Bankless - SotN #42: Ethereum Devs Building DeFi | Preston Van Loon and Will Villanueva

Episode Date: April 14, 2021

Both Preston Van Loon of Cryptex and Will Willanueva of Element Finance have helped build the Ethereum Protocol, but are now both working on DeFi apps. In this State of the Nation, we dive into what it's like for Ethereum Devs building DeFi. State of the Nations are Livestreamed on Tuesdays at 11am PST. ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge  ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini  🦊 METAMASK | DEFI PASSPORT https://bankless.cc/metamask  🦄 UNISWAP | DECENTRALIZED EXCHANGE http://bankless.cc/uniswap  🔀 KWENTA | SYNTHETIC ASSET EXCHANGE https://bankless.cc/kwenta  ------ State of the Nation #42: Ethereum Devs Building DeFi Guests: Preston Van Loon & Will Villanueva Tremendous work has been (and is still being) done to develop Ethereum 2, and just as much innovation is happening in Ethereum's app layer, DeFi. In this week's State of the Nation, we bring on guys who have done both: Preston Van Loon and Will Villanueva. Preston Van Loon is a former Google software engineer who switched to crypto full-time after Vitalik put 1000 ETH into Prysmatic Labs, which Preston founded. Prysmatic labs is now the most popular ETH 2 client. Preston is also the co-founder of a brand new DeFi app ‘Cryptex’, which is a collateralized synthetic asset that tracks the total market cap of all crypto-assets. Will Villanueva is a former team member of the Quilt team at Consensys and contributed to a mountain of R&D on Ethereum sharding. Will is now the CEO of Element, which offers high yield fixed income for DeFi assets. Element works by breaking a single token into two different ones; a yield-bearing token, and a principle token. We brought both Will and Preston because their unique work histories of first helping build the Ethereum Protocol and now building DeFi apps. We discuss how their experiences have shaped their current projects, the trajectory of Ethereum and its app layer, and the timing of it all. "The Hardest Problems Draw the Smartest People." - Preston Van Loon ------ Resources: Cryptex: https://cryptex.finance/  Element Finance: https://element.fi/  Preston on Twitter: https://twitter.com/preston_vanloon?s=20  Will on Twitter: https://twitter.com/wjvill?s=20  ------ This Week on Bankless: ⚒️ How to Use dYdX (4/13: https://newsletter.banklesshq.com/p/how-to-trade-on-the-dydx-rollup  📈 Market Monday (4/12): https://newsletter.banklesshq.com/p/coinbase-week-market-monday  🎙️Podcast w/ Hester Peirce (4/12): https://shows.banklesshq.com/p/-the-sec-and-defi-hester-peirce  🧢 Weekly Action Recap (4/10): https://newsletter.banklesshq.com/p/the-coinbase-tsunami-weekly-recap  🗞️ Weekly Rollup (4/9): https://shows.banklesshq.com/p/-rollup-coinbase-ipo-fei-protocol 🏴 dYdX & StarkWare (4/6): https://shows.banklesshq.com/p/sotn-41-scaling-defi-with-dydx-and  ⚒️ How to Crypto Tax (4/6): https://newsletter.banklesshq.com/p/how-to-do-crypto-taxes-for-the-lazy  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to another State of the Nation episode. I'm Ryan Sean Adams. I'm here with David Hoffman. This is an episode where we, this is a show rather, where we talk about what's going on in crypto. We zoom in on one item. We relate it to some of the big picture stuff. We discussed in the podcast and in the newsletter. We try to drop some insights and action items to you as well. This is streaming live right now on YouTube. This also comes out on the podcast. David, how are you doing today? Oh, absolutely fantastic. It's Coinbase Week. It's all-time high day. It's building day. There's so much to talk about, which is why we actually have two guests today on today's state of the nation. because... What are we talking about then today? Yeah, yeah. So some interesting projects have come out with a slightly different flavor to them, I would say.

They're really cool projects in of themselves, but it's also the people behind these projects that I think is also uniquely interesting. We have people who have been in the actual Ethereum protocol, building the Ethereum protocol, Preston Van Loon and Will Villanova. Hopefully I got that pronunciation right. I forgot to ask him ahead of the show. Preston Banlun has been with the Prismatic team building out ETH II, and Will has been doing R&D with Phase 2, the sharding aspect of Ethereum 2 in his pass as well. And so the through line here is that we have Ethereum builders turning into app builders. And that is a unique story that we have not yet seen coming out of the Ethereum ecosystem. Yeah, I think that also gives them a unique perspective to David on both the protocol layer on Ethereum and also the app layer.

And you know what, David, I won't be able to help myself. I'm definitely going to ask some ETH2 questions at the very end of this. Because I just want to, like, we're five months into ETH2 staking launch. What's happening next? What do they think, how they think it's gone, timeline, that sort of thing. So we'll try to fit that in at the end. David, what is new in the bankless community? We've got to talk about bankless badge week that starts next week.

So next Monday, let's see, Monday the April 19th. What is bankless badge week? What are we doing? I thought it was bankless multiple badge weeks. I thought, I thought there's, yeah. So we're going to be giving. It's a badge week that lasts two weeks. How's that?

Badge weeks, yeah. So we've been hammering this out in previous episodes. And so we finally figured out the raffle giveaway agenda. First week is all about BAPs. All about BAPs. People are getting their, people with the bankless badge are going to be getting baps. And that's what these are. And so there are only six baps left, which means only six more people will ever get the shirt that you can, you are seeing Ryan wear right now.

And so that's pretty cool. And then that is week one. And week two will be announced soon. Yeah, we too. The rumor is it the the raffle weeks is going to rain raffles for the next two weeks starting on the 19th. The rumor is the last day of the raffle. We will be raffling off one eath, sir. wonder what the price of one-eath will be at that point. Could it be 2000? Could it be 10,000? We don't know, but one-eth is one-eth, and that's what we'll be raffling. And for those of you don't know, the way to get a badge is you can become a bankless subscriber, get a badge. But we're doing this raffle, really, because we want a lot of the people who have subscribed already

and have a badge link somewhere in their email to go back through, make sure you claim your badge so you can participate in these raffles. We want everyone who is a full bankless subscriber who already has a badge link to go claim their badge. That's what Badge Week is all about, so go do that. This is what you're seeing on the screen if you're viewing this in video is how you enter the raffles when they come in.

This is a Grid Plus raffle that we did previously. You just connect your wallet to it. It has to have a Poet badge in it. It could be on X-Dye, could be on Ethereum Mainnet, and then you're entered in the raffle and it randomly picks a winner every single day is how we're going to be doing this. So super exciting that that is happening soon. Yeah.

So just to reiterate, if you are already a bankless subscriber, you can go get your badge right now. You got to peruse through your history of your email inbox. So go claim your badge. And then future raffles, if you want access to future raffles, you can go and become a paid subscriber to bankless. And then you will get your badge on the first of the month. Yep. May 1st is when we made.

those. If you're looking for an email specifically, search for Lucas at banklesshq.com. He's going to hate me. But that's where the email is coming from. It's all coming from Lucas. He is the master of minting, the master of coin, maybe I should say it, bankless. All right. What else we have? Hester Perce, commissioner, crypto mom, turns out she's also defy mom. We had her on the podcast episode release on Monday. That was just a fantastic episode. Everyone should go listen to that to figure out how regulators, at least the good ones, how they think about crypto and more importantly, how they think about defy specifically. Any takeaways you want to mention from that episode, David? Yeah, the biggest complaint, I think, out of the crypto space is the lack of clarity that

the SEC has provided our industry. And I think that's something that Hester Purse is on a mission to help solve. And I feel like that's why she's coming on to shows like ours to help explain her thoughts and her thinking about how things could be and what she hopes to have as a regulatory relationship with our industry. So that was my big takeaways is Hester's trying to make things really clear. The other takeaway I have is that she loves the bankless podcast, which is that. That was awesome. Not only Hester, but apparently the SEC, members of the SEC listen to bankless podcast on a regular basis, which I'm not sure if I should be excited or terrified, but I'm more excited, especially after that conversation with Hester.

The last thing I'll say about this is it feels like 2021 could be a time for a blank slate in crypto. Gary Gensler is the SEC commissioner. He's coming aboard as part of the new administration. So there really does seem to be a push to get some things right, provides some that clarity you were talking about, David. All right, I've got to start with the question. I ask you at the front of every state of the nation. episode, David. What is the state of the nation today, sir? The state of the nation, this is a good one, pioneering. We are pioneering. So in multiple different fronts and always, always state of the

nations are always in, mean multiple things in multiple different ways. I can't believe we haven't used this one before. Pioneering. There's a decent chance that we have. Okay, well, if we did, it's one of the early ones. Yeah, so we are pioneering into the world of the NASDAQ today or this week. And so coin is getting listed on the NASAC tomorrow. Is that why some of the crazy price action is happening right now? Is that why ether is currently breaking through all-time highs? All right. What's coin for people down now? Oh, coin is the ticker symbol for Coinbase, which is going to be listed publicly. So that is going to happen tomorrow. That's going to cause a bunch of news. The bankless opinion, we put this out on the market Monday piece yesterday,

is that no matter what the valuation is on day one, coin pumps. Price go up. Price go up. It's just perhaps the new meme stock. That's my predictive statement about the future, not financial advice. But we are not only pioneering into the NASDAQ, but we are also pioneering with new defy apps. And this is what we are going to get Preston and Will on to talk about shortly,

is that element, which is Will's project, is pioneering into the world of splitting one token into two, the principal and the yield. And then Preston's project is pioneering into the synthetic asset world of producing T-CAP, which is the total crypto market cap. So new Defy apps, building on top of other Defy apps and also allowing other Defy apps to build on them, pioneering new surface area in Defy. Guys, you will not want to miss this upcoming brilliant conversation with these two fantastic ETH2 developers who are also now developing DFI protocols.

But before we get to the conversation, we want to tell you about the sponsors that made this state of the nation episode possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in 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 Uniswap ecosystem is the Uniswap Grants program is now accepting applications for grants.

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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. If you're going Bankless, you need Metamask, period. Browser and Mobile, get them both. This is your tool to unlock the world of Defi. Here's my favorite part. Now you can swap tokens directly in Metamask with a single swing. This has got to be the easiest way to trade Ethereum tokens. Choose a token you own, a token to exchange it with, get your quotes.

If you like what you see, you hit swap. That's it. What makes swap so useful is what happens behind the scenes. It compares dexes, aggregators, and market makers to find you the best price with the lowest network fees and the least slippage. This means you can swap a wider range of tokens, and swaps can even automatically split up your trade to give you access to better liquidity. You don't even have to think about it. Try it out. Download Metamask for desktop or mobile now at metamask.io and start swapping. All right, Bankless Nation. We are here with Preston Van Loon and Will Villanova.

Guys, welcome to the show. Thanks so much for coming on. Yeah, thanks for having us. Yeah, glad to be here. I'm going to do my best at your guys' bios, and then I'm going to hand it off to you to help fill the gaps. But Preston, you are the founder at Prismatic Labs, which is perhaps the most downloaded ETH2 clients. I think it has the most ETH stake in it.

So congratulations to that. And Preston's been working on Ethereum ever since he was full time at Google and then started working just on Ethereum on the side out of passion. And then I believe what happened is Vitalik Yolo to 1000Eath in. to the Prismatic Treasury and that's what really enabled you guys to go full-time, full-time at Prismatic. And then Will, you were part of the Quill team at Consensus doing R&D on the sharding side of things. So specifically phase two. And now you are working as the CEO of Element Finance, which is what we're about to get into. So Preston, let's start with you, give you a chance to correct any errors in the in the bio that I might

have just made and also expand on it as well. Now that was pretty close. So yeah, I was working full-time at Google and I was working on ads and ads are not very globally impactful, at least positive to most people. I mean, they help people find products and whatnot, but it's not what I was interested in. And I found Ethereum at the tail end of 2017, kind of when ICOs were getting big and crypto kitties and all this kind of stuff in seeing like, wow, you know, Ethereum has a lot of potential use cases, but it's super kind of maxing out right now kind of slow. So I wanted to, to get involved with the protocol error with E2. So at the beginning of 2018, I ran into Raoul Jordan online.

And he and I started Prismatic Labs with Terence and Nishant. We're the four founding members of Prismatic. And we just kind of bootle it through all of 2018. We got some grants during that year. But I think it was the YOLO grant that really signaled the confidence of the EF and of the community that if we, all quit our nice jobs that we're going to be okay. Like we're not going to, I mean, none of us had any ether at the time.

Like, we were just kind of interested. So it was a big risk, but it really paid off. I mean, we have an amazing community and, and it's been really good. But I still have this passion for like, how do I further increase my impact? And so we started Cryptex finance as a moonlight project to, prismatic. So I've been working full-time as prismatic, but on the side working on Cryptex trying to build a new financial product for, mostly for retail investors. Like if you talk to normal people, they know Bitcoin and they might know Ethereum, but they don't really

know how to invest in everything. They know there's a lot of cryptocurrencies, but they don't really know how do we get into the whole market. So that's kind of what we're trying to solve with Cryptex and T-CAP. Awesome. And yeah, we are going to get into the details of each of your guys' projects in just a sec. But Will, maybe you need to explain a little bit about yourself and your background as well? Yeah, for sure. So somewhere to Preston, actually.

I was also in the ad space and, you know, saw that it wasn't, you know, moving towards the greater good. And then on the tail end of 2017, you know, hopped into the space. I'd been following it for a while and built the Bounties Network at the time. I built that from the ground up. We did some of the contracts that Gitcoin uses as well, so we were pretty close to the Gitcoin team. And then sort of after that, I was making a decision whether to,

I kind of had two routes that I was going to go. I was very, very passionate about the bargaining defy space. And at the time, you know, I had a friendship with Fernando, who, you know, is the CEO, a balancer. and actually almost joined Balancers, the CTO there, but ended up instead, you know, at the time Joe Lubin had, you know, asked if, you know, I could dive into some of the research on ETH2, you know, help look into some of the areas. And so I ended up doing that and, you know, I was really excited about that, helping scale things, diving in a bit deeper, working

working closely with the ETH 2 research team and, you know, a lot of, a lot of bright minds there. So I did that, did that for a while. You know, we did a lot of, you know, research and development on, you know, what do shards look like in the future? How do we generalize them? How do we bring WASM onto them? You know, how do we make it so, you know, ETH2 in the long term can serve many different types of blockchains and many different structures that can grow on that? And so we explored a lot there, which is really solid and then also ended up working on some research on ETH1 and actually, you know, put forward in EIP 2938 on account abstraction, which brought some of the research we had done on ETH2 into sort of the stateless world and some of the generalization we want to bring into ETH1. And we, you know, put together a implementation in the Goetherian, client and did a bunch of simulations on that and saw how that could, you know, improve some of the

execution currently on Ethereum as well. And that was part of, you know, all of that was a part of a team quilt that I had started and had grown to just, you know, work and further develop and research things in the space. And so quilt is still moving forward strongly. And about six months ago, I had been really excited about some of the developments in the DFI space, kind of going back to some of my roots and almost joining and building Balancer a few years ago, kind of re-centered around that. And so that's what has brought me here with Element. And yeah. Very cool. Very cool. So like we alluded to at the beginning, the reason why we have both of you guys on here is that you guys are both building cool new DFI apps

with a unique perspective of coming from the Ethereum side of things. And so that's where we want to end up with the conversation is like, how has your guys' experience building Ethereum translated into skills building defy apps? And then also, why have specifically you guys chosen to build on the app layer now instead of a year ago or perhaps a year from now? Like, why now? And then also perhaps some conversations about what surprised you about the trajectory of

Ethereum, both at the protocol layer and at the app layer. But first, we want to start with the actual details of your guys' projects. And so Will's project, Element, got announced first. So we're going to start with Elements. And so Will, can you kind of give us the bird's eye view, bird's eye pitch of Element? And then we can go in from there. Yeah, definitely. So the Element Protocol, basically, you know, for the casual user or average user,

they can come to the protocol and they can purchase Bitcoin, ETH, Dye, or USDC, and they get it at a discount. And essentially that can be translated into securing a fixed rate of income on that purchase. So if you're looking at 10% fixed rate APR on ETH and you're looking at over a year period, then you can secure 11Eth that can be redeemed a year. year from now. And so we make that process really simple. We make it really, really easy. And we let those users, you know, in reality, avoid a lot of the issues around variable APR, gas issues, having to manage their funds, which is really cool. On the, as far as like how, how it works behind the scenes, we essentially take positions that, you know, current defy users are

already staking in, specifically in YERN. And we split that into two new tokens. So we're able to represent the yield that's gained in one token and then the principal. And essentially for users who are already staking, they're given further avenues of revenue. So they can go ahead and take those two tokens. They can provide liquidity on an AMM and they can actually get, you know, higher APII off that. But also what it allows them to do is it is it allows them essentially to sell their principle and give them a bit more capital efficiency. They can sell their principal and they can gain more liquidity to get exposure to more and more interest. And essentially when they're selling their principle, they're selling their principle as a fixed rate of income. And so that's

for the casual user. Basically, it's subsidized by these more active users who are actively using their funds and selling their principal as fixed rate income. So it's sort of like the circle of the two sides of the market and how they benefit each other. So, Will, can we talk about, like, fixed rate income just in general? Like, so in the old world, how does fixed rate income work? Are these like, I go to my bank account, and I know the interest rates are crappy, I know you're going to tell me that, but, like, I go to my bank account, I have some money, and I go and I buy CDs, right?

Are, like, CDs in a bank account? Are these fixed rate income? Maybe you can talk about what this is in this? the in the old world and how this translates into crypto. Yeah, typically when you look at a CD or you look at a savings account that you're evaluating, you're given a rate that is fixed. And so, you know, it's, for example, on a savings account right now, I think the best that you can find is maybe, you know, half a percent APII, which is, you know, nothing in comparison

to what we're seeing in the, in the defy space right now. So people on Defi on variable API positions are seen anywhere from, you know, 10 to 50%. It can even be, you know, higher in some cases. And so essentially, you know, for the users in the traditional finance space who, you know, sort of are accustomed to at least being told like this is what we can guarantee and this is what you'll get, you know, the element protocol offers the same thing. But those rates are going to be, you know, significantly higher than what you see in traditional finance. And the other thing that you could sort of compare, you know, deeply when you look at the traditional finance space is also this is somewhat akin to a whole space of, you know, zero coupon bonds.

This is where you, you know, you essentially get an asset at a discount, but you basically commit to it being locked until a final date. And because that asset is locked, that's essentially what introduces that discount. You have an opportunity lost. Instead of using those funds, depositing and getting API, you know, the fact that it's locked means you can't do that. And for the opportunity cost, that's why it's sold essentially, you know, at a discount. So this is like a CD for crypto assets, basically, and specifically, like the crypto monetary assets, which we'd call like Bitcoin, ETH, and USDC. So if I'm bullish on ETH and I want it to generate yield, I can park it into this, this, into your system, basically into element. And then I have to

hold it there for a period of time, right? And then at the end of that period of time, I've received my yield. Is this kind of how it works? Or am I paid the yield continuously as time goes by? Yeah, so the way it works is essentially, technically, yes. So you sort of go and you bring your eth, you trade your eth for the locked, eth essentially, and that may be locked, let's say, for three months, six months, but you get it at a discount that then gets redeemed for a larger amount at the end of that period. However, sort of what's really innovative, you know, about what we're doing is, we've put a lot of effort and research into making sure that market is liquid.

And so what that means we're actually doing a custom trading curve where a launch partner with Balancer V2 as well. So we actually built a invariant. It's the constant power something to vary an iteration some of the work that yield space has done. And so we were, you know, launching that and it's you know been audited on Balancer V2. And so it enables liquidity for these assets. And so what that means is even though technically, you know, you have three months that, you know, you have to be locked into this or six months, you can actually exit at any time. So you could go through, let's say you're on a six-month term, you could go through halfway at the three-month mark and decide that you, you know, you actually want liquidity again. And then at that point, you can, you can sell it, you know, with this with this custom curve.

and then you'll have gained the interest along the way as well. This is not something you can do in like traditional consumer level CDs that you might get in your bank account, right? They're really locked in. I've never seen a way to like, you know, trade these on the secondary market. Yeah. Yeah, no, that's correct. And that's what's so cool about this is we sort of, you know, and this is this is what I love about the defy space. it sort of opens up all these new avenues of innovation and all these new primitives that,

you know, I think a lot of them haven't even been explored fully in the traditional finance world. And just due to the nature of AMMs, the fact that, you know, like in Balancer v2, you can write custom trading curves, which is really, really cool. I have a lot of good things to say about Balancer V2, so a huge shout out to them. But it just opens up so many cool things. And so something that, you know, you would have originally thought you would have been locked in exactly. You now have liquidity around being able to exit any time. And so there's no real commitment toward that locking period, which is, which is beautiful.

So, Will, I'm interested in, so if I'm bullish on a particular asset, this allows me to express my bullishness by committing to a lockup period. And then because I'm committing to that lockup period, I get to access that asset that I'm bullish. on added discount. And if I'm bullish on an asset, what would I like more other than the asset that I want offered to me at a discounted rate? And of course, the measure, the magnitude of that discount is probably correlative to how much yield is that asset can bear. But the cool thing about finance is that this separates, it allows two groups of people to separate from each other, people who want to purchase an asset at a discount. And that is, and that's one half of element, go into details on the other half. Is there some other half of this equation where people

are getting extra yield on this? Where's the other half of this equation fall in? Yeah, yeah. So this is what's really cool. And this is what I, you know, I love about, you know, about the product in general is we've done a lot of research and ideation and shared a lot of what these like market effects, you know, will be or what we think they'll be. And so we're sort of letting the market pushed this forward. And so what our general hypothesis is, and we write about this a lot, and we've, you know, dove into it, is essentially for the other side. We're talking more of the sophisticated defy user, right? These are the defy users that are depositing into a urine vault and maybe shifting their assets over time, taking bets on different positions. And, you know,

it might not just be urine. It might be, you know, a number of different protocols that they're jumping into. And so what we do is they sort of fuel the market. And so we say that, you know, it's the sophisticated users who are subsidizing the discounts of the casual user and the casual users subsidizing the strategies of the sophisticated user. And so if I'm, you know, the sophisticated defy user and I am depositing into, let's say, the yearn ST-Eath-Val. And the ST-Eth Vault is, you know, basically investing in the ETH2 staking position, right? And so let's say I'm investing in that anyways. Then with the element protocol, what I can essentially do is I'm still investing in that position,

but I get a little extra. So I now kind of split, I split that position that I'm in into the principal and the interest. And so this lets me do a number of cool things. One, I could stake both those tokens and get a bunch of extra trading fees and we've simulated that. You could boost your API significantly creating this market. But additionally, it gives me other ways of escape, right? So I, for example, if I want to shift funds around but I still want to keep exposure to interest, I can sell my principal.

I have new liquidity. I still have exposure to that interest on that position. and now I can use that liquidity to put into any other position in the space. And so, however, we've dove into this concept called yield token compounding. And so this is the idea where you sell your liquidity, your principal. And in general, variable rate will always be higher or should always be higher than fixed rate, sort of how markets generally work. And so I can go ahead, because there's that split, I can go ahead and I can sell my principal.

And I'm getting a higher rate of interest on the variable interest that I'm betting on. And so when I sell my principal, I'm selling that at less of a discount. And I get that liquidity, and then I can redeposit into that position. And I can basically increase my exposure to the interest. And I can do this multiple times. So I redeposit, I collect these yield tokens. I'm getting more and more exposure to the interest. I sell the principal, get liquidity again, redeposit, sell the principle, get liquidity

again. It's recursive, right? Yeah, it's recursive. And I can do this like 10 times, do this more, and essentially it's another way of leverage. So I could have started off with 10 eith, and assuming the variable position is going for 20%, and fixed rate is going for 10%. You know, I can essentially get exposure to 63th worth of interest. interest. Yeah, yeah. And if you're doing this with, you know, there's really other cool things,

like if you're doing this with flash loans, as an example, you don't even have to put through the full capital. And this is where you can essentially get, you know, 10x leverage on these, on these positions and on the interest by, you know, sort of selling your principal and doubling down on the yield and your exposure to the yield. So, Will, we talk about money Lego so often on, on bankless because that's kind of a great mental analogy for what we're actually building here, right? So I'm gonna ask the question of like, you mentioned some other money Legos.

What money Legos does element build on top of? Like you mentioned Yern, is that kind of a strategy piece? Are there other pieces involved? And then a follow, like a second question of that is this seems to be built on money Legos, but is its own money Lego? It's kind of a new D5 primitive. So any thoughts on what could be built on time?

top of it. Let's first take the first question of what money Legos needed to be here for you to build element. Yeah, so Yerne is a huge one. And then, right, Yerne is built on the number of Legos too. So if you look at like what sort of, you know, turns the defy world around, a lot of that is, you know, curved behind the scenes. And so a lot of, you know, the API and interest that urine is getting. comes from curve. And specifically also, for example, the ETH position where we're likely supporting within EARN is also into STE, which in general is a ETH2 staking protocol, a tokenized ETH2 staking protocol.

And so yeah, there's all these Legos and it sort of depends on the vault. Certain vaults have different dependencies. And so we'll kind of finalize, which faults we're going to support out the gate right before I launched. But yeah, those would be some of the core pieces. So guys, the yield is coming from places like EF2 staking. That is a source of yield.

Another source of yield is curve. And that's an exchange platform for stable coins that also has a token, which is kind of like an equity token, if you will, a capital asset that rewards users. And then urine, YERN, Wi-Fi. We've had Wi-Fi on the podcast previously. That acts as kind of like a strategy layer where all these automated like money robots

optimized for the best strategy. And that's what you're using under the covers here. Now that you have this new money Lego element, essentially, what cool things do you think can be built on top of it? Yeah, there's a lot actually that we're super excited about. And we're actually really excited for ideation from the community. You know, we're going to be a community first protocol,

and we want the community really, really run it. But in general, so there are a few things. I'll mention some of the ones that I'm really excited about. So just first of all, introducing fixed rate to the market that has liquidity around it is a beautiful thing in and of itself. And so there's a lot of directions that that can be taken into. One thing that I'm particularly excited about is this concept called yield, yield ladders. And so essentially what this is is you can get an AMM that essentially gives you exposure on a basically continuous rolling basis to categories of yield essentially.

And so, for example, you could have these yield tokens, and you could have categories. that are like ETH-2 or validator positions, right? They might be like ETH-2 or layer-two or tokenized validator positions. And because we have these lockups and these times, you can essentially buy exposure to that whole category as a whole and it sort of averages out the interest as it goes along. You can do the same thing with the principal tokens

and the fixed rate interest as well, where you could get exposure to the highest rate, you know, fixed rate interest and you don't have to worry about lockup periods. You don't have to worry about redemptions. You sort of have this pool that is sort of always buying new fixed rate tokens and then selling the ones as they come to maturity and sort of automates that process. So you basically get this like this consistent exposure and you don't you don't have to worry about too much. And so there's that. A number of the other things I'm particularly interested is using these principal tokens as collateral for lending is really fascinating as well.

And so this sort of like, if you think about it, you know, you can take out loans for ETH, you know, by staking locked ETH, essentially. And this opens up a whole new market around or a strong market around borrowing ETH and borrowing Bitcoin. And that market hasn't really taken off. And this protocol in essence creates that demand, which is fascinating. And so we'd really like to see in the coming months a strong demand for borrowing Bitcoin and borrowing eighth through the protocol.

Well, guys, if you want to get more into Element, there is a massive, an awesome, awesome documentation at Element.5. One thing I've learned about Will is that his documentation skills are excellent. And so if you want to learn more, you can check out that. But let's go ahead and turn to Preston and Cryptex. Cryptex is a new synthetic asset protocol, specifically going after total crypto market cap. Preston, you want to explain Cryptex to us? Yeah, absolutely.

So Cryptex is, it's an open organization. So we've kind of built this for the community to be run by the community. But the basic, well, the first token that's been created is a synthetic asset that's backed by different types of collateral, where it has over collateralized the value to create T-CAP. So you can be ensured that Cryptex or the Cryptex org is not, you know, they're not just printing money. they're actually backing it by something. It kind of borrows from the CDP idea from MakerDAO, so the collateralized debt position. And with this, we're able to use an Oracle price feed where T-CAP can always be redeemed for the true price,

which we just saw about $210.10. And this value is really the total market cap of all cryptocurrencies traded. on major exchanges. And that's currently $2.2 trillion, which is crazy. I mean, when we started thinking about this idea, it was about $30 for T-CAP. And I wish we could have launched it two years ago and given this product out then, and it could have been, you know, something where you're getting huge gains on. But the potential here is huge because it doesn't stop just at T-CAP. with the same kind of model, we can really apply to any kind of oricalized data using the same CDP model that we have. What's the collateral in this case, Preston?

Yeah, at the moment, we have ETH backed collateral. So it's very similar to MakerDAO where you have a vault, deposit the collateral, and then you can draw out a certain amount of T-CAP. So we have ETH as one and then Dye is the other one. And then, of course, it's pretty flexible. so any ERC20 could be a vault if it's accepted by the protocol. So the potential for other types of tokens or backing vaults is open once the, you know, the Dow's fully operational. So here's a quick lesson for new bankless listeners is that dye is actually just a synthetic asset and it's priced by an Oracle.

And so what Cryptex seems to be is exactly what Preston said, a pretty similar system as MakerDAO. And so, but instead of collateralizing just collateralizing all the collateral that MakerDA lets you collateralize, you put in ether or dye, and then you mint this new token. And this new token is priced by a price feed from ChainLink. And this price feed comes in at the total crypto market cap. And so this is something that the market has always wanted because no one's really been able to produce something that tracks the total value of the entire crypto industry, at least all of our crypto assets, except that's what this is going after. And so Preston, where does a chain link

get the price feed for T-CAP? Where does all of that information come from? Yeah, so there are five data sources they get it from. I'm going to try to name as many of them as I can. But it's things like coin market cap uh shoot i'm not going to be able to name coin gecko i know is one yep coin gecko things like that i mean it's it's if it's a currency tracked on one of these major sides or major exchanges even then it's eligible for uh consideration in the total total market capitalization so there's a little bit of vetting there at least at least that's the intention is that i can't go create uh my own like uh stable coin and give it an insane market, a $5 trillion market cap. It's not going to influence T-CAP because it

has to have some credibility to it. So with the data sources that are coming through chain link, there is the vetting process for those. This is kind of, this kind of goes back to a recipe that that we talk about so often, David, which is like on bank lists, which is like you take, you take a money, Lego, store a value, which in this case is Ethan Die, and then plus an Oracle, a price feed Oracle, and you can create basically any synthetic that you want. So we have store value, money Legos, Oracle, Money Lego, and then on the other side of that, you get any synthetic. In this case, you're creating a synthetic and index for the total market cap of crypto. And if I'm just a casual user, then Preston, right, I don't have to know the mechanics necessarily

of how this works, although I might want to understand them to understand what the dependencies are what I'm really trusting in the system. But I can just buy T-CAP as an ERC-20, and then I have exposure to the entire crypto index. And I don't have to make a bet on whether Bitcoin or Eath is going higher in a certain day or whether, you know, finance is having its pump, its temporary pump or not. I don't have to make any of those bets.

I just get the entire market, right? Yeah, that's right. I mean, you'll get exposure to things that are very volatile. So, like, for example, Ripple's been having issues with SEC lawsuit. So they were sued. The price dropped significantly. Then the lawsuit is making progress, so the price goes back up. I would probably never invest in Ripple, but to have some exposure to good news is excellent.

And I think that this is something that a lot of retail investors who don't even want to take the time to understand how those types of protocols work, They just see that this type of innovations that are out in cryptocurrency world have value and could be going up in value as it gains more mainstream adoption. Of course, they could pick the big contenders like Bitcoin and Ethan. You probably should do that. I mean, not financial advice, but for all the other things, T-CAP can solve that problem of what should I invest in. Maybe I should invest in everything. So Preston, what are the parameters for producing? T-CAP. I know at Genesis, when MakerDAO first launched, you needed to lock up 150% of ether,

and then you could mint up to a certain amount of dye. Could you go into the details of the parameters around the system? Yeah, sure. So the minimum collateralization is 200%, so we need double the collateral. The user interface will recommend to you that you should do 250% just as like a safe maximum. And this value can be, lowered at a later date. It does seem a little bit high, but in order to get the product out there and to stabilize it and to move quickly and to keep it safe, we aim for a higher than 150% model. And then we can, of course, revisit it if we use some analysis and say, well, 200% is too high. We could do it with 100%, especially since some of the vaults really move in tandem with the

price of T-CAP. So, Ether, for example, doesn't move much compared to T-CAP, but Dye might move a lot more compared to T-Cap because it's pegged to the dollar and not really moving a lot. So maybe at a later date, some vaults have a higher collateralization ratio than others, but we started at 200% just to be safe. Right. And this is uniquely different from MakerDAO where the Ether collateral is it's the collateral against a stable asset, but this is not printing a stable asset. This is supposed to have an asset that ideally goes up in price. And so having die as the collateral for something that owes, where you owe something that could go up and owe twice as much

in the future, that could get into some hairy circumstances. Yep. Yeah. So you can think of it as kind of opposite of the Maker-Dow model where if I put in Heath and draw and draw out die I'm kind of probably going to buy more eth so I'm long on on that well with short die long short die long the collateral yes so in this model it could be the opposite if you're short on the whole market I mean we're at the we're in a bull market bull market's on last forever maybe you're going to be one of the people who can pick the top and say I'm going to draw

out a bunch of T-CAP and sell it for a dye with my died-back vault and then go back and pay back later when it's a lot cheaper. I mean, that's one opportunity for vault owners. The other one is that keeping the price in the secondary market stable. So the Oracle and Cryptex core contracts have no control over what it trades on Uniswop or Sushi swap or anything like that. But we do have a place where you can redeem this. token for its true price based on the Oracle. So if T-CAP is treated too high, you can mint some

T-CAP and then sell it on the secondary market. Once it stabilizes, buy it again, pay back your debt. And then same with the opposite. If it's trading too low, it's a good time to buy and pay back your debt at a discount. So the opportunity here to me is that not only could there be T-CAP, but there's also this governance token, which could in theory govern over further. For their synthetic assets, which makes cryptex in the same sort of boat as perhaps synthetics, which is a synthetic asset platform. What would you say it would be the long-term vision of cryptex? Are you guys just going to pump out a bunch of synthetic assets? Like, what's the deal? Possibly. I mean, we have a lot of ideas for new innovations that we, that aren't out there.

And our founder, Josico, is more of a finance guy, a Wall Street guy. And he kind of interaction, with a lot of type of the retail investors and users of this type of protocol. So he really understands what they want. And we have a few ideas we want to work on. It's pretty interesting to me being as a developer, not much of a finance person, to hear some of the crazy things that people might want to almost, it's almost kind of like gambling, I guess, in the market, but there are some synthetic products that come up with that are specific to the cryptocurrency. world that just don't exist yet. So we have a lot of interesting ideas and potential future synthetic assets to come out. So I'm trying to get my mind mapped around how to compare

Cryptex versus MakerDAO and synthetics. With MakerDAO, it's very different with the sense that like the price feed, Oracle is not die or is not the dollar, it's T-CAP. And it's also very different from synthetics in the sense that the collateral is not the native token of the system. its other assets between those two differences. Is that basically the main differences between other protocols or is there other aspects that are different that are worth highlighting as well? I'd say so. I'd say that captures it pretty well. Okay. Fantastic. You know what's interesting here is like I've been surprised that Maker Dow actually didn't go down the synthetics route, but they've they've seen pretty laser focused on dye all of this time. So it's cool territory that

you guys are covering. And we say this so often, and David, that any experiment that can be tried on DFI and on Ethereum will be tried. And so this is a new experiment, really excited about what you're building to, Preston. So we want to pause for sponsors, but when we get back, we are going to dive into this trajectory of how you guys have come from kind of an ETH to almost a core developer type of role, core researcher type of rule, to move to the app layer. We're going to talk about all of that when we get back. But we want to thank our sponsors for making this episode possible.

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slash go bankless. All right, bankless nation, we are back with Will and Preston in the second half of this show, where we are going to go into topics around what it's like to both be working on Ethereum and also in the Ethereum app layer. And so Preston, I want to start with you. You're in the code for ETH2. Like, not only are you working on cryptex, but you are also still highly engaged with Prismatic. And you've been with Prismatic for multiple years now. What's it like to build on both sides of the spectrum? And how has the skills that you've developed with building an Ethereum translated into building in Defi? And perhaps what are the other benefits as well? Do you know, do you have to, have more connections, more people, more knowledge. What's it like to be on both sides of the

protocol on the app layer? Yeah. So with Prismatic Labs, I mean, we're trying to make Ethereum a thing for everyone, right? So make it scale, make it easy to use, make it fast, make it cheap. And part of that is understanding, well, part of, part of visibility, everything, is like, who are your users and what do they do? Right. So that's, our users of Prismatic are, first of all, the stakers of ETH2. And then secondly, people building on the application layer. So over the last three years, I've been studying, you know, DFI protocols and how these things work and how people are thinking about finance and what kind of impact that I

can have personally and that Prismatic can have in general as a core protocol team. And I saw that, you know, there's still these fundamental issues with the protocol there. Like I, being a core protocol developer and not really interacting with the blockchain, you can kind of hear, oh, yeah, gas is high, but you don't really feel it unless you're actually deploying contracts. Like I've interacted with, you know, whatever decks to do some swaps, but it wasn't until last week we deployed T-CAP. and we were paying for these contract deployments, and it was, we spent like three ether to deploy a handful of contracts, and I'm like, this sucks, right? So I see why people are complaining, and it just brings, you know, more motivation to, back to improving the protocol itself. We've also made a lot of friends along the way in the last three years, you know, we have been

pretty lucky that the community supported us and that, you know, we've done a great job that Prismatic team is one of the best teams out there. They've done an amazing job bringing Prism to light and helping ship E2. Of course, we're not the only E2 client provider. There are many out there and they're all excellent. But just, you know, the community has been really great to us. And we've been able to get feet as when building T-CAP, I was able to get feedback from a few slick people, especially to validate the idea.

Like, is it cool? Is it crazy? Will it work? What do you think? so it's been interesting. Which is harder, Preston, building a DFI app or building an ETH2 client? I don't know. They're both terrifying.

You know, there is like $8 billion running through ETH2, something like that. And Prismatic is a very large percentage of that. So that's terrifying to see people committing their money in vaults to Mint T-CAP is also terrifying just because this is something that we built. And if it doesn't work, how it's supposed to work, it's just not going to be great. And that's just something that I never want to happen. Like everything's got to be excellent.

So I think the years with Prismatic have really prepared me for this, is that we have to think about every single type of scenario that could possibly be out there, even ones that are ridiculous that don't really profit the person initiating these. types of attacks but that they would do anyway just for the for the law so just yeah like just speak just to wreck it you know so just to cause chaos so i think that adversarial thinking and more security-minded focus has become you know really it's really valuable to a defy developer and and especially at a protocol layer it's you have to do it right at a protocol layer well what about you your experience uh doing r and d on the uh on the sharding side of things and and working at consensus how

How would you say that that's impacted the development of element? Yeah, so in general, actually, Johnny and I both came from both did it to research. Johnny actually had built the initial Tekku client as well. And, you know, we all went to interop together. You know, it's all pressed in there. I think being Preston, we have some good, you know, some other stories that we can share at some point in the call. But in general, Johnny and I both really take an approach that we like to simulate. We like to be well-researched.

You know, it's really important to us that we dive into mechanism design and understand these are the vulnerabilities. These are sort of the parameters that tweak the system to move in this direction, which can cause some misbalance. And this actually isn't that different than what you need to do in the mechanism design for figuring out how does the shard work, right? You sort of change and tweak this parameter. Then over here, it affects something, right? And so even in building defy applications, you have those same challenges. Some of the other really cool things is we're building an application. while having a really strong understanding of the actual core protocol.

And that means, you know, when we start thinking about things such as, you know, scaling, moving to layer two, other mechanism designs, we have a much, much deeper context and understanding of that. And so that's super helpful as well. And so I would say those would be a few things. And then also just like all the people we've, you know, run into, you know, press and the same as well along the way. So, you know, in general, it's it's been good to, to, you know, both work with, you know, with a lot of people at the protocol layer who have been

very, very thoughtful in what they're doing. And we, you know, in general, have a pretty strong confidence in the future of ETH and where ETH2 is going at this point, having been, you know, involved in that and knowing the teams that are working on that. And so I think, that you know that sort of gives us a really positive trajectory and you know in general we we as we we you know build element protocol and you know we put grants out for the community and different things like that one of the things that we want to support is core protocol development and we want to make you know make a specific effort to do that and we're hoping that you know other other protocols do that as well and that's that's

in general, you know, really important, important to us in the process too, because that's sort of, that's sort of what like gives, makes everything run and everything work. So I wanted to get into the question of why now. And not only are both of you guys working on ETH2 or Will, in your case, it was previously working, researching on ETH2, but with elements, you guys have Danny Ryan as an advisor. And with Cryptex, you guys have many other Ethereum builders on on the team. So it's not just you guys. There's other Ethereum builders involved with both of your guys' projects. And it was interesting to both me and Ryan and why we guys are, why we're having you guys on the show is that these projects came out roughly around the same time,

you know, give or take a couple days of the of the announcement. Why, why now? Why not, why not DeFi Summer or why not a year from now? Like what's, what about the app layer is telling you guys that the Ethereum app player is ready for you guys to start moving in and start building there. And Will, let's start with you. Yeah, yeah, for sure. So, you know, I've been like really excited about defy and what was bargaining and developing there for a while.

And so in general, some of the research we were working on some of the prototypes that we had done was coming to a wrap about six months ago. And that's when I started building element and getting the team together. And about six months ago, I was sort of looking at the space and seeing the sort of explosion of innovation that was happening.

And the Lego piece is really beginning to stack in a way that we hadn't seen previously. And from my perspective, that's that's sort of the time to build, right? You want to put, you know, you want to put more foundational elements, more, you know, key pieces that can be built upon because this is sort of the foundation building period. And so that's, you know, what I saw talked to Johnny about it, and he also was like really excited about this and what was happening. And so we figured this is the right time to jump in.

in and build this. And Preston, same question to you. Yeah, for me, when I was working at Google, I had to put in my 40 hours to keep the lights on, right? And then I would work another 20 to 30, sometimes even more on Prismatic. And then when I left Google, I was just spending all that time on Prismatic doing, you know,

insane hours of weeks, like even, you know, even at socializing events, you might find us on our laptop. Well seen us there, right? At ETH New York, we were on our laptop, right? Oh, so, yeah, yeah. So is this a story? Yeah, no, this is like one of, one of a few of it. Like, yeah, like Preston, Raoul, and Terrence, one of my, like, favorite memories is at all, at all the events, whether it was East New York or some type of barbecue or whatever, you could find these three constantly on their computer. Who are the prismatic team, by the way, for listeners who aren't familiar with those names? Yeah, yeah, they're always constantly on their computer.

And, you know, everyone else is like talking and, you know, socialize. And you kind of, you go up to Terrence or press and you're like, hey, how are you doing? And they give you the time of day. They're, you know, super nice, super friendly. And then you walk away and they're back there, like, hacking, you know, hacking at the computer. It doesn't matter what the event was. I think during that time, that was sort of when some of the infrastructure was still building, and they'd have little like bugs and things to tweak at that time. But yeah, you know, these guys were, you know, 100, 200 percent always, always,

you know, heads down, which I think was really fun to watch. Yeah, we were busy. We were busy for the first couple of years up until it launched. You know, we were working crazy hours. and just as much as we can, like skirting on the edge of burnout. Thankfully, we were all like a good team together and we could communicate, say, hey, I'm not like I need some time. Like, you know, we could share that with each other and kind of build each other up in that way. But then when we two launched, we kind of had a little bit of breathing room, right? We said, wow, it's out there.

We just make, try to like get these micro improvements, get things from making it really nicer, faster. but the crazy sprint was over, at least for Phase Zero. And in all that time, I had been thinking about building on the application layer, specifically with this T-CAP model, but had zero time to do it. It wasn't until after Phase Zero had launched that I actually had a little bit more time to commit. I could still do most of my time with Prismatic and then spend a little bit of time on T-CAP. And now with, you know, the spec of E2 is getting ramped up again in the last couple of months and we're starting to build into the next pieces of E2.

So things are getting a little bit busy again for me and for my team. It was a good time to just take a break, work on something you don't work on your normal role, learn something new. I learned a lot of stuff building on the application layer, which I think that will help me build and the protocol layer because I really understand some of the pain points of what users are facing. I think that's key actually. Like that's that's really, I don't know, I think that makes everyone really comfortable knowing that, you know, you can take the learnings from working on the application layer and, you know, make sure that the research and movement on ETH2 goes forward

well. Well, this is just part of the thing. It's like, I love the fact that you guys worked on, you know, ETH2 kind of core development, client development, and now you're in the app layer because you're like, you know, eating your own dog food. You get to experience what sort of the users and the builders experience around this. And so I love it. And, you know, I'm hugely optimistic about it. However, at the back of my mind, I'm also a little bit worried because Ethereum has classically had sort of almost a public goods problem in that protocol development is funded by, you know, the EF, which is kind of like, you know, Vitalik Yolos. You know, you know, Pras, you know this, because, you know, the way Prism started, Prismatic started.

Were YOLO funded first? That's right. NOLO funded. Geekcoin grants. When's the next check coming? There's not a revenue stream associated with the public good that is the Ethereum protocol. And certainly there's the vestiges of the original ETH Foundation who has a treasury fair. And maybe as Will, you're pointing out there are these other defy protocols who will contribute into the future that now have some decent treasuries. So I'm optimistic about that. And yet, you know, we might start to see a bit of a drain, a bit of a talent drain from the protocol layer to the app layer. Is this is something that worries you? Or do you think that this is good? You know, are you worried in general about the public goods funding problem on the Ethereum core protocol. Maybe we'll start

with you, Preston. Well, slightly worried. I mean, the Ethereum Foundation has been really great to us, continuing grant sustainability and for growth, and those will continue for the foreseeable future. We have no doubt about that. And in terms of talent, I think that the hardest problems draw the smartest people. Whenever we're hiring for Prismatic, we are just flooded with amazing people that we wish we could hire all of them. But there's always this thing in the back of your mind where you're like, it's not sustainable, right? Like the EF will fund us to see E2 to fruition. But after that, what's their obligation to keep us going besides the maintenance parts? So we may have to scale back.

So we're always thinking about with Prismatic Labs, like, how do we reach that sustainability? And so, you know, it's always there a little bit. But I think as far as E2 is concerned, I'm not worried about it at all. What about this? So like the, you said the hardest challenges attract the best talent, right? There's also a financial consideration in this. Like, if you want to get really wealthy in this market and you're a smart contract developer, right? Depending on what you do, the app layer might be the place to do it.

Or heck, like, maybe the best thing to do is to go fork, you know, and create your own ETH killer, right? Now with all of your prismatic experience, is this maybe not a worry for you personally? Because it sounds like Preston you're here for a variety of reasons, right? including like the world you want to see moving forward. But is this a pressure point on the talent pool available to work on Ethereum client development? Are they just attracted to you other financial sources that might exist outside of it? Right, because it's one thing if grants and funding is available,

but I don't think any amount of grants will ever be able to compete with tokens. Like tokens are lucrative. And that is the competition that EF, the EF and other and Gitcoin has. Yeah, absolutely. I mean, with Prismatic, we can offer some some nice salary and like benefits and things and working on a missing team solving hard problems. But there is no 100x opportunity with Prismatic that we don't have a token. We're not a core, we're not a core protocol. So we can't, you know, issue. There's no like pre-mine or anything like that or like anything like that. So if if you're looking for something like, like, that. I mean, it draws different people. Like, yeah, everyone wants to be compensated for what they do. And of course, we do that. But there are, there's also like you want to maximize your time investment, this time is finite, right? So you really want to, like, earn the maximum you can. And that may not be working on the core protocol. But I can tell you this, that you will not find a bigger impact

opportunity than working on the core protocol of Ethereum. So that is more valuable than 100x to me, or at least in terms of monetary value. Will, what do you think about these questions? Yeah, I agree with Preston. Like the core value of, you know, contributed to the core protocol layer is, you know, it's really rewarding. You're building the foundation for everything else. It's important work.

It tends to attract extremely smart people. I'm somewhat optimistic about some of the future funding. I tend to think that in general, you know, an element kind of wants to lead in some of this as well is a lot of the protocols that are doing well and are having an impact, you know, should really, really give back and put attention towards furthering development on the protocol layer.

And so I think, you know, you'll see a lot of the defy products that are coming out supporting protocol development in general. I think, you know, from elements perspective, we have a pretty diverse team of experience. So, you know, we have a good amount of researchers. And so from our perspective, you know, this, this sort of this first launch that we're doing, you know, we see this as introducing a number of primitives that's going to sort of level up and move the DFI space forward. But then we think about like what's our next challenge, right? And from our perspective, you know, we always want to be tackling the most interesting

and I would say fascinating problems. And if that means, you know, we put some of our effort because some of the L2 works needs to be taken, you know, to the next degree or some protocol work needs to be taken to or need some extra involvement, then that's like what we'll do. And so I sort of want to see this happen. I want to see this kind of like merging between the two worlds. In the past, we've sort of seen this like separation. And so I think, you know, in the future,

I think we're going to see more of these two worlds merging and working together a lot closely. And so I tend to be like pretty positive about that. And I'm hoping that's the direction things are going to go in. I know, you know, that's what element wants. and what we, you know, what we'll sort of push for as well. So with your guys' experience in both the app layer and the protocol layer, and also just your time in Ethereum, which, you know,

you guys have three plus years in Ethereum, I believe both, which, I mean, Ethereum's only six years old, so it's over half of Ethereum's lifespan. What perspectives would you say that you guys have, that you wish the broader community had? And so many of Ethereum's community members have come in the last year or even less ever since DeFi summer. So with your guys' experience, very long experience throughout Ethereum, what do you wish was more commonplace as a perspective throughout our community?

Will, let's start with you. Yeah, I would just say don't forget the devs in the hands that feed you, right? So if you're on the application layer, like none of what you are doing is possible without the like strong and hard work the protocol devs are doing so you know that that should be front and center and on everyone's minds present yeah yeah absolutely i mean don't forget when gas prices are back to a normal level because of protocol advancements who who helped do that i mean that's what we're trying to do is make it a much better place um but also i want to point out that that this like they're even six years old but this is still early when when i got in i thought i thought i

thought i was too i was like oh you know me too i missed i didn't get a crypto kitty when they were like really nice and you know i missed the whole thing but then in the last three years it's just seen incredible innovations and you know defy summer and defy like really starting to become a thing and nfts and just constantly amazing people coming out of nowhere and building amazing things and just, there's still a lot to come from Ethereum, and we're not even close to a mainstream adoption yet. So if you think you're too late, if you think the, you know, I don't know, because if there was reaching all-time highs,

it's not a good time to get in. I'd say any time is a good time to get in, even if the price is trading high. Yeah, I totally agree. Let me underline that point. There's only 500,000 DeFi users or less right now. This is so early. That's the population with like a, you know, mid-size U.S.

city. That's what we're talking about here. So all sorts of ways to get involved here. Make sure you do that. Got to ask a question about ETH too, because I have two ETH2 devs and experts here. So it's been, what, like five years, five months, it felt like five years, but five months since launch. How are we doing so far, Preston? How are things going? Like, have there been any surprises, any hiccups or is it like going better than you thought it would go? Yeah, it's definitely been a roller coaster of emotion really. Like if you look at the chain, it's not a roller coaster at all. It's exactly how it is supposed to go, very stable, smooth, and amazing.

You know, we had a few incidents with slashing, people getting slashed. And as people are learning what not to do, this is becoming better. And we haven't seen a major slashing event in a lot. long time. So this is great. I think that all of the clients are advancing in the right direction. They're getting cheaper to run. They're faster. And then also getting ahead of what's coming next. So they're prototyping quickly and building quickly. And it's just like last year and the year before, where we're getting ready to launch test nets and getting users in and getting things going. So it's been exactly how I thought it would go, if not better, because, you know, some people were worried

how are they going to launch at the beginning of December. There's no way, you know, but then it far exceeded our expectations on the Genesis event and since then has just continued to be this, you know, amazing protocol that's just been cruising along. Do you remember when we were worried that we wouldn't get enough stake in the contracts at launch? Now look at this. I am like, part of me was, is kind of knock on wood because I'm a little bit surprised in a very pleasant way that nothing's blown up yet, right? Like, this is new territory. So credit to all the client development that went into this and all of the teams that participated in it.

But yeah, are you surprised nothing's blown up yet, Preston? No, like everyone did an amazing job. And there are several people in the shadows that help, you know, find things before they become an issue. thankfully there's not been any showstopper bugs in E2 because of all the audits because of all the process because it took so long people complained took so long but look it's it's gone exactly how it should have and that's why we took our time and did it right and just thank you all client developers all security researchers protocol developer spec designers everyone who has evolved did an amazing job and that's why it's so no surprises it hasn't blown up it's been

just like we thought it would. Okay. So what is now next in the path? So we've got to kind of phase zero launch, right? So the next milestone, big milestone in my, in my world, besides EIP 1559 on ETH1, is the merge. When does the merge happen? When do we get rid of proof of work? Or are there other milestones before that that you're paying attention to? Will, that sounds more like you're, well, yeah, sorry. I'll response. Yeah, yeah. So I don't know the exact timeline because I was, I was a lot more involved with this portion, you know, six months ago. But I do know that, you know, we've seen already the merge in a prototype, for example, and some of the clients, you know, Lighthouse did this recently, which is really cool. And so in general, you know, what's exciting about the merge is,

you know, once you have this in place, you now have this data layer on, on ETH2, where applications, specifically L2 applications as well, you know, can also upload, you know, some of the state routes or things that they're working on. And then you essentially can have, you know, ETH2 secure the ETH1 network and then ETH1 point to the blocks in the ETH2 network. And so, you know, seeing that come to fruition is pretty cool. And, you know, TXRX, Johnny did a lot of that group. And Johnny, you know, my co-founder, did a lot of work on the initial merge, and specifically with Mikhail.

And so in general, very, very excited and seems to be moving in a good direction. I want to get your guys' opinions on Justin Drake's proposal to, for a minimum viable merge where we could move that merge up basically as soon as possible to what is secure to really prioritize the removal of proof of work. with your guys' understanding as to the current state of the Ethereum Protocol, how does that proposal land with you? Preston, let's start with you. So I would love to see ETH2 getting put to work.

Right now, it's finalizing the beacon chain and doing great work there, but to merge things together and to actually having it securing the whole of the network, that's what I want to see, and I'd love to see it as soon as possible. I don't have any aggressions against minors. I think they do a great job securing the network. But I would also love to see E2 validators, people who have invested in E2, to start earning those gas fees rewards and things like that.

Yeah, I think it's smart. Try and get the minimum possible to get the two merged and working together and then sort of put some of, you know, make sure that that's validated, that moves forward. and then begin some of the other deeper pieces like the statelessness and EVM changes and transfers and withdrawals. So it seems to be like the right way to do this. You want to sort of start off with that first increment, see and then see the evolution and then begin to build on top of that because it's going to be a huge switch as we move, you know, ETH1 towards a POS system.

Well, guys, thank you so much for walking us through your individual projects at the app layer now, not just at the ETH2 protocol layer. You're certainly doing some great work. Thanks so much for the ETH price. It's going up. And I think that's because we are shipping ETH too and stuff is happening. Question for you guys. If people want to learn more about your projects, where should they go? First, you will on Element. Yeah, so I would say if you go to our website, element.fi, over there we link to our medium. So we're going to be posting a bunch on there. But the most, I'd say the most informative thing would be our construction paper that we just released, which goes in a lot of depth. All of the detail. Yeah, and all the details. Yeah, yeah.

So I would say that's a good place to start and then just follow us on Twitter, join our Discord. forward, you know, everything like that as well. Real quick, before I pass it off to Preston, I want to give one, like, I want to give a huge call out to the element team. They're all awesome. They all, you know, we, we have a good group that comes from Maker, zero X, ETH II development, and then even like the traditional space. And then I also, Johnny made a bet, a one-eath bet if, you know, I could figure out how to

braid Preston's hair. Unfortunately, we're not in person because if we were, I think me and Preston would have taken that bet and then we would have laughed because Johnny would be out, you know, a couple grand. Oh, yeah. Yep. But instead, alternatively, I decided to write a haiku for Johnny. So I'm just going to, I'm going to, you know, read the haiku real quick. Oh, let's do it. Yeah, let's do some haikos.

Then tell us where we can buy the haiku as an NFT will. Yes, yes. How about we tweet it and then we tokenize it? There you go. Good place to start. Give it to us. It goes, his galaxy brain, why quit me, can't quit me, best hair in crypto. And there's a number of inside jokes there.

So I had to throw it out there. Amazing. It's live on bankless. Crypto culture is tight, by the way. Back to you. Where should people go to find out more? And who do you want to thank? Who's going to, yeah.

Yeah. So cryptex. Finance is the site. You can find everything there, our white paper, media. Twitter. The application is there too. I'd say take a look, give it a try, see what you think. Join our Discord ask questions if you like. We've got a great community that we've built together. So even if you just want to share some memes, come on and share some news with us. We'd be happy to see it. I'd love to thank everybody on the Cryptex team. Everyone at Prismatic as well.

like they've been super awesome supporting E2 in the last, you know, three years. So without those guys, I would not be in this position on bank lists, building on the application layer. I'd just be some guys working on ads, you know? So really happy to be here and thanks to everyone that we've met along the way. And Preston, we're ready for your haiku whenever you, whenever you're in a minute.

I do I do think Preston Preston has better better hair than James Presswich so oh that's a controversial statement finishing off with the spicy take yeah we're going to leave that in

we're not going to clip that will no that's going to follow me forever yeah all right guys well it's been a lot of fun thanks for all of the work that you're doing to the bankless community we hope you enjoyed this episode learning about these projects

of course risks and Exclamers, ETH is risky, DFI is all of crypto. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot. And claim your badge. All right, thanks, guys.

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