historical data points. how we did that while decreasing the net gas cost to traders is sort of the magic of it and what made it possible but now it basically stores up to nine days of historical data where you don't need as long as you're checking a average within the last nine days you don't need to be online at the exact moment you don't need to have a previous checkpoint which is very expensive by the way

Starting point is 02:01:00 the checkpoint you check it again you average It requires multiple transactions. You have to store that data. Here, you can check at one moment, and you could say, what is the average over the last hour without having a prior data point? Or you could say, you know, what was an average starting, you know, if it's on Tuesday, you could say, what was the average from Sunday at 1 p.m. to Sunday at 3 p.m. And you can get that on-chain in that moment without any prior data in a very gas-efficient manner.

Starting point is 02:01:26 And so it basically just opens up this world of much higher sophistication, much easier, to build much easier to integrate kind of oracle-based projects on Ethereum. And also very much in align with the increased expressivity that we are finding in V3. And I expect the infrastructure around Uniswap V3 LP to really get adopted quickly. And perhaps maybe these oracles are a little bit further down the line in adoption. But like you said, ultimately, we are going to live in a bankless world and we won't need external price references to understand the values of our assets, because we'll just be able to get that from Uniswap. The last thing about Uniswap v3 that I want to touch on is the software license.

Starting point is 02:02:06 Can you explain the rationale behind the software license, Hayden? Yeah, definitely. I think that, you know, one kind of starting point is basically that, you know, our team is very, like, we're massive believers in open source software. We're huge fans of it. I mean, we built, you know, everything that we've built up to this date has been sort of basically under GPL, right? the reason that sort of all these kind of folks exist is because of how kind of committed we've been to open source software. I think that something else that we're very committed to is like the uniswop community and to the Ethereum community.

Starting point is 02:02:47 And that I think, you know, one kind of observation is that I don't, we're not fully convinced that kind of the sort of early days of the internet views on free open source software software. where, like, how that kind of evolved fully, like, anticipated how decentralized finance, like the world of decentralized finance that we exist into today. And I think that, like, you know, some of what is possible now wasn't possible then. And some of how value is built now is not how value is built then. And so I think that that's like a very kind of important framing for this, which is basically, you know, in the long run, we think that the world should exist. on sort of open source rails, open source infrastructure.

Starting point is 02:03:35 And the license of Uniswob v3 is essentially a time-delayed, you know, GPL license. So in, you know, in two years or sooner, it will be GPL, right? There's no way for anyone to increase it past two years. Part of it was that we wanted, you know, the Uniswap community, which is kind of ultimately sort of responsible for the Uniswop protocol, moving forward to have a say in this process. Does Uniswap protocol want Binance forking V3 day one

Starting point is 02:04:04 and pouring all their money into that fork? But I'm not convinced that that's what's desired by the Uniswap community. And so, you know, we kind of gave the, you know, governance has this ability to accelerate the license if it wants or to provide exemptions if it wants through these sort of on-chain governance votes. And ultimately it will be GPL.

Starting point is 02:04:26 But I think that, you know, giving the community time to kind of digest V-FETs, to start building on top of V3 without worrying about like finance forking from day one is maybe something that is desired by the community. I have to say that we were a little bit unsure how it would be viewed. I think that our team that kind of stands by the, you know, as massive open source fans, you know, our team was basically unanimous in this decision and how to kind of license this code.

Starting point is 02:04:54 And, you know, I think that overall we did have some, you know, we were a little bit unsure how it would be received by the community, But I have to say, from what I've seen, you know, it's received a fairly positive response. And I've probably had much more people reach out to me and say that they're happy with the license than how people reach out and say that they're unhappy. And I've had people that other projects reach out and say that they've been thinking about the same things and that they've been, you know, and that they're considering using it for their project. And I think it's just worth noting that, like, how early defy is and how these networks will ultimately evolve. still being figured out. And, you know, I think that we've never been like a project that like afraid to try to push the boundaries and innovate and build in new ways. And so I think that

Starting point is 02:05:40 that's kind of how we see what we're doing here. So Hayden, maybe this dovetails with the last question. So this is a time delayed license, right? And you mentioned Binance smart contract chain. And we're also referencing, I think the through line for this entire episode is also Ethereum values, right? Trustlessness, permissionlessness, decentralization. Many of these are also bankless values that aren't instantiated on other chains, in other locations. Let's talk about optimism, right? So maybe this also goes back to the moral of the story, as David was saying, which is if your friend Carl gives you advice, you take that advice. Carl's, you know, on the optimism team, among many others, but this is an Ethereum optimistic roll-up, which bankless list.

Starting point is 02:06:28 will be familiar with that technology. We've had Fetallic describe it before and others. And what was interesting about Uniswop v3 is you didn't try a shotgun-type approach. So we've seen Sushi Swap, for instance, where are they going to deploy sushi swap? They're going to deploy everywhere and let the market pick kind of who wins. Uniswap has decided to go with one specific solution, at least so far, and that is optimism and optimistic roll-ups. Can you talk about why? And like maybe there's a values discussion here. Maybe there's an engineering.

Starting point is 02:07:03 I'm not sure what the discussion is, but why? Yeah. I think that there is a values thing here. It's like it's not hard to scale Ethereum if you don't care about the values of Ethereum. You just sacrifice decentralization. You do it every time and you've scaled Ethereum every time. And so, you know, what's really hard is scaling Ethereum or like scaling Ethereum without sacrificing what matters. which is decentralization, censorship resistance, permissionless, trustless, all these things.

Starting point is 02:07:33 And doing that is hard. And it takes time and it requires focus. And this sort of shotgun approach of like, oh, I'm going to deploy anywhere. And it's like, I'm not, I mean, I don't know. You know, we're still kind of like, we're kind of very, like, we don't see any benefit to deploying, you know, on a more centralized version of Ethereum. because that doesn't really add to what Uniswap is. And it doesn't extend what Uniswap is capable of doing. It kind of sacrifices what Uniswap is capable of doing

Starting point is 02:08:03 to kind of make it able to support a higher volume or something. And so I think that what we're really excited about optimistic roll-ups and exploring with optimism is, you know, how do we scale Ethereum as Ethereum is today? You know, how do we kind of allow for more participants, more, you know, lower fees, higher throughput while retaining the security of Ethereum, while keeping the permissionless nature of it. And that's a long, hard project, right?

Starting point is 02:08:34 No one has done that yet. No one has scale. I mean, they have. There's very scaling solutions, but no one has scaled defy yet. Can I ask you a question on this, Hayden, because this is an important question to me. Do you think users care? Right? So I care.

Starting point is 02:08:49 The bankless community cares. Decentralization matters. trustlessness matters. But the counter argument to all of that that's been put to us is that at the end of the day, Hayden, users just want to trade. They'll go with the liquidity is they don't care about trustlessness and permissionlessness and decentralization, the way you're talking about it, and the way we talk about it at bank list. Will users care about this? I think that users don't care until they have to care. Users don't care until that shit goes down. Users don't care until like, you know, users don't care until, you know, their transaction is reverted or their funds are locked, right?

Starting point is 02:09:26 Users don't care until right up until the moment that they're like, you know, force the care, and by then it's too late. And so the important thing to note is that, like, you know, yeah, there might, you know, we've always known that more centralized systems will continue to have a very broad user base until decentralized systems are able to scale better. And so it doesn't bother me that Binance chain exists and gets volume, you know, I don't see any difference between Binance and Binance chain and the exchange applications on Binance chain.

Starting point is 02:10:02 Like, Pancake Swap doesn't seem any different from Binance to me, right? It's like the same people running the same server. Like, you know what I mean? Like, yeah, people don't care and people do go to Binance, and that's fine because right now it costs a lot of money to make a trade on Uniswap.

Starting point is 02:10:17 And we don't want that, and we're going to do the work to scale, Uniswap or and the community will do the work with us and the community will also but but the point is that you know and optimism will do the work but the point is that you know unless we're able to scale what matters which is the decentralization it nothing else like there's nothing else that then like nothing else really matters like I don't my goal for Uniswap is not to be the highest volume centralized exchange in the world my goal for Uniswap is to be a decentralized trading platform and and to stay that way.

Starting point is 02:10:50 And so, you know, there is kind of this, you know, the one other aspect of the fragmentation versus like using one solution to start with. It's kind of just like a focus thing, which is like we've always taken the approach of doing one thing the best way possible rather than trying to do everything at once. And so, you know, what is kind of,

Starting point is 02:11:10 I think negatively, like we've always like, you know, Uniswap is still, we're still using us times, like we're still just pushing the boundaries and the envelope on this sort of one very simple idea that started with Unswap V1. one. And nothing has really changed in the kind of vision. Nothing's really changed in the kind of goals or what it does is just getting better. And the goal is to kind of continue on that approach and

Starting point is 02:11:31 get the best version of this thing. And deploying it in 50 different places to me feels like saying, oh, we've kind of finished with what this thing is and now we're just going to try to put it everywhere. But there's no point in putting it on 50 different chains if we can, like, if none of them is better than like the best. like if there's no best version of it. Like we want to create this sort of actual best L2 experience for Uniswop v3. And putting it on 50 bits of different places won't do that, I don't think. Like being able to kind of concentrate and focus and build one thing properly

Starting point is 02:12:04 seems like the right approach. And it's a hard, long, difficult task, but it's entirely doable. And we're quite excited for it. My personal answer for this is that it's easier to make people kids. about Ethereum's values if we build the technology that helps facilitate it. And I see that being built with Uniswap. I see that being built with optimism. All of a sudden, it's not hard to scale Ethereum's values because of these applications that are being built. Hayden, optimism isn't that far away. Could you perhaps tell a user story of what it's like to trade, what you think it may be like

Starting point is 02:12:43 to trade on Unitswap when Uniswap is deployed on optimism and available to everyone? Yeah, I mean, I think that, you know, I think that first off, it's worth noting that the general roadmap for optimistic roll-ups is, like, to progressively scale in a way that aligns very nicely with the Ethereum roadmap. And so, you know, it can scale maybe 10x, maybe 100x, whatever it is over with just on each one as it is today. But sort of as sharding comes out, that has like a multiplicative effect on optimistic roll-ups. And so, you know, it's worth noting that like it's not going to be like an overnight day one complete like first off it will be like a massive order magnitude improvement overnight but it's not going to be like the end all beyond there will be like a steady process of improvement and an iteration moving forward the probably the biggest difference from the start on optimist your optimist you're going to have like instant transaction confirmations where you sort of have this kind of economic guarantee your transaction will be included in a block or someone will lose a lot of money somewhere basically the the person kind of the sequence

Starting point is 02:13:48 answer essentially. So basically being able to, you know, right now there's sort of this really negative UX of I submit a transaction. It might take 30 seconds. It might take two minutes. It might take five minutes or maybe I'm a user who didn't set the gas properly and it's going to take, you know, it's never going to ever execute. Right. And so having this ability to have like an instant, like you click it and then immediately you kind of have this ability to, you know, immediately know whether or not your transaction is going to be included, especially for like smaller value transactions. Maybe if you're sending a million, like, you know, $20 million or something, you're going to want to wait for that to be posted to

Starting point is 02:14:22 ETHL1 and a few blocks. Like, you know, there's always this kind of, you know, it's the same way that on Ethereum Layer 1, if you send a billion dollars, you're not going to be like satisfied after one block. You're going to be satisfied after X amount of blocks. And so there's still that kind of aspect of it. But for people doing sort of smaller trades, you're going to have this like really awesome UX of just instant transaction confirmation, which is going to be really awesome. And then, you know, we're definitely expecting massive reductions in fees.

Starting point is 02:14:48 Although we're also expecting a massive increase in usage to the point where it's not going to be like, if we can do 10 times more transactions, it's not going to be a tenth of the gas cost because we're probably going to have, you know, a lot more trading that goes along with that. And it's going to make maybe even smaller arbitrages more profitable and people are going to be doing much smaller trades. There will be a lot more activity. But definitely, like, lower gas costs, instant confirmations are the two probably biggest. And then over time, that will continue to get scaled up with, you know, the broader Ethereum scaling roadmap. I think it's going to be an exciting few months. And what's interesting to note is how successful Uniswap has been on Ethereum Mainnet in spite of some of these UX challenges. And, you know, wondering as it enters this new landscape where there can be even more successful elsewhere. Last thing on all of this, Uniswap now has a larger treasury than the Ethereum Foundation.

Starting point is 02:15:44 if you sort of aggregate all the uny tokens and the value of that. And the, you know, uni governance sort of governs over all of that right now. You were talking about values of decentralization and trustlessness. Hayden, do you see Uniswap and the governors of this treasury as being sort of stewards for decentralization in a similar way that the EF has been a steward for decentralization? We've heard Vitalik and the EF talk about these values. we're hearing Uniswap talk about these values. Do you accept that mantle or that role in any way? Yeah, I mean, I'd say that not me personally,

Starting point is 02:16:23 but I'd say that in general, right, that the goal for this governing system is to kind of continue on with the sort of values of Ethereum and the values of decentralization. You know, what we don't want to see, right, is, you know, all the treasury funds going to, like, early whales who provide the most liquidity in the first year of its existence, right?

Starting point is 02:16:43 We're trying to think about this, like, what should this look like, two years, three years, five years, like, we always try to be forward looking, right? We're not trying to compete against Uniswap. We're competing against, like, the future. And we're preparing and, and, and so the, or in terms of like how, you know, Uniswap sort of, or at least how I see, you know, Uniswap's role. And so, you know, definitely what's been really exciting from the Treasury, right, is the only, you know, the only thing that the Treasury has done so far is, is, is, you know, fund developers and community members building value and growing the ecosystem, right? The sort of main thing that is Passifar is this grants committee, which is now funded, I think, like 25, 26 different community projects and hackathons and developers. And I think that that's sort of an early look

Starting point is 02:17:32 at what I personally hope is to come. I mean, in part, we're gonna just see, it's sort of up to the community on how it wants to evolve over time. And we might see things happen that I've never anticipated, But what would excite me the most is to see that the Treasury go towards kind of bringing value to the ecosystem, to growing the ecosystem, to building out value that sort of benefits everyone, right? To help kind of build this more fair, more decentralized financial system that we're kind of all, you know, in the Ethereum community rooting for. That's kind of what I view as the goal of governance.

Starting point is 02:18:10 And so that might be why it kind of seems to function a little bit differently from, you know, other projects, which maybe focus more on like short-term user acquisition, you know, more like, you know, just, yeah, anyway. Hayden, as we come to the close of this conversation, and again, thank you for coming on to the bankless podcast and giving us your time. I want to zoom out and kind of just touch on the moral of the story that we've been dancing around for this entire podcast. Uniswap seems to be just a beloved application of both like deep Ethereum researchers, crypto economic tinkers, developers, but also just the broader community and users of Ethereum. And even by the outside world, the people who don't yet understand crypto and Ethereum, but they've heard of Uniswap and they think it's cool. To you, what are the reasons as to why Uniswap has found itself to be in such a beloved position

Starting point is 02:19:06 by such a wide swath of community members? Yeah, so I think that there's a few things that go into that. I think that a big part of it is what we've been talking about, about the values that it sort of espouses and adheres to. In some ways, I was talking about, like, early on, I always kind of, you know, it was always about, can we make this follow in the footsteps of Ethereum, espouses the same values as Ethereum,

Starting point is 02:19:30 and sort of lead by example for applications built on top of Ethereum. So, like, by staying true to that, I think that has allowed it to become much more popular within the Ethereum community. I think that sort of the other maybe thing that people really like about Uniswap is what it enables them to do. It kind of unlocks the same way that I was able to build Uniswap, now other people can build all these things on top of it. I wouldn't be able to do what I did without all the massive work that Vitalik did and all the people at the Theorem Foundation and Carl did. And what Uniswap now does is it enables other people who want to build this decentralized financial system to then build now they can contribute. And they kind of have this other Lego, you know, the whole money Lego's narrative that I'm a big fan of.

Starting point is 02:20:19 It enables more people to kind of build on top of Uniswap and build on top of Ethereum and build new exciting things. And so I think that, you know, adults of all ages love Legos and people of all ages love Legos. And I think that people love, you know, the kind of vision that it's working towards. And so personally, that's kind of what I see as what has kind of led to its, you know, popularity and success from a like a social and community standpoint. And extending that outwards, not just about Uniswap, but about Ethereum at large, what do you think the lasting legacy of Ethereum will be upon our world? Yeah, I mean, I don't think that they're that, I think that we have a vision for it.

Starting point is 02:20:59 But I think it's really important to recognize that there's a difference. between, like, realizing a vision is really difficult, and it's a long, arduous task that can't be done overnight, and it shouldn't be taken for granted as a guaranteed outcome. And so I think that my hope, or sorry, my hope for Ethereum is that it leads to a fair, no, better financial system that empowers more people to participate, to, you know, helps redistribute wealth

Starting point is 02:21:29 to more people, like, you know, my hope is it leads a better or fair world. What I think is a little bit scary to me at times is that people kind of take that for granted as like a, oh, if Ethereum succeeds, no matter what, the world will be better. And I think what they mean is like, no matter what, I'll be richer. And I think that that's like a very different thing. And there is this aspect of the Ethereum community that I do worry about, which is the part of it that doesn't have, doesn't sort of adhere to the values.

Starting point is 02:21:58 it doesn't like aren't into it for the values the values behind it and i think that it's just it's really important that you know the people building it kind of stay true to them and continue to like promote them uh because you know i don't know what the legacy of ethereum will be i know what i want it to be and and i think that we all have to fight to make that happen well said sir uh we're happy to join you in that fight certainly on the on the social layer um last question for you Hayden, this may be a fun question. Uniswap has passed so many cool milestones. We talked about maybe the biggest so far,

Starting point is 02:22:34 which is exceeding the total trading volume of Coinbase. The next milestone, maybe, is an order of magnitude higher. Something like exceeding the total trading volume of the S&P or the NASDAQ. When do you think that happens if it does it all? I don't know, two years. It's hard to, you know, every time I predict two years that happened. I don't know really two years. But it could be, you know, there is something insane about how, you know, like if you just look at how many assets, like how many new tokens are created every day.

Starting point is 02:23:06 You know, there's about the same amount of tokens created for day as like are added in like several years to some of these kind of legacy financial like, you know, trading platforms. And so, yeah, there is kind of a, you know, I do see a world where that is like a really interesting milestone where, you know, I think it kind of depends on, you know, crypto growing and math. adoption of deep like if there is mass adoption of Ethereum and decentralized finance and I expect there to be like I definitely have a very strong conviction that you know decentralized finance will see mass usage and mass adoption as it scales and as the ux improves which it's doing and it will take time to get there but once that happens once there is mass adoption I don't I think that this the ceiling on what defi can do is far greater than the ceiling on what centralized like traditional

Starting point is 02:23:54 finance can do right like you know if the the milestone might be a thousand X what you know what traditional finance can do because of how much more can be done so yeah I think that the sky is the limit but I don't know that the you know it's hard sometimes to predict

Starting point is 02:24:12 you usually when I predict it happens faster but then you know you also don't want to predict and be wrong and have it be too soon but I see this stuff exploding over the next few years for sure and definitely order of magnitude increase in users. Absolutely well we share that optimism. Hayden Adams, this has been well worth the wait, sir. Thank you so much for coming on

Starting point is 02:24:32 bankless and long live the unicorn. Thank you. Really appreciate you having me on and maybe next time it won't take two years. I'm going to go. Absolutely. We'll do this again soon. Guys, resources for you, some action items. Go read the Uniswop birthday blog. That was a post put out by Hayden Adams that goes through the timeline. We used some of that information to compile the timeline for this episode. Also, read the Uniswap v3 announcement. Those action items will be in the show notes. As always, guys, risks and disclaimers, ETH is risky, trading on Uniswap is risky, all of crypto is risky, so is Defi. You could lose what you put in, and that includes if you are a liquidity provider, but we are headed west. This is the frontier. It's not for everyone,

Starting point is 02:25:16 but we're glad you're with us on the bankless journey. Thanks a lot.

Bankless - 59 - Uniswap | Hayden Adams

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