Bankless - The Secret Weapon of DeFi 2.0 | Zeus from Olympus DAO

Starting point is 00:00:07 Hey, Bangladesh Nation, welcome to another episode of State of the Nation. Super excited to dig into this. David, I feel like you and I have been on a journey, a journey to understanding what the hell Defy 2.0 is. Zoomerfy, some of the kids are calling it. Is this a new trend? Is this a new narrative? Is there something more substantive to it? We talked to Jay from Rari Capital last week, and I think that has helped shape some of our thoughts on this new exciting area in Defi. And he said, really, part of the secret weapon of everything that's going on, this next generation of defy, is this thing called protocol-owned liquidity. This is protocol-owned value. And I think we're going to dive into that in today's discussion.

Starting point is 00:00:47 David, but who do we have on? And what are we going to talk about today? Yeah, we have on Zeus, the pseudonymous founder of Olympus Dow, which has really pioneered this new primitive, which is unleashing defy 2.0, question mark. That's what we're going to ask and find out all about today. And Ryan, man, I love NFTs, but man, I am waiting for a resurgent in Defi because like that's been sleeping. It's been sleeping in Defi. I know it feels like home for me personally. So I'm definitely into the concept of Defy 2.0.

Starting point is 00:01:22 And so, yeah, we're going to ask the questions, why are, why is this a thing? Is this a real thing? How does it work? And why is it cool? And so we are going to unpack all of those things here today. is Zeus, the pseudo-anonymous founder of Olympus Dow. Yeah, I think Olympus Dow is like a poster child for all of this stuff too. So like even maybe more so than Rari Capital, these new token mechanics.

Starting point is 00:01:43 And it's just raw unbridled token mechanics. That's what makes number go up. So we're going to dig into that and see what's going on there with protocol owned liquidity. And then also talk about the Olympus Dow story because this has been a mega story this year and part of the resurgence. Guys, but before we get into it, some announcements for you first, we had Andrew Yang on the podcast, okay? Recorded last week, the episode went public on Monday.

Starting point is 00:02:08 I hope you had a chance to go listen to it. Maybe if you've listened to it once, go listen to it a second time. I've actually, David, I've listened to this podcast, like, I think one and a half more times, and I picked up more. Sometimes, you know, when you're having the conversation, it's hard to, like, focus on the questions and the conversation and, like, absorb everything. But this is a pretty meaty podcast. And I learned a lot through reading Andrew's book and getting his thoughts on crypto.

Starting point is 00:02:35 So anyway, you guys will love that. Any other comments on that, David? Yeah, we followed that podcast up with a Market Monday I wrote yesterday called The Politicians Are Coming, which is basically the pitch as to why a politician might want to adopt a crypto-friendly base, a crypto-friendly policy platform. And Andrew Yang, I think, is the first politician of many to really figure out that, like, hey, like, crypto can get me elected. Crypto can, like, supporting crypto can do good things for my campaign.

Starting point is 00:03:04 I think he is the first of many. Get me jobs, get me money, get me all sorts of things. I think the politicians are definitely coming. It's protocol incentives, teaching them to learn crypto and learn defy. Also, guys, speaking of incentives to learn things, we have the ultimate guide to air drops. That is coming on the bankless newsletter next week. It's been under wraps. We've been working on it for a while.

Starting point is 00:03:26 But if you are interested in that, you know, Airdrops are an incented way to learn about crypto. Subscribe to Bankless. I think we're putting that out on Tuesday, I believe. And bankless premium members get the entire unrestricted access to the ultimate guide to air drops. So make sure you check that out too. That's coming next week. Lastly, got to give a shout out to our friends at Pool Together. David, what is pooled together, man?

Starting point is 00:03:52 Pull Together is a no-loss lottery. It's a lottery where you put up. some capital, like in the form of stable coins or some other tokens, but if you lose the lottery, you don't lose your capital. So this is really cool. Everyone pools all of their assets together. Those assets earn interest in defy, and the winner earns the collective interest rather than everyone else's money.

Starting point is 00:04:15 So it's kind of like a gamified savings mechanism, and pool together has done a fantastic job, moving on to the layer two's, while also keeping all of their liquidity and their collective prizes, even though they're fractured across the many layers, all one single price. And so they've also introduced some new mechanisms to allow for, you know, better odds for small fries rather than big whales. So there is some small fry optimizations going on. And if you don't like gas fees, because who does, you can go and check this out on Polygon.

Starting point is 00:04:47 So they are live on Polygon where you can deposit USC, USDT on Polygon and enter the prize pool there. Yeah, it's super awesome. Just the feeling of winning a lottery without actually like risking your upfront capital without actually spending money. Really cool. And this new version four, they've got some whaleproofing, as you were saying, David, the layer two is essential.

Starting point is 00:05:07 They're also giving out a million dollars in prizes. So again, some more incentives to use this kind of thing. If you want to check that out, go to bankless. com slash pool together. Thanks so much, pool together for sponsoring this and getting the word out. David, got to ask you the question I asked at the beginning of every single state of the nation. and that is this. What's the state of the nation today, sir?

Starting point is 00:05:28 The state of the nation is evolving. We are evolving into Defi 2.0. Allegedly is what we're going to find out. But it feels like Pokemon. It feels like we've started at the Charmander, and now we are at the Charmielion phase. Leaving room for Defi 3.O, hopefully in a couple years. But right now we are evolving from Defi 1.0 to 2.

Starting point is 00:05:51 All right. What's after Charmelian, Pokemon expert, David Hoffman? Charzart. You know, who doesn't know that? Charzart. Did you not know that, Ryan? No, I'm not. I didn't do the Pokemon thing.

Starting point is 00:06:01 You did not. I just want to say that out loud. That's turning into a meme immediately. After the episode, guys, watch David flame me on Twitter for not understanding what a charzart is, the evolution of a specific Pokemon. Just really staying true to the boomer Ryan meme. Anyway, let's get to the sponsor, shall we? And then we'll come back with Zeus, where we're going to talk.

Starting point is 00:06:25 talk about Protocol, owned liquidity, and Olympus Dow, but just a moment for our sponsors first. Thank you. Arbitrum is an Ethereum scaling solution that is going to completely change how we use Defi. If you've been using Ethereum for the past 12 months, you've probably noticed the high gas fees and the slow confirmation times that have been plaguing Defi. Too many people want to use Ethereum and it doesn't have enough capacity for all of us. That's where Arbitrum comes in. Arbitrum is a layer two to Ethereum, which means Arbitrum can increase Ethereum's throughput by orders of magnitude at a fraction of the cost of what we are used to paying.

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Starting point is 00:07:49 Living a bankless life requires taking control over your own private keys. Not your keys, not your crypto. That's why so many in the bankless nation already have their ledger hardware wallet, which makes proper private key management a breeze. But the ledger ecosystem is much more than just a secure hardware wallet. Ledger is the combination of the Ledger Hardware wallet and the Ledger Live app. And if you're used to seeing all of your crypto services and favorite Defy apps all in one spot, Ledger Live is where you want to be. Not only does Ledger let you buy your crypto assets straight from the app, but it also hooks into all of the DeFi apps and services that you're used to.

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Starting point is 00:08:51 Go to ledger.com, grab a ledger, download ledger live, and get all of your defy apps all in one space. All right, guys, we are back with Zeus. Zeus is the pseudo-anonymous founder of Olympus Dow. That is the OHM coin. It's fully backed algorithmic, free-floating, stable asset. It's competing as a reserve store of value. It's called OHM, as I mentioned. Welcome to all the OMIs listening in today.

Starting point is 00:09:18 That is what they call members of the Olympus Dow community. community. Zeus, it is fantastic to have you on. How are you doing today? I'm doing well. It's great to be here. Well, it's awesome. Yeah, you know what? We want to start with like this whole defy 2.0 thing, I think, because this is a narrative. And you know, with crypto narratives, it's hard to understand specifically if there's substance to them or if it's all just pure kind of hype and narrative. And I think there are some people who kind of see defy 2.0 is more hype and less actual substance. But we want to dig into it. And one of the most, I think, tangible things we've seen is this concept of protocol-owned liquidity, right? Protocol-controlled value. And I think Olympus Dow really pioneered that.

Starting point is 00:10:08 But before we talk about that, I want to ask the question about, I guess, liquidity mining in the past because we're going to have a conversation about Olympus Dow Pro and the new product you guys rolled out. But what are the existing problems with, you know, what Defi calls liquidity mining, like in traditional liquidity mining, because I think a number of Defi 2.0 protocols are kind of saying, like, traditional liquidity mining sucks. It has a lot of disadvantages. What are those disadvantages? Yeah, I mean, so the obvious big one is just kind of cost. So I think it really depends on a protocol to protocol basis. So you have some protocols like Ave where maybe it's not that big of an issue for them

Starting point is 00:10:54 because their cost of liquidity is very low. You know, for USC or die, they have to pay four or five percent APY. And of that, you know, two or two and a half percent is paid in Ave. For them, it might not be anything that's particularly broken, although the nominal cost of that is still very high because they're incentivizing billions of dollars in liquidity. And it's just lower, it's just lower Zeus because Avey is so big and so popular at this point in time. Yeah. Yeah. So it's just kind of an issue of scale where, you know, if you have $20 billion and you need to give them 2% a year, you need to pay out $400 million a year. And the question is, are you accruing back more than $400 million a year to make up for that and make it a profitable, like, endeavor for the protocol?

Starting point is 00:11:46 I think that the easier case, though, is protocols that have a higher cost of liquidity. So, you know, in DFI, we've seen really exciting products that, you know, really can change the way the finance functions. But there are these crucial pieces to them that can be really expensive for the protocol. I think that like Alchemics is a really good example of this. So, you know, I think it is pretty indisputable that the service that Alchemics or Alchemics provides is like super valuable. This ability to unlock future yield is really cool. You know, people have really like gravitated towards that. The issue for them is that it's very intensive on their markets and liquidity sets.

Starting point is 00:12:30 So they have to pay, you know, high double digits. it's low triple digits, APY, to depositors to provide them with liquidity, which makes the entire system work. So if they don't have that liquidity, the whole thing doesn't work. But it's this issue of if they are paying that in perpetuity, you know, it's very difficult for the economics of the system to work just because you have this high cost that doesn't really lead anywhere. So you're paying it today and the system works today.

Starting point is 00:12:59 But tomorrow you have to keep paying it or also liquidity goes away and the part of the protocol doesn't work anymore. So in those scenarios, I think that it makes a lot more sense where this protocol that's already spending a lot on liquidity, which is buy that liquidity, you know, they need it for the protocol to function. So without it, you know, this is this crucial piece. And so by purchasing that liquidity, you pay a higher upfront cost, but that is now accrued to the protocol owned by the protocol and will exist and provide value to the protocol in the future, like in perpetuity. So you turn this like high burn perpetual cost into a one-time cost that then provides value in perpetuity and, you know, facilitates the protocol and also, you know, it can accrue

Starting point is 00:13:47 like, you know, fee value where, where once you were paying, now you are being paid. So I kind of flip this model on its head. I want to talk about that flipping at the model and dig into sort of the, you know, the protocol owning the liquidity and the protocol buying the liquidity. And the protocol buying the liquidity. But before we do, maybe just give us a quick history lesson, David. And maybe you chime in here, too, in case I'm missing something. But like, you know, in the beginning there was defy. And we had some liquidity, right? But we had no liquidity incentives, right?

Starting point is 00:14:19 So we had like a maker Dow. We had, you know, swap these things, didn't have tokens. And then last year, man, it seems like five years ago. But it was really just like a little over 12 months ago, not too much longer. May 2020 or so. compound comes out and they're saying we're issuing a token called comp and the way you earn that token is by giving the protocol something it wants and the protocol wants liquidity so you put liquidity when we say value when we say liquidity we just mean like value like collateral you push money

Starting point is 00:14:52 into the protocol and in exchange for doing that we'll give you an allocation of comp tokens and this kicked off DFI summer 2020, which was very much a yield farm type summer, right? And then what we found is like some of these yield farms persisted, but some of them were somewhat fleeting. And then what do you call it the roller coaster, David, the euthanasia of roller coaster where you go kind of around and around and around and it gets worse and worse and worse and eventually like you die through all the spirals. And so the farms seem to get worse and worse and worse. we started to see the issues with yield farming. And then there's been somewhat of a lull, I think, in DFI, right? And lots of maybe reasons for this.

Starting point is 00:15:38 But now what's resurfacing, I think, with Olympus Dow and some of these DFI2.0 protocols is this new idea, which is not liquidity farming, like we're just shotgunning and spraying tokens everywhere. But protocols will start to own their own liquidity. this is this is kind of the trend that we're seeing new liquidity types of designs David I don't know if you'd add anything to that or if I you know missed anything in the history there yeah the whole concept of yield farming has is it has many edges to a sword to a single sword for something like compound it really needed to find a way to distribute its token out to many many people and so yield farming was one of the ways that

Starting point is 00:16:21 it would do that but there the needs of compounds are not the same needs of many other protocols. And Alchemics is a great example where Alchemics doesn't necessarily need to distribute out as token as much as compound does. It needs liquidity for liquidity's sake, whereas compound really was a distribution mechanism. And a distribution mechanism when it comes to yield farm is like another way to say that is like just, you know, allowing people to sell it, right? A great, like, one of the main features that bitcoins talk about Bitcoin mining is that because Bitcoin mining is intensive, it forces miners to sell their tokens and allows it for an equitable distribution. So that's nice if that's what you want. Not all protocols want that. Some protocols just need

Starting point is 00:17:05 liquidity, and they want people who believe in their protocol to buy their token, not farm it. And so when you were talking about that euthanasia roller coaster of just farms, forking farms, forking farms. A lot of them ultimately died because of what I like to call liquidity locus in that people with a bunch of capital see a bunch of high APY yield farms. They come in and then they farm that thing to death. And they aren't farming that system because they believe in it. They are farming it because of the high APYs. And so they consistently sell that token because they're taking the risk of being the liquidity provider. And then they're receiving the tokens as rewards, Zeus here calls that like renting liquidity because protocols are issuing a certain amount

Starting point is 00:17:53 of their token per time in order to incentivize liquidity to come. And so as soon as you stop incentivizing that liquidity come, the liquidity goes away. And so we are renting liquidity in, like, DFI with liquidity mining. And, but it's not actually rewarding believers. It's not actually rewarding people who want to own that token because they are just farming the thing to death. And so this concept of protocol-owned liquidity is going from like a liquidity renting model to a liquidity owning model. It's a difference between like renting your house for the rest of your life or just having a one-time upfront cost of purchasing your house and then you don't have to rent it anymore. And in fact, you can actually rent it out. So it flips its model.

Starting point is 00:18:37 That's why Zeus here says it flips the model on its head. Zeus, did we get that right? And is there anything you want to add? Yeah. No, I think that's spot on. one thing that I would add is just I think that like the the token distribution aspect is really important. The thing that I think liquidity mining like gets wrong in that aspect versus, you know, someone like Bitcoin, which is a similar dynamic, is that in liquidity farming like setups,

Starting point is 00:19:06 the depositor who's earning those rewards doesn't actually have to take any exposure to the asset that they're earning. So they can kind of live agnosticly from the success of the protocol that they are deposited into. You know, there's this piece of you want the contracts to be secured. So the risk that you're really taking is you get rugged or there's a smart contract issue and you lose funds. But especially in the case of like, you know, these spinoffs where you just have like a fork of whatever that everyone knows it's secure. You're not really taking any risk deposited into there and they're giving you their token in exchange. And so it's this kind of like extractive setup where you are not actually taking any of the downside, but you're taking all of the upside of the network.

Starting point is 00:19:50 So in the case of Bitcoin mining, you have miners who, yes, they're earning these, you know, Bitcoin block rewards and they're selling them to, you know, maintain their operations. But they had to do all this upfront cost to set up that operation, and they're exposed to the Bitcoin network as a result. in the case of like, you know, Olympus or Olympus Pro, you are taking exposure to the asset that you bonded for. You've taken some of the risk of that network. And so everyone's incentives are a lot more aligned. You know, you're not doing this activity just to predatorily, you know, farm and dump because you actually have to take exposure.

Starting point is 00:20:29 So maybe you are doing that, but at least you're taking on some risk in the process versus just having like free loaders that earn all this token, they take no risk, they just dump on everyone else, and they don't really provide value beyond the time that they are deposited in doing so. So it's like in crypto, there's this classic, there's like there's mercenaries, there's tourists and there's settlers, right? So you settlers being the holders. The old style of liquidity mining, we're just kind of spraying this in a liquidity farm, it's basically it's just mercenaries that you're incenting mercenaries.

Starting point is 00:21:06 People just to come, not hold, they're not creating a home there. They don't really care about your asset. It could be any asset as long as they can sell it and get high APYs. But I want to ask, so I want to ask the question. So I understand that this is more, this idea of protocol-owned liquidity is rewarding holders and incenting holders rather than kind of the mercenaries. So the settlers, not the mercenaries. But what do you actually mean when you say protocol-owned?

Starting point is 00:21:36 liquidity. That part might not be clear for listeners. So how does the protocol actually own it? What are the, what's the underlying mechanism here? Yeah. So it's essentially, we brought this to market. It is essentially a token swap with the protocol as your counterparty. So instead of the protocol just distributing out tokens for free and using that as like a token distribution mechanism, because I think that that's like super fair as like value in liquidity mining is that you distribute your token out. But rather than just give it away for free, it takes an assets in exchange. You know, it might provide a discount.

Starting point is 00:22:17 So you're incentivizing people to trade with the protocol instead of the market. But, you know, instead of just handing these out, it's taking out, or taking assets back in return that then strengthen the network in whatever way, you know, is suitable to that network. Let's unpack that a little bit more. And I want to, I want you to Zeus check my thinking as I go through this. So just to recap, with traditional yield farming, the yield farming that Comp gave out, you put in liquidity into the system, and then you receive regular distributions of the tokens. With Defi 2.0, instead, what happens is that the users of the would-be yield farmers, instead of providing, Lividing liquidity into something like Uniswap or Sushi Swap. And then when you do that, you get a token back, your deposits, your LP tokens.

Starting point is 00:23:13 Then traditionally in typical yield farming, you take those LP tokens, you go to the protocol and you stake it and you're just basically showing the protocols, hey, I have deposited liquidity. I'm showing you I've deposited liquidity by putting it in your contracts. These contracts then issue out dividends, which is the renting liquidity model. Instead, what you're saying is you can actually purchase liquidity. off of the, you can purchase the LP tokens or you can create them yourselves, again, by just supplying liquidity to Uniswap or sushi swap. But then you go to the protocol and instead of depositing it into a smart contract to farm, instead you sell it to the protocol. And the incentives that the

Starting point is 00:23:52 protocol are for you to do that is that it gives you the protocol token at a discount. And so if, like, you have a $1,000 of token XYZ paired with $1,000 of ETH, you have a position in sushi swap or uniswap that has $2,000 worth of net capital, you can come to something like Olympus Dow, which does this program or something that taps into this primitive. And Olympus Dow will purchase that $2,000 worth of liquidity from you for something like $1,900 or $1,800, some sort of discount. So there's the incentive there. And then, and that is where this goes from, kind of a one way, just farming to death system towards the actual protocol receiving LP tokens, receiving its own liquidity, and the protocol owning the liquidity. That's where the, the phrase protocol owned liquidity comes from. Is that all right? Yeah. So you end up with a pretty similar like end state in that there's liquidity and there was tokens that were distributed.

Starting point is 00:24:58 But the liquidity ends up owned by the protocol and the depositors end up owning like the protocol token instead of half and a half for liquidity. So Olympus, when you guys do it, you guys actually have a bonding mechanism. So you get, you offer, again, these are random numbers that are making up. You offer to give out somebody, somebody who wants to sell you LP tokens. They want to sell you $2,000 worth of their LP tokens. and you will give them, I might have messed this up earlier. If the user wants to sell $2,000 worth of LP tokens towards the protocol,

Starting point is 00:25:36 the protocol will offer $2,100 for those LP tokens. But then the protocol asks for like a five, seven day like lockup period. So you don't get that arbitrage immediately. Can you explain why that mechanism exists? Yeah. So if you provided just a pure arbitrage immediately, you know, you just have a race to the bottom. So you need this time defer or time deferral so that, you know, these things can space out and you don't just have it run into the ground, I guess. I will note that the protocol doesn't know what it's selling you or like the price that it's really quoting or it doesn't have a price that it decides to quote.

Starting point is 00:26:19 So essentially the way that it works is that you start with some price and then it just ticks down until someone decides that they want to go and buy. that bond. So essentially, like the protocol doesn't care. It's all placed onto the market in terms of how it actually prices it. So let's say, you know, it's $1,000 worth the LP. It's offering $1,050 for that LP. Maybe people don't want to take that. You know, that's not enough for them. And so that price will continue to tick down until now it's offering $1,100. And someone decides, yes, I want that. And so they decide to make that trade and as a result each time you do it will bring the the price back up um so you know it was previously quoting eleven hundred dollars for it now it's quoting 900 and then over time that'll decrease back to par and then back to 1050 and 1100 until someone decides to make

Starting point is 00:27:11 that action or action again so i think that there's also this really cool dynamic of price discovery attached to that where you have the secondary market that is pricing the asset based on you know like market behaviors, but in a different form than like a traditional two-way AMM that, you know, I think on its own brings value as well. So correct me if I'm wrong, but so if there's like a seven-day lockup or 10-day lockup, it's really pricing in the loyalty of the user who's willing to take that unknown amount of price risk over that like seven days of time. maybe if it were like a two-day lock-up period where you don't get to pocket that arbitrage for two days, you're not really incentivizing that much loyalty, only two days worth of loyalty.

Starting point is 00:28:00 But if you do it for seven or nine days or even longer, you're really incentivizing loyalty because not only are you, you know, asking people to maintain exposure for at least nine days, but the longer it goes, really the more and more this mechanism really self-selects for people that believe in the system in the first place. Would you say that's true? Yeah, definitely. And in an efficient market, yeah, the discount should just be whatever the market dictates as like the required illiquidity premium. So what do I need to get paid to be illiquid for this amount of time? Nice. So the net of this use is that the protocol literally, its treasury, its balance sheet,

Starting point is 00:28:43 literally becomes composed of all of these LP positions, right? like LP positions in sushi swap or LP positions in uniswap. Like they become rather than owned by sort of these mercenaries temporarily, they literally become owned by the protocol, which is probably why we get the protocol controlled liquidity. So first of all, is that true? And then what does that mean for, I guess, the balance sheet and the treasury of some of these types of this new mechanism?

Starting point is 00:29:16 Is this a good thing? Why is it a good thing for the protocol to own its own liquidity? So definitely true. I would say that the benefit is in like the power of kind of compounding growth. So in the case of liquidity mining or, you know, like I like to call renting, you have kind of like flat incentivized liquidity over some amount of time. So if what people demand in terms of incentives remains the same over time, then if you are incentivizing the same amount like $10,000 a week, you're going to have the same amount of liquidity in perpetuity.

Starting point is 00:29:59 If you are purchasing that liquidity as the protocol, your liquidity is only growing. You know, whatever liquidity you already had, you have, and whatever you're adding, you're adding. And so you have this growth rather than like a flat kind of renter model. You have a growth, you know, ownership model. it's pretty much the same dynamic that you see in just like owning versus renting in general. So like, you know, houses are a good example like home equity.

Starting point is 00:30:25 You know, if you're a renter, you don't see any of the benefit of, you know, the housing market appreciating. If you're an owner, you do. It's a similar dynamic to that where you're, the protocol is retaining the equity, the liquidity that it's, you know, accumulating. Is there something to say here about realigned incentives when a. Protocol owns the liquidity rather than other humans. And famously, there's always the meme of Pool 2. There's Pool 2 risk. Pool 2 is always the most risky pool.

Starting point is 00:30:57 If you are farming in Pool 2, you're risking being dumped on by other humans. There's a little bit of alignment there. It kind of feels like a game of chicken, like which Pool 2 farmers are going to dump on other Pool 2 farmers. And David, for Pool 2, for people who aren't familiar with Pool 2, what is that? That is, that's the traditional yield farming mechanism where, uh, you deposit usually ether plus a token XYZ into a staking contract. And so you are paid to provide liquidity, which can have bad incentives. If you are paid to provide liquidity, there's, if somebody, if we want to take the example of a malicious actor, a malicious yield farm, somebody comes in with a yield farm,

Starting point is 00:31:35 spins up a website, spins up a yield farm. And, and then they incentive, incentivize some insane APY for everyone to come and purchase the token so they can provide liquidity so that this malicious actor can dump on all of these people that are now being paid for this person to basically allow them to sell them at token XYZ for ether, right? He's just paying other people to intend to provide liquidity to them so they can dump. So that's because it's a human to human interaction. And again, we're trying to build trustless protocols. So Zeus, is there something to talk about like where we see a protocol purchasing the liquidity and a protocol like if we can see the see what protocols do we can verify the code we can see like is this protocol literally programmed

Starting point is 00:32:19 to dump on me or is it not and if a program if a protocol is not programmed to dump on you which again like the community would find out pretty damn fast if it was do you think that actually reduces this whole like LP risk because it's the protocol that's the counterparty rather than another human. Yeah, I 100% do. I think it kind of comes down to, like, the pool two model is inherently adversarial. So, you know, just to kind of go over, like, how these structures work. So you generally have like a pool one, which is you deposit USDC or ETH or something.

Starting point is 00:32:56 The protocol needs you to do that so that it can offer fixed income product or whatever. Then you have pool two, which the protocol is incentive. pool one with its token, that token needs to have value to have any value as an incentive, right? You know, you need to be able to pin this is worth this much, and so that's why I want to do this activity. Someone needs to create that market for that token so it has value. So you have pool two, which is you deposit this token plus ether generally. We will incentivize you with more of that token to provide that liquidity. The issue in the structure is that you have an adversarial relationship between kind of three parties.

Starting point is 00:33:36 So you have the token holders. They are, you know, reliant on the pool two, you know, providers to provide liquidity so their token has value. They're also reliant on pool one and pool two that they don't just farm and dump all their rewards because that's going to depreciate the token. You have pool one, which is reliant on pool two to provide liquidity so that their rewards are worth something. And then you have pool two, which is.

Starting point is 00:34:03 is rely on kind of everyone to not dump. You also have this dynamic with Pool 2 where, you know, if you are someone who's farming this or you're holding it, anytime that someone buys or sells, they're buying or selling from the Pool 2 providers. So they are the ones who pay you when you sell that governance token. They are the ones who sell to you as well when you buy that governance token. But you create this dynamic where, you know, Pool 2 is the one paying everyone out. And so pool two doesn't want to pay you out.

Starting point is 00:34:34 You know, they want to get those rewards. They want to sell those rewards themselves and they don't want you to sell them. So kind of these parties are all at odds. You know, their incentives are not aligned with each other. They all have different goals. And one of them achieving their goals generally is against the goals of the others. Versus, so if you replace that pool two component with the protocol, the protocol should be happy to pay people out.

Starting point is 00:35:00 You know, its goal is to facilitate this market. It's not really to, you know, it doesn't care about when it gets to pull out its assets and, you know, how much of the pool two incentives they get to dump on everyone else where, you know, you get these situations with pool two schemes where, like, one liquidity provider pulls. And then that triggers someone else to pull because now they're like, you know, most of liquidity and they don't want to provide, they don't want to uphold this entire market. you know, one guy is not incentivized to uphold the entire market of a protocol. The way that a protocol might be, you know, so the protocol's only goal is to sustain its own, like, markets or whatever it's doing. So it is happy to play that role versus an independent third party might not be. It's kind of this level of, like, being willing to take, like, impermanent loss risk and, like,

Starting point is 00:35:59 especially in the case of not needing to be incentivized so that you know the protocol doesn't need to be incentivized to do what's best for the protocol you know there's this like you know imagine if everyone just like

Starting point is 00:36:14 kind of what's that where I'm looking for generously supported protocols just because they wanted to see them succeed you know you don't ask for any money in return you you're willing to take on downside.

Starting point is 00:36:30 Just because you want to do well. It's an unlikely dynamic for any individual, but for the protocol, you know, that's all it's there for. You know, it doesn't need to be paid to do that just because that's what it's it's fair for. It's funny. I mean, the protocol already has all of that risk anyway, right? So, you know.

Starting point is 00:36:47 Yeah. Okay. So here's my big question, right? So Zuzi, you've made the case that this is a better mechanism, right? And I guess my question is, so why doesn't everyone do it? I don't literally all of the D5. protocols right now switch to this new mechanism, right? Any protocol that's offering a yield farm?

Starting point is 00:37:05 Yeah, any of them, right? So yield farm was a, you know, less good mechanism. We've now created this better mechanism that aligns the parties. Why doesn't every single defy protocol out there go and implement this? Or do you think they actually should and they just haven't yet because this is new? Are there any downsides? Are there any tradeoffs here that we've left out? Yeah, I mean, so it's definitely.

Starting point is 00:37:29 just why does anyone ever rent anything because it's cheaper in the short time? You know, when you buy something, you have to pay more for it up front. And so that can be kind of a discern. And it also creates like, you know, maybe in some situations, it doesn't make sense for protocol to do this. So like, you know, going back to Avet, you know, if they're paying 2% a year for their assets, probably doesn't make sense for them to buy them. Because, you know, that's 50 years worth of incentives, you know, the risk of reward there is probably not on their side. And so, you know, it doesn't make sense. Can I just zone in on that really quick? So again, why is it more expensive, right? Like, why is it more expensive up front to buy this for the protocol?

Starting point is 00:38:13 Mm-hmm. Yeah. So. Yes. Fill me in on that. Let's say you're trying to incentivize $100 million in liquidity. And the market is demanding that you provide 50% APR for that. So over the course of the year, you are going to pay $50 million worth of your governance token or $50 million worth of it today. You know, how much that's worth at the end of the year and how much you actually have to pay is determined by, you know, how things develop over time. So if you were to buy that $100 million worth of liquidity, you need to like utilize $100 million

Starting point is 00:38:49 worth of your token today versus in the incentive model, it'd be like a million. million dollars a week. So, you know, you're doing 100 million up front versus a million a week in perpetuity. So, you know, you have this higher upfront cost that can make it difficult as a, like, I think that pool to and, you know, incentives remain this really good bootstrapping mechanism because you can go from zero to 100 million in the span of a weekend, you know, with, with incentives that are enough to, you know, bring people into the door. But especially, you know, if you're paying 50, 100% APR, you know, some farms do, you know, more than that.

Starting point is 00:39:33 Like in our case, we have to incentivize liquidity providers with like 500%. You know, it definitely makes a lot more sense to just kind of bite the bullet over the short term to have this one convert into less cost because there's a point at which you now no longer need to incentivize anything and you can even stop purchasing it. and two, you convert it into a productive asset. So liquidity is, you know, by far, some of the more or most productive assets in the space. You know, most pools provide at minimum, like 10% APY can get up to 30, 40, 50%, percent. And that's all passive. You know, the protocol can just leave it in the LP and it makes money.

Starting point is 00:40:20 Yeah, so it really just comes down to that short-term cost as why, you know, it kind of becomes difficult. I'll talk about this more later, but I think that that's where Olympus kind of steps in. It makes this model better for everyone. So do you think, then, and I know you guys have just released this Olympus Pro type product, maybe to release this as a primitive that could be used by other DFI protocols.

Starting point is 00:40:45 But do you think the model right now is skewed for DFI protocols far more towards like renting rather than buying? And do you think a lot of DFI? protocols today would be far better off with this kind of protocol-owned liquidity model, and they should start to explore it. They should start to adopt it. You think there's a lot of room for growth here? Yeah, I think that on the industry-level perspective, like, bonds and, like, protocol and liquidity make more sense than, like, the renting pool two model. So it doesn't apply to Everyone, like the blue chips, I would say, are the most immune.

Starting point is 00:41:28 But on a larger scale, I do think that, like, most of them would be better off just accumulating their own liquidity and then owning it. One thing that's pretty neat about this mechanism when a protocol owns its own LP shares is that protocols, they all do something. They all have a business model. They generate revenue via that business model. But now if they own a bunch of LP tokens, a bunch of liquidity tokens, they are also accruing revenue. from fees from uniswop or sushi swap. So is there something to talk about there, Zeus, about how this might be an alternative fee generation mechanism for protocols

Starting point is 00:42:07 and how might a protocol use this new source of revenue? Yeah, so you're adding revenue, which is great. Which is great. So if you look at DFI protocols as businesses, which, you know, there's a pretty good case for, you kind of have to look at both sides of the of the balance sheet so you have revenues which you know what is this what is the productive activity accruing back towards the protocol and then you have expenses um generally that expense is the the incentives that you're paying out um i think that what this really addresses is that if you look at pretty much any protocol their expense side is way bigger than the revenue side um you know they're paying a dollar in incentives for 10 cents in revenue And, you know, if it's a bootstrapping thing, if this is, you know, like Amazon is a great example, you know, they lost money for 10 years before they made a dime. And, you know, it worked out, you know, Amazon is this Goliath now and they make more money than they could, you know, do anything with.

Starting point is 00:43:15 But they use that high burn as a bootstrapping mechanism to get infrastructure in place that they own the stack. and now they make a ton of money because they're like vertically and horizontally integrated and everything. If you're not working towards anything, then you just have this scenario where the protocol loses money and there's no like real path towards profitability. It's kind of the, you know, it's not super surprising because that's like the tech model at this point is that you have these like VC-backed Goliaths that don't make any money. never will make any money.

Starting point is 00:43:55 And the only real point is that the IPO and are worth something in an equity sense. But the actual equity on the balance sheet is negative. You know, we shouldn't be trying to build systems where the system just loses money in perpetuity for kind of no reason. And how about when the token price of the relevant protocol like doubles or like, is the protocol successful and then the price of the token goes up? Now, in this model, the protocol owns a decent proportion of its own token. And so when the token goes up, in theory, the protocol is actually pushing ether back into the liquidity in defy because of impermanent loss, right?

Starting point is 00:44:38 The token price goes up. And so people are buying the token by, no, excuse me, the protocol is absorbing more ether and it's distributing its token back into the ecosystem. him because of the dynamics of LPN instead of Unistop or Sushi Swap. How does it change when a protocol owns its own stake in its own token? Have you thought about this? Yeah. So you actually, because the protocol is the one facilitating the market, when people are buying, the protocol is accruing all of, you know, if it's ETH that it's paired against.

Starting point is 00:45:13 It accrues all that ETH that goes into the pool. So it owns the pool. There's now more ETH in the pool. The protocol now owns more ETH. So the protocol now owns more ETH. as more capitalized. So you have this, you know, situation where, like, you know, what's good for the holders, which is generally, you know, appreciation is also good for the protocol. You know, it's getting something out of that. It owns more because of that. Kind of everyone wins together

Starting point is 00:45:34 and you have this like situation where everyone's incentives are really aligned towards the same goals instead of, you know, all kind of having their own independent goals that, you know, may or may not align with each other. So, Zeus, can we talk about this? Because this is a product, I believe, that you're rolling out. Let me just share my screen here. This is Olympus Dow Pro, right, which is different than Olympus Dow, but what you're basically taking is the protocol-owned liquidity model

Starting point is 00:46:05 that Olympus Dow pioneered. We'll talk more about Olympus Dow soon. But you're taking that, and you're exposing it to other DFI protocols so they can use the same mechanism. So what are we looking at on this dashboard here? Are these other DFI protocols that are creating their own, you know, protocol owned liquidity type markets?

Starting point is 00:46:31 And how does this work? Yeah. So this is our first cohort for Olympus Pro. So you can see on the left, that is the payment token. So, you know, in the first case, you would acquire FoxEath, uni, LP. Then you would take that to this page. you would get, you know, that one is actually sold out. So we'll use the FRAP, RAPD, SLP.

Starting point is 00:46:54 It'll pay you back FXS for that liquidity. You have that ROI there is the discount that it's providing. So the market price is $5.76, and it'll sell it to you for $5.42. You would, you know, click bond there. You approve the LP to get transferred. And then basically you repurchase FXS at that discount. amounted price over the course of, I think in their case, it's two weeks. Your FXS will become available to you.

Starting point is 00:47:26 Right when you create it, the FRAX protocol now owns that liquidity. And you can see that they have purchased about a quarter million worth of liquidity so far. And that's it. So is this open to basically any DFI protocol now to set this mechanism up? Or you set a first cohort, are you kind of selecting some projects? first. Yeah, so we're kind of phasing it out. So right now we're doing cohorts. We have cohort two, I believe, quite soon in the next couple of weeks with the goal of, I think by end of year being permissionless and open. We're definitely like learning things as we deploy this for other protocols

Starting point is 00:48:08 that we want to kind of have in place before. It's really just opened everyone. And what is the benefit to Olympus Dow for, you know, creating, Olympus Pro as a primitive. Is there any benefit? Are you guys providing this as a public service? So there's two main ones. So one, we take a fee that's paid in the governance token of the protocol. And we don't really have any intent of like selling that.

Starting point is 00:48:33 Basically, what we want to do is have upside in these projects and align our incentives with them. So when they win, we win. The second is that, you know, kind of going back to what is the drawback? of this model, you know, that higher upfront cost. You know, what we want to push is that you can kind of see. So every single one of these pools is paired against EAT. And there's this question, you know, so they're driving demand for ETH in this relationship.

Starting point is 00:49:02 They're bringing ETH off of the market. They're paying for it to bring it into theirs. And there's this question of kind of what does ETH give back to them for that relationship? So, you know, ETH is a very large and capitalized asset. it's very ingrained in the space, but the reality is that it doesn't do a lot for you as a protocol or an individual. You know, the modus of responsibilities entirely on you to pay the cost of that. What we want to do is start getting these pools to be paired instead of against ETH, against EAM, or against GM, which will be, you know, our governance, on-chain governed token. through that, you know, we on our end already are accumulating liquidity and, you know, assets and paying for it with OM.

Starting point is 00:49:52 They are doing the same now. And if they're paying for it and sucking in OM, you know, it kind of makes sense that we would do the same for them. You know, it's an activity that we're already engaged in. And if that can be a mutually beneficial one, let's do it. So, you know, we see it as kind of a way. to expand the utility and use of own kind of on a protocol level where, you know, because we might be willing to offer bonds on like the frax geome pair, or actually we have a frax own pair that we own, you know, $30 million per the, but because of that, the cost of

Starting point is 00:50:31 capital for these protocols diminishes. So instead of having paid that entire cost, we are now paying some of it too. And we're reducing what they have to pay. And so it makes this entire proposition a lot easier because, you know, instead of having to pay X number of months or years worth of incentives for this, you know, we cut that in half or we cut that, you know, to a third or something, doing an activity that we're already engaged in anyways. So it's very much I see as a win-win. Soos, a lot of people in the YouTube chat are asking about why some of these have a negative ROI percentage. Can you explain why that dynamic exists? Yep. Um, So these, the protocol or the bond mechanism does not look at the price of the actual market.

Starting point is 00:51:19 It has no idea what the, what the asset actually trades for. It has an internal price that is separate from, you know, anything else. It's like its own pricing. And basically what it does is, you know, for the Alkex-Eth pool. Maybe it starts at 360. And over time, you know, no one buys that. it'll just keep decreasing the price. So it's kind of like a Dutch auction.

Starting point is 00:51:44 Price keeps going down until someone decides they want to buy that bond. At that point, when it receives that, it just ticks the price up. You know, there's math involved here, and I won't like get into it. But price raises, now it's higher, and then it just starts ticking down again. And it ticks down until someone buys it back up. So when someone buys it, it kicks that price up. And, you know, generally what you'll see is it falls in. to a negative discount, where now that price that it's quoting is higher than the market price.

Starting point is 00:52:16 And basically, all you have to do is just wait over time, it'll decrease until it's a discount, and then it's enough of a discount that someone buys it and brings it into the negative territory again. So at that spell, which is clocking in at, like, negative 5% ROI, does that imply that somebody just, like, took a bought a bunch of that bond, and they are now, and now the spell ROI is just negative five because somebody recently bought a bunch. Yep. I would imagine if you looked at the chain, yeah, you'd see that someone just bought a bond that was large enough to take the discount from positive to negative. So, Zeus, I'm curious as we kind of close this section, and we've got more questions to ask

Starting point is 00:52:56 you on the other side of the Olympus Dow, but like we started this whole conversation under the, I guess, the label of DFI2.O. And so is this what DFI2.0 is? Basically what we're talking about, Is it just protocols that start to, this is a new generation of protocols that start to own their own liquidity? Is that a core piece of it? Is that the only piece of it? What do you make of this whole defy 2.0 moniker in general? Yeah.

Starting point is 00:53:25 So I think that the name kind of came out of nowhere and has really become pervasive very quickly. But yeah, that's kind of how I see it is. It's protocols that are geared towards longevity, I think, at a baseline. So focusing on things that accrue long-term value towards the protocol and less so on single point in time activities. And I think it's a natural conclusion of just, you know, defy, you know, you touched on at the beginning of this, you know, defy is pretty much only like a year old in a real sense. You know, May last year was really the kick off of all this. And we've had this kind of journey of, you know, incentives enabled all.

Starting point is 00:54:09 all these products be built and become usable. And we've realized in the past year that the structure under which that works doesn't work that well in terms of like capturing the upside of that protocol. So generally, if you want to do that, you're the farmer that's dumping on everyone. So I see DFI 2.0 as really geared towards aligning incentives between the facilitators and holders, facilitators of the protocol, holders of the protocol token towards long-term success. That's great. So, guys, we're going to have to cut for sponsors, and we want to thank the sponsors that made

Starting point is 00:54:51 this episode possible. When we get back, we will be talking about Olympus Dow. I think it's a case study, maybe an algorithmic stable coin that's trying to become a store of value, trying to become a money that is based on this protocol-owned liquidity incentive of structure. We've got a lot of questions about that, including some hard ones on whether this is a Ponzi scheme or something else. Ponsie game. Ponzi game. Ponsie game. But before we do that, we want to thank the sponsors that made this episode possible. Alchemics is one of the coolest new defy apps on the scene. It introduces self-paying loans, allowing you to spend and save

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Starting point is 00:56:55 yield, and all of those same assets can also be borrowed from the protocol if you have supplied collateral. Here you can see me borrowing 200 USDC against MyPort Worth. of a number of different defy tokens in ETH. I'll choose a variable interest rate because it's a lower rate than the stable interest rate option, but I could choose the stable interest rate option if I wanted to lock in that interest rate in permanently. V2 also features the ability for users to swap collateral without having to withdraw their assets, trade them on un-swap, and then deposit them back into AVE.

Starting point is 00:57:27 With AVE users can do this in one seamless transaction, saving you time and gas costs. Check out the power of AVE at AVE.com. That's A-A-A-V-E.com. All right, guys, we are back talking to Zeus from Olympus Dow Protocol. So, Zeus, we've talked so much about protocol on liquidity. I think we have a good picture of that. Now I want to talk about Olympus Dow as a project because it is absolutely exploded on the scene this year.

Starting point is 00:57:58 Like, I don't know what it's market cap is right now. It's like $2.5 billion, something like that from basically nothing. from, you know, from scratch. And this is described as kind of an algorithmic stable coin. I know it's partially backed. It's also free floating. Can you talk to us about why this is going to be successful where other alga stable coins have failed? Because Zeus, we have been scarred, I think, in defy by failure after failure, after failure of these types of monetary experiments. They get to a certain point, and they all eventually blow up. Some of them don't even launch, but the ones that do launch, they tend to, like, you know,

Starting point is 00:58:42 crumble away and die and bank runs and all sorts of other things. Why is Olympus Dow different in your mind? Yeah, so the first one is kind of easy, so we're not trying to be a stable coin. We're trying to build a currency. So the goal is that in the long term, it is stable and low volatility. but the goal is not to just trade at a $1 peg. So that's one of the first issues with those previous models was that when you try to peg to $1,

Starting point is 00:59:16 and you're reliant on market behavior to facilitate that, you create this dynamic where everyone's confidence in this is derived from it holding $1. So currency is all just a confidence. game at the end of the day, you know, whether people believe that this monetary asset has value dictates whether it has value. And, you know, if you have this scenario where only when it is worth this amount, does it have value? Then the second that you deviate from that, you can very easily collapse. And that's kind of what we've seen with every previous, like, experiment is that it

Starting point is 00:59:57 works until there's one moment that it doesn't work. And then in that one moment, everyone decides that it's over and they need to get out and then it, you know, it becomes self-fulfilling. So it's hard for them to kind of recover from those situations. So in our case, you know, we don't have a peg. There is no correct price. And so you remove that dynamic of deriving confidence from a trading at exactly this point. That's the free-floating aspect of this. Yeah.

Starting point is 01:00:26 The other one that I think, you know, we have an advantage over, you know, those previous models is that if you're relying on third-party behavior and like incentive structure, which all these Algo Stablecoins have been, you have to pay for that, right? So you need to pay third parties to go do something. Otherwise, they're not going to do it because what's in it for them? That cost is a cost on the market. And there's kind of this question of like, okay, what are you accruing for that cost? And the answer is kind of nothing. You're accruing that I hold this peg for this exact moment in time. So you're just paying money to maintain like a steady state.

Starting point is 01:01:06 It's like running on a hamster wheel. And you hit this point where, you know, there's not enough coming in to really sustain that anymore. And so you flip to the other direction. And because everyone is deriving their confidence from holding this one number, once, you know, you flip in the other, like from growing to shrinking, you know, you're at a very high risk of just full on collapse as people realize that they're not going to be.

Starting point is 01:01:30 make more money in this and so they jump out and leave. And that kind of like turns into a race to the bottom. You know, in our case, the protocol is accruing assets as a result of, you know, this incentivized behavior. So everything accrues value towards the protocol. You are creating tangible value in the protocol that persists, no matter like, you know, someone was participating yesterday and they're not today. That doesn't matter. That value is already there and it's not going anywhere. And so, you're actually building towards something. You're accruing something that has long-lasting benefit, which, you know, I think definitely aligns people's incentives at least towards

Starting point is 01:02:13 having longevity and building towards, you know, a longer-term vision than just trying to, you know, keep up with the treadmill. Zeus, can you elaborate on the currency branding? Because I could see a parallel universe where a little bit of a little bit of a little bit of Olympus Dow is exactly the same, but instead of having a currency branding, maybe it has a fund branding. Because as I understand it, Olympus Dow is a mechanism, a system of smart contracts that incentivizes depositing collateral, depositing assets into the smart contracts. And then it has this OHM token, which is loosely valued based off of the total deposited collateral. And so it's kind of backed by the collateral.

Starting point is 01:02:56 but in the same way, the value of a fund is backed by the value of what it has invested in. So can you elaborate on like why the currency branding? And do you think the fund or, you know, hedge fund or just like, I think, yeah, hedge fund, like why that branding isn't appropriate or perhaps is it? Yeah. I mean, I think it really comes down to like especially with the Algo Stable experiments. Like what is trying to be accomplished? So, you know, the point of all those, why, you know, a success won't be valuable is that this is this decentralized and censorship-resistant currency for people to use in defy and, you know, conceivably beyond that.

Starting point is 01:03:40 And but it comes down to the stuff, what are you trying to create? And it's like this mirror image of the dollar. The dollar is free-floating in value. there's no peg for the dollar. So why are we trying to mimic the exact dollar when we could create a new dollar? That's kind of where it comes out. The goal should be that we have our own native currency and not just that we have like a censorship-resistant version of the trad-fought currency.

Starting point is 01:04:11 So sorry, I'm kind of losing my train of thought. I mean, we're with you. We're definitely with you right there, right? That's why we talk about like, you know, Bitcoin being a non-sovereign money, Eif being a non-sovereign money and, you know, that sort of thing. I do want to get back on that thread because there's more to pull on there. But like really quick, another question I had in the design of this thing is so is Ome fully collateralized? Is it partially collateralized?

Starting point is 01:04:37 Like what dictates the market price of an Ome and then how much of that market price rests on what's inside of either Lippa's Dow Treasury? Yeah, so it is, I guess, in a real sense, partially collateralized. Essentially, it's predicated on this mint requirement. So the protocol can only create OM if it has one unit of a stable coin or equivalent in its treasury. So you create this floor where, you know, literally this token cannot exist unless that amount of value backs it. In reality, we have 42, 44 units per token. And so there's this like surplus that allows us to mint new tokens and distribute them as rewards. But those are all fully backed at that one die kind of floor.

Starting point is 01:05:33 You know, in reality, because we trade higher than, you know, 42 or 44, it becomes partially collateralized. The difference there is monetary premium. So, you know, if you look at ETH or Bitcoin or, you know, any monetary asset, you know, the entire value that they trade above zero is monetary premium, essentially. You do have an argument of like, you know, transaction fees for ether Bitcoin or like, you know, industrial use for gold. But like the actual market there is much smaller than the market capital's assets. You know, the value is expanded with monetary premium, which is essentially just, you know, we as, as. you know, monkeys decide that something is worth something, even though it's not actually, and use that to facilitate, like, trading cooperation among ourselves.

Starting point is 01:06:24 So you don't want to, like, have the actual, I'm not going to, like, a barter kind of like-kind exchange economy is inefficient. You don't want the actual value that you're exchanging to be equal on both sides. And so you have, like, this monetary intermediary. that's not actually worth anything. It doesn't cost society anything, but you can use it to transact between people. So you kind of increase efficiency

Starting point is 01:06:51 and like anything that's productive, you're putting towards productive use. That's kind of where the premium comes in. And like the idea of backing is that with these monetary assets, they're entirely predicated on that monetary premium continuing to exist. If it doesn't, you're kind of hosed. And if you have reserves the back it, basically what that does is today we are agreeing that there's a monetary premium for this asset.

Starting point is 01:07:18 But if tomorrow that agreement no longer exists, we can pull in this other asset that agnostic of us, we all agree, has value, and use that to imbue our market with value once again. So you have this outside source of value that you can use to support the value of your own market. And agreeing that OM has value doesn't have anything to do, with agreeing that ETH or Die has value. You know, they're completely separate. And so you kind of de-risk the market because the value is not just predicated on belief in the monetary premium of OM, but also the belief in the monetary premium of whatever

Starting point is 01:07:56 backsome, or, you know, not even monetary premium, but, you know, we hold a lot of monies. And, you know, and this is pretty much the currency model that has existed, like, past 100 years, essentially. You know, the Fiat system is a little weirder because they don't have like a hard backing requirement. But you still do, you know, in Fiat currencies today, have central banks that hold assets. They use those assets to facilitate the markets of their currencies and, you know, kind of support the market for their currency, decreased volatility.

Starting point is 01:08:30 So it's easier to use, you know, within their economies, you know, pretty much the same model. So I would argue, you know, if you're going to call this edge fund, then you would call central banks hedge fund as well. You know, maybe there is an argument for that, but. Zeus, all successful protocols generate haters some way, one way or another, and there's no doubt that

Starting point is 01:08:52 Olympus Dow has been extremely successful, especially over the last six months or so. And so, I think if you ask the OMIs this question, they would call you naive, but I just want to address this question, and I think you might have already answered it in a roundabout way, but for the haters out there,

Starting point is 01:09:09 that think that Olympus Dow is just a Ponzi game where it's just a game of chicken and at some point it's going to collapse. What would you say to somebody that has that critique? I mean, I would just say, would you say the same thing about Bitcoin or Eith or any of these governance tokens or pretty much any asset?

Starting point is 01:09:31 You know, it's the same argument. It doesn't mean that there's no validity but just to be consistent about it. So you either think that all markets are a Ponzi or you think none of the, or you think that actual Ponzi's are Ponzi's, you know, there are very clear things that dictate, like, like it generally comes down to maliciousness and lack of transparency, you know, being lied to about what is going on here. And usually an element of like, you know, whoever is maintaining it is just taking that money

Starting point is 01:10:00 and buying yachts and jetskies and stuff. But I think it really just comes down, like, this is how markets work. you know, you take something that, you know, is intrinsically less valuable and you imbue it with more value. Like, that's the whole point of a market. If you wanted everything to trade at the exact value that it was worth, then you wouldn't have markets. So I personally come down to the place where, like, I believe like all money is basically a meme, right? And so if we do call these money systems Ponzi's, then I guess they're all Ponzi's. They're all, you know, some of them have greater degrees of transparency than others, at least when it's on chain, it does have some degree

Starting point is 01:10:42 of transparency. But like they're Ponzi's in that like it's all a shared myth, a shared belief that, you know, humans have. That what is going to be the point system for how we denominate things, right? It's like at the end of the day, it's a collective choice. Right. Ryan and I were discussing at the start of this show that as soon as you perceive value, as soon as value starts to become perceived, everything starts to be a Ponzi game, which is not, which is meaningfully different than a Ponzi scheme. Yeah, it is, it does have a negative connotation. A lot of people aren't really willing to accept the term that Ponzi game is actually just like kind of the way that the world works. Yeah. I see, I think that's a different name. Yeah, I feel like if it had a different name,

Starting point is 01:11:26 it would be much more agreeable because like it inherently is not a bad thing. I don't think. Like, you know, the point of markets is generally to, like, expand value and, you know, facilitate resources. That's what that is. So I guess my question, though, Zuse, is why do you think that Olympstow and, you know, the OMIs have a shot against all of the competing other monies in the world, right? So you could take Fiat, right? We know all the problems with Fiat. But even take, just let's take the world of crypto.

Starting point is 01:12:01 So could it actually compete? against a Bitcoin? Could it actually compete against an Eiff? Does it need to compete against these things to have some sort of monetary premium? Or is this not a like winner take all, winner take most market? What's your take on some of these things? So I don't think that we need to compete at all. I see it as very complimentary. So you have this dynamic of, you know, two things. So you have money and you have currency. And, you know, they're pretty generally conflated to be the same thing, but they're not. So, you know, monies are generally hard assets and they generally are like purely monetary premium.

Starting point is 01:12:40 So, you know, ETH and Bitcoin don't need to be backed, you know, because we're okay with them being volatile. We're okay with like, you know, like that's the nature of a hard asset. A currency is something built on top of that, which kind of harnesses the value of those hard assets and those monies. but converts it into a more stable and risk-mitigated format. So you have a similar dynamic than you have a monetary premium, but that monetary premium is less. Instead of infinite premium, it is something quantifiable. So do we have a better chance than Bitcoin of replacing cold?

Starting point is 01:13:19 Probably not. Do we have a better chance than Bitcoin at replacing or at least like serving a role that like Fiat currencies do, I would say yes. And the biggest reason there being, one, you can mitigate risk in that, you know, there is an intrinsic value to this network. And so, you know, you as a participant, you know, can quantify your downside. Even, you know, right now our premium is, you know, five or six X. So that downside is still, you know, tangible.

Starting point is 01:13:49 But, you know, you can't like literally just go to and sit at zero in the way that like, you know, in a real black swan, like, you know, even Bitcoin could. Although, you know, there's plenty of people that are like, I will buy every Bitcoin at $1 if it goes there. I mean, I would buy my first Bitcoin at $1 if it goes there. Really, your first Bitcoin. No, I've owned Bitcoin before, but still. The other is that you have an entity in the market that is incentivized to stabilize the asset.

Starting point is 01:14:25 So this is one that, you know, time will kind of tell for these. But for Bitcoin and ETH, which are, you know, like kind of the poster child biggest ones, like I don't see any real incentive towards stabilizing these assets in to a degree that they can really be used in the same way that Fiat currencies are. You know, you need like very low volatility and everyone is in Bitcoin or ETH for it to appreciate. So, you know, the incentives are misaligned where, you know, no one really wants that. versus, you know, in the case of home, like, you know, the protocol is willing to fall on the fall on the knife or whatever to facilitate that, you know, even if it's not a profitable endeavor,

Starting point is 01:15:07 you know, it might lose money to provide spreads that decrease volatility or at least put itself at risk of losing money in a way that a third-party actor might not be. So, you know, this kind of comes back to like the facilitating LP and everything. you just have an entity that is willing to make actions that a third party might not be. You know, an action that like, you know, a third party might be taking too much risk that they think that it's not worth it for them or they're not getting incentivized enough and so it's not worth it. Like the protocol will do that because the token holders of the protocol, you know, it brings value to them.

Starting point is 01:15:41 And so they, you know, are willing to kind of have the protocol serve that role. Okay. So your model of things, right? It's a high level. It's like we have the, the, you know, the. physical world over here, right? And that world is based on, like, originally these hard money assets like gold and silver, these sorts of things. And then over time, we had central banks that built on top of those things and created currencies. They created sort of fiats on top of that.

Starting point is 01:16:05 Now, over here, we have this digital crypto-backed world. And at the bottom, you're saying are hard assets like Bitcoin and Eith. And where you see Olympus Dow is sort of the currency layer above those hard assets. It's almost like competing as sort of a decentralized, Dow-driven Federal Reserve, right? And that's how these two worlds are modeled in your mind. Is that right? And for the record, the Federal Reserve has done a fantastic job on putting assets on the balance sheet.

Starting point is 01:16:40 Yes, I mean, they're doing kind of the same thing. Zeus, we don't have too much time, but more time. but want to ask you about the omies. So where does community come from? I mean, they're everywhere now. What unites them? Why are they so excited and energetic? Yeah.

Starting point is 01:16:56 Yeah, I mean, so it's definitely been incredible for me to witness. You know, it's definitely beyond anyone how this has come to form. But I think it really just comes down to like, this was the vision of crypto originally. You know, this is what crypto was meant to accomplish. And as it's developed, we've kind of seen that, like, it hasn't actually happened. You know, you still have kind of the same dynamic where it's like, you know, like the whole industry used to be called like cryptocurrency for a reason. Like, I don't think that we actually have any cryptocurrencies.

Starting point is 01:17:34 But, you know, the narrative, I guess, was always that, oh, in the future, you know, these things will be usable in the same way that you use. like dollars or whatever currency today. And now we're sitting at, you know, multi-trillion dollar total market gap, you know, a trillion dollars for Bitcoin, and it still kind of behaves the same way

Starting point is 01:17:55 that it did several years ago. Yes, it's a little less volatile. Like, it's getting there. But, you know, I think that most people don't feel like satisfied with the actual progress made there. And so I think that OMA has been very captivating in that this,

Starting point is 01:18:12 this is the model that has worked for the last century. It kind of makes sense to just replicate what works instead of trying to go back to like a gold system. You know, like we're like having a gold standard instead of gold is kind of how I see it. You know, there's a reason that we moved to currency in the first place. I don't know, I kind of just see Ome as like the first, the first real attempt at that.

Starting point is 01:18:44 And I think that like there's a lot of demand to see something like that in the world. And so it's very captivating for people. That's kind of how I interpret it. Very cool. Zunis. Yeah, it seems like you guys have captured a lot of latent energy in this space and occupied a lot of minds, mindshare. And you want to want to conclude with this question. You know, thank you for your time.

Starting point is 01:19:03 It's been a blast talking about all of these things. But we've been talking about this theme of defy 2.0. And David and I have been on kind of a journey, a vision quest. we're exploring DFI here recently. Who else should we talk to? Who are some of the coolest DFI2. projects that you've come across recently? Yeah, so I love what Alchemics is doing.

Starting point is 01:19:26 I think Tokomac is really cool under the same vein. Or under the same vein as like us, not really alchemics. Who else? I mean, all of our Olympus Pro partners, you know, have kind of demonstrated that they see the vision here and they want to be a part of it. Yeah, I would say, like, I don't know. Tokomac is one that, like, still hasn't launched yet. The jury is still out.

Starting point is 01:19:57 But I respect the angle that they're taking for, you know, a very similar problem. Fay is another one. You know, they're kind of tackling the same thing as Tokomac, where, you know, where we're all kind of waking up to this fact that perpetual instance, incentivization of liquidity is not something that's going to work in the long term, at least on like a large scale and for everyone. And, you know, we've got a couple of different contenders now trying to try to solve that problem.

Starting point is 01:20:25 And I think that it's going to result in not a winner take-all system, but a lot of different options for protocols to secure liquidity and facilitate what they need to, depending on what works best for them. That's great. Zeus, thank you so much. We got Fay, Tokomak, Olympus, Dow, Pro. are all doing great work. We're excited as you continue down this path. Thanks for spending some time with us. Thank you, guys. Risk and disclaimers, guys, of course. Crypto is risky. Defi is

Starting point is 01:20:54 risky. So is an algorithmic coin. All of it's risky. 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.

Bankless - The Secret Weapon of DeFi 2.0 | Zeus from Olympus DAO

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