Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Hayden Adams: Uniswap – An Automated Decentralized Exchange for Ethereum

Episode Date: June 18, 2019

The concept of a decentralized exchange has been a holy grail in the cryptocurrency space for many years. Many attempts have been made, but most decentralized exchanges suffered from central points of failure, poor user experience and little liquidity. Launched during Ethereum's DevCon 2018, Uniswap is one of the first fully decentralized exchanges and managed to become the leading DEX very fast. We were joined by Uniswap Founder Hayden Adams to discuss Uniswap's unique model, the different participants in the protocol and the importance of decentralized exchanges for the blockchain space. Topics covered in this episode: How Hayden's exploratory project to learn smart contract development took off and became Uniswap How Uniswap works and its different participants The advantage of an automated exchange instead of using order books The role of liquidity providers in Uniswap Feedback loops that can make Uniswap markets popular or collapse The challenging economics of liquidity shares Addressing Arthur Hayes' criticism of decentralized exchanges Why Uniswap didn't create a tokeneconomic monetization model Episode links: Uniswap Exchange Protocol Uniswap Whitepaper Uniswap: Getting Started & Documentation Unisocks Exchange Distributed 2018: Presentation about Decentralized Exchanges by Arthur Hayes (BitMEX) Buidl Asia 2019 Conference in Seoul, Korea on July 22-23 HackAtom Seoul on July 19-21 Sponsors: Azure: Deploy enterprise-ready consortium blockchain networks that scale in just a few clicks - http://aka.ms/epicenter Trail of Bits: Trust the team at the forefront of blockchain security research - https://trailofbits.com This episode is hosted by Brian Fabian Crain & Sunny Aggarwal. Show notes and listening options: epicenter.tv/292

This is Epicenter, Episode 292 with guest Hayden Adams. This episode of Epicenter is brought to you by Microsoft Azure. Do you have an idea for a blockchain app but are worried about the time and cost it will take to develop? The new Azure Blockchain DevKit is a free download that brings together the tools you need to get your first app running in less than 30 minutes. Learn more at aka.m.s. slash Epicenter. And by Trail of Bits. Don't leave your project's security audit.

to just any firm. Trust a team with decades of experience at the forefront of blockchain security research. Go to trailofbits.com to learn more. Hello and welcome to Epicenter. My name is Brian Farman Crane. And my name is Sunny Agarwal. So before we go into our conversation,

we just wanted to let you guys know about a conference or some events that are coming up. Actually, both Sunny and I will be there. So there's this conference called Biddle, which is you know it's kind of the

Ethereum huddle right the biddle which is taking place in South Korea and Seoul

on July 22nd and 23rd so you know both Sonny and I are going to be there and I think

we're both going to give talks at the conference so I'm super excited personally to like make it I've never been

to South Korea and I either of actually yeah I actually haven't even been to Asia since I'm

I've become involved in the blockchain space, right? So I haven't kind of never had the sort of the exposure to the Asian blockchain world. I'm super excited about that as well. Also, just before that conference, there is a hackathon taking place in Seoul as well. So that's on Friday to Sunday, and we'll put a link in the show notes. So that's Friday, July 19th to Sunday, July 21st. So we'll also be at that. We're with course one, we're one of the sponsors of that event.

And so yeah, hopefully maybe see some of you either at Biddle or at, or at the hackathon. Maybe you should do like episode of meetup there or something like that. It's going to be a Cosmos hackathon as well. So, you know, if you're interested in coming on working on some cool Cosmos SDK kind of stuff or tenderment, so it'll be a really fun experience, I think. I think. I'll be mentoring and judging. Okay, fantastic.

And yeah, with that, so today we spoke about with Hayden Adams. He's the founder of Uniswop. Uniswop is one of those things that I think I remember. He mentioned it was launched in during DevCon and Prague. And I think I mentioned it. I remember hearing about it back then where people are, oh, this Uniswop thing, this new Unisrop thing. And there started being quite a lot of buzz around it and became kind of one of the first.

most widely used Ethereum DeFi project in a very short time. So, yeah, that was our conversation with Hayden. So yeah, with that, let's go into conversation. I think it's really interesting to dive into Unisrop and kind of define decentralized exchanges more general. So let's go there. So we're here today with Hayden Adams. He's the founder of Uniswop.

And Unisrop was one of these things that kind of came out of nowhere. And, you know, all of a sudden there was, you know, a lot, a lot, relatively. with lots, but lots of activity happening, and it kind of became one of the main, the most used Ethereum kind of defied DAPs. So yeah, we're really excited that I've Hayden on today to dive a little bit into like what Uniswop is and, you know, kind of his thoughts on the future of decentralized exchanges and decentralized finance. So thanks so much for joining us today, Hayden. Yeah, thank you for having me on. Yeah, it's often interesting to hear a little bit.

Okay, what was your journey? How did you kind of become involved in, Ethereum space and like find your way towards working on UNISW. Yeah. It might feel like UNISWOP came out of nowhere for you guys. But actually, before it was even announced, I worked on it for over a year. But yeah, I basically, I was a mechanical engineering major. So I spent, you know, after I graduated from college, I spent a year working in thermodynamics, studying heat flow and car designs.

But I was sort of passively. following the crypto space. A good friend of mine from college, Carl Flush, had joined the Ethereum Foundation, and so he was sort of constantly talking about Ethereum and slowly piquing my interest. And I actually got laid off from work in about, I believe, June 2017, just as the sort of crypto bull run started. And I really was interested in the space at that point, and I wanted to get more involved.

and I decided, you know, mechanical engineering was interesting, but not that interesting. And I just decided to dive into crypto. And I was looking, and so I spent, you know, a couple months just messing around, learning solidity, you know, trying out token contracts. But I was looking for a real project to sort of grow and improve on and really become a, you know, a smart contract developer. Carl at the time pointed me to some blog posts from Vitalik talking about something called a X times Y equals K market maker. And so I basically started working on the first version of Uniswap in October 2017. And so it was basically my first project.

To some extent it was my first big project as a developer. And it was definitely my first project in crypto. And so I spent a few months building. a proof of concept for that. And, you know, I sort of, I never really thought it would go that far. But I was, you know, I started, I just created this initial website that allowed you to swap between two tokens. And then I slowly started adding features onto it.

You know, pooled liquidity across multiple liquidity providers. Chaining swaps so you could go EERC20 to ETH and then ETH to another EARC20 in a single transaction. You know, I figured out fee payouts. And once it started to seem like this could be a little bit more. more than just a side project. I applied for an Ethereum Foundation grant, and this was in April 2018, so I worked on it through the winter, basically on my own. And I continued specking it out from there. The Ethereum Foundation grant was granted. And so at that point, it became a lot more

real. So I hired a runtime verification to formalize the coding spec and formalize the X times Y equals K model and I hired some contractors to work on the interface. I wrote the white paper. I wrote documentation. And this was through the summer into early fall 2018. And then I announced it on Twitter to a few hundred Twitter followers at DevCon 3 in Prague in November 2nd, I believe, or November 4th, 2018. And then it kind of exploded from there. And so this was like sort of your first ever software engineering project you really took on. Yeah, to some extent. I mean, I was a mechanical engineer before, so it's not that, it's not that I never, it's not that I never written code before. The code I had written was more about, you know, it was more like Matt Lab style

or, you know, Arduino robots, very, very small stuff. This is my first real, you know, the first website, the first interface for Uniswap was my first website and the Uniswap contract was my first, yeah. And the testing for Uniswap was the first unit test I'd ever written. So it was, you know, yeah, it was basically the first coding project. Yeah. And so did you also have any experience with like, you know, trading and stuff or any experience with like, you know, dealing with exchanges as a user? Okay. So not really.

Well, as a user, a little bit. I had used Coinbase. I had used Bitrex. I'd use some of the centralized exchanges. and I had heard a lot about some of the, like I heard, obviously heard about Mount Gox. I knew about Ether Delta. And so at the time I started working on Uniswap, Ether Delta was the Dex. And it was a big step forward in some ways.

It was non-custodial, which was a big deal. I kind of recognized that. The exchange no longer held your funds, and it couldn't steal them. But it wasn't decentralized in the way that Ethereum was decentralized. And it wasn't censorship resistant the way Ethereum was censorship resistant, and it was kind of a pain to use. And so when I started experimenting with Uniswap, it was an experiment in being as uncompromising as possible on the decentralization and censorship resistant fronts, and on the U.S. fronts as well. Basically, yeah, those were the properties of Ethereum that had interested me. You know, the fact that you couldn't just shut down Ethereum, the fact that no one controlled Ethereum.

Even though no one could steal the funds in EtherD delta, people could still shut it down. People could still, you know, there was still someone controlling the order book or hosting an order book. There was still someone that, you know, was able to take down the smart contracts or upgrade them or control the token listing or take fees off of every transaction. It wasn't decentralized in the way that Ethereum is. And so that's really, that was like the sort of from a research side, from a sort of experimental side, that's what I was going for with Uniswap. It was the kind of like deeper reason why you cared about, you know, this particular aspect. You know, there's so many different things that you could build out in the Ethereum space and smart contract space. So why focus on exchange?

Why focus on exchange? Well, I mean, to some extent, I kind of wandered into it. It wasn't something that I, you know, I didn't enter the Ethereum space immediately saying, oh, I need to work on exchange. But it was more like, I need a project to learn on. I need a project to, you know, figure out how. how smart contracts work and what they really do. And that just ended up being Uniswop. The more I spent, the more time I spent building it,

the more interested in exchange I got, the more interested in automated market making I got. So it kind of developed naturally. It wasn't, yeah. But it seems like, funny enough, it was the most overcrowded space, and yet it was still not being served in certain ways. There were a lot of projects in the space,

but they all had like compromised on certain things that I didn't think should be compromised on. Or at least I thought it was worth experimenting in a project that did not compromise on those things. Yeah. Well, let's dive into Uniswop a little bit. So, I mean, we mentioned, okay, decentralized exchange. You mentioned this market maker thing. Like what gives you your like high-level overview of like how does Uniswap work? Yeah, for sure.

Uniswap is a decentralized exchange protocol on high levels. and it's made up of a series of automated market makers. So basically the way it works is that every single, there's a series of exchange contracts, one for each token, and each exchange contract represents an ERC20 to ether pair. So it allows you to trade between ether and ERC20 tokens. And they are all linked together by a factory-slash-registry contract

that basically holds a mapping of token, addresses to exchange addresses and so it allows you to look up you know if you have a token address it allows you to look up the exchange address associated with that token and so each uh so if you want to dive into more how each exchange contract works let's say you have a uh eth to die pair right so anyone who wants can uh call the factory contract and deploy this uh die exchange contract and then anyone who wants can deposit liquidity into that die exchange contract and so there's two classes of users in one of these exchanges. There's liquidity providers and there's traders.

Liquidity providers basically deposit two tokens, Ether and the ERC20, into one of these exchange contracts. And then traders basically send one token to the contract and get the other token out. One of the cool sort of aspects that it's trying to solve is removing the need to coordinate users under an order book. And you know, you don't need to actually, it's sort of solving some of the coordination

between liquidity providers and traders. You have one of these exchange contracts, and let's say a liquidity provider, the first liquidity provider would put in an equivalent USD value of ETH in that EARC20 token. So they might put in $50,000 worth of ETH and $50,000 worth of die. And then exchange between the two assets are automated

using this formula, X times Y equals K, which we're calling the constant product market-making formula. And basically the way it works is, you know, you have 10-eath and a thousand die in the contract, then the constant would be 10,000. And then if you send one-eath to the contract, then now there's 11-eath in the contract. The contract says, well, the eth times the die in the contract needs to be held constant. So you do, you know, 10,000 divided by 11, and that gives you the amount of die that should be in the contract, which is, you know, 909.

And so it returns 91 back to the buyer, which is, you know, the difference between the amount that's in the contract and the amount that should be in the contract. So essentially what's happening here just to clarify is that basically, you know, the more that people are buying, the system sort of is automatically cranking up the price. And the more people are selling, it's cranking down the price. Correct. Yeah.

The more you sell, the higher the exchange rate goes. And that's basically what we're calling slippage. So in general, you want to make a trade that is small relative to the total size and the liquidity reserves. So, you know, if you have a million dollars in the contract, you can make $10,000 trades. You can't make $500,000 trades because that will have a huge amount of slippage. Yeah. And of course, some of our listeners will remember our episode with Bankor, which, you know, is a few years ago and now, but Bankrupt kind of had a similar mechanism, right, where you also have,

like, this contract on chain. And then the idea is, okay, anybody can go there and, you know, there's always a price, right? The contract's always willing to trade with you. Whereas, you know, traditionally change, you have, like, buyers and sellers, and there has to be some sort of matching. And, you know, if there's no, let's say there's a lot, little liquidity and maybe there are, no buyers or very few buyers. Whereas here, I guess one of the benefits is that it, it might work, well for, you know, illiquid markets, too. Yeah, yeah, correct. Bankor is very similar to Uniswap.

One of the main differences is that Uniswap uses Ether. So Bankor and Uniswap both have a common pair. In Uniswap, it's Ether, and in Bankor, it's the BNT token. We think that, you know, sort of part of the idea is that, you know, having Ether is sort of more liquid and represents the, it's the sort of underlying token for the protocol, whereas BNT was this just token that Bankor made and sold 30% of for $150 million or something. Crazy like that. Maybe I don't know the exact percent they sold, but I know the exact amount they raised,

which was 153 million. What's the trading volume today on Uniswop versus Bankor? Today. You know, today is not, it kind of, it's hard to measure the, the Bankor volume because they kind of track it with their volume on EOS and then their volume, and then they double count through, volume through BNT, but the uniswap volume today is 500,000. Just for some context, like, you know, I know when I checked a few weeks ago, Uniswap has the highest volume of any exchange.

It's about 10, it had the, its volume is about 10x that of zero X. It is on some days. Not, not today. Today actually zero X is higher volume. But Uniswap had hit a peak volume of $6 million, about dollars in one day, about two weeks ago. Today is, just like a low volume day. But yeah, on many days, it's the number one decks in Ethereum. This episode of Epicenter is brought to you by Microsoft and the Azure Blockchain Workbench. Getting your blockchain from the whiteboard to production can be a big undertaking. And something as simple as connecting your blockchain to IoT devices or existing ERP systems is a project in itself. Well, the folks at Microsoft had you covered. You already know about the Azure

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Perhaps you're an institution working with Ethereum and rely on CSV files sent by email. One click in the Devkit and you can parse these files and have the data embedded in transactions. Whatever you're working with, the DevKit can read, transform, and act on the data. To learn more and to build your first application in less than 30 minutes, visit AKA.ms.ms slash Epicenter. And be sure to follow them on Twitter at MSFT blockchain. We'd like to thank Microsoft and Azure for their supportive Epicenter. So to go back to some of the mechanisms of how it works, So the ton of like what's happening here is that, you know, the concept of slippage exists in, you know, normal markets as well on like any exchange.

But it's usually rather a, in most exchanges and order books, it's an emergent property of the behavior that's exhibited by the actors in the system, right? So, you know, you'll often have market makers that come into the ecosystem and, you know, provide liquidity. And, you know, to incentivize themselves, they, you know, there's a spread between the, the bid and the ass. And that, that's what creates the slippage. Here, in Uniswap, instead of, like, slippage being an emergent property, it is sort of the core property into the protocol. And so, can you explain, look, what's some of the rationale behind this? And what are some of the implications and second order implications of such a radical change? to have we, you know, normally think about markets.

Yeah, yeah. So you pretty much nailed it. On an order book, you basically have, you know, constant bids and asks and market makers are maintaining, you know, spreads, right? I'll always buy this token for $1.1.1 and I'll always, or I'll always buy, yeah, and then I'll always sell it for $1.5, something like that. And then the more, and then, you know, the more, the more, the more expensive you get,

the more people are willing to sell out that price. and that sort of creates this natural. The more you buy, the more the price slips. In Uniswap, you know, it locks you into a curve, and it says basically the more you buy relative to the current liquidity available, it's a deterministic amount of slippage. And part of what that does is it forces all liquidity providers to basically work together rather than to compete, right?

So on traditional order books, liquidity providers are basically, you know, people with a lot of money, usually, and very sophisticated setups, and they're competing to offer the lowest lipage possible. And sometimes that actually, you know, the way it works out in many exchanges, is that they basically are paid, they're paid by the company that's, you know, by the exchange itself to operate tighter spreads to give users better rates,

and then the company sort of kick some of that money back. And so the exchange basically takes money on fees, and then they kick it back to the liquidity providers. Uniswaffe in some ways fully automates that. It basically says, we collect fees on trades. That all goes back to liquidity providers. But all liquidity providers are going to basically offer the same rates and the same slippage, and then we'll buy pro rata from all of them, and then we'll pay fees out to them pro rata as well.

Yes, it's a pretty big departure. I haven't heard of very many pro rata exchanges in the traditional finance world. but I think it's something that is very difficult to do in the traditional finance world. It's something that almost you need something like Ethereum to create, at least in a way that doesn't require having people custody all their funds under one person who's maintaining some formula. And yeah, one of the cool aspect of it is basically reducing the complexity of market making and reducing the barrier of entry to market making.

So Uniswap basically fully automates the spread. So rather than needing to constantly be watching the price and maintaining the spread, if you're a Unswap liquidity provider, you could sort of look at how you think the prices of the tokens will move long term. And then you can just lock liquidity up in Uniswap and kind of leave it in. You know, you're taking more bets on the initial and end price. and as long as you're kind of expecting some volume. It also allows you to contribute a very small amount of liquidity. So traditionally market makers, you know, they have to have a lot of money

to sort of be able to operate these businesses. In Uniswap, since it lumps everyone's liquidity together and pays out fees per rata and takes from them pro rata, you could put in $10 or you can put in $1,000, or you can put in a million dollars. And no matter what, you'll get a... a portion of the fees directly proportional to your contribution, which is the risk that you're taking in the system. So Uniswap has thousands of liquidity.

Like the ETH to Die pair, for example, and Uniswap has $3 million, and more than 25% of that comes from liquidity providers who put in less than 1% of the total liquidity. So there's plenty of people who put in $100 or $50, and they're all collecting fees, which, you know, normally you can't be a market maker with $50. So it almost turns it into, to some extent, it can, for some users, turn it into like an almost Robinhood-like experience where you're like putting in a little bit of money and earning passive income while for other people, they're putting in the larger amounts and they're maybe updating their prices and paying a little bit closer attention. I'd love to dive in a bit this business model of the liquidity provider, right? Because basically, let's say in the example you made, so we have $3 million.

that are kind of locked in this liquidity pool. Now, let's say I put up a million, right? So a third of this. And now all of the trading that's going on, 0.3%, right, is basically a fee. And that kind of gets added to the liquidity pool. So I put up a third, let's say, of the liquidity pool. But the liquidity pool now grows because fees are collected, right? So I'm now entitled to a third.

And, you know, let's say over time, maybe a million dollars after like half a year, a million dollars per fees are kind of accrued in the liquidity pool. So if I, and so now if $4 million in there, even though only three was put in as cash, so I could like take it out and I would get like, you know, one point, you know, one plus a third of a million out. And that would basically be sort of my profits, right? Correct. Yeah.

There's some fun rules of thumb with it. So basically your, if you take the. the daily volume times the fee rate, which is 0.3%, which is 0.003, and then you multiply that by 365 days in a year. It's basically the daily volume times 1.09. But you can kind of rule of thumb at daily volume times 1 is the value in fees generated. So to put it in a different way, if you do a million dollars in trading per day on Uniswap, then Unuswap will generate about a million dollars per year in fees.

and so there's a profit side and a loss side. I'm just going to focus on the fees and the profits, and then we'll get into where the losses come from because they're very separate. So, you know, if you have $10 million in a liquidity pool and you do a million dollars per day in trading, then you'll basically, you know, ignoring losses, you'd have about 10% returns

because you generate a million dollars per year in fees off 10 million in the pool, and so that's $11,10% APR. There's a whole losses side, which kind of you have to factor in as well. Yeah, I know. I just wanted to ask very briefly on this profit side. So in the die example you made, you have, because in the end, it kind of works out like an interest rate, right?

Like I put in some money and then these fees and it's kind of like you make some return on that. So. Right. If you had a very dependable volume and a constant amount of liquidity, then it's basically just the daily volume over the total liquidity is your interest rate. Right. It's a highly variable interest rate potentially. But so what is that right now for this die market, for example? You know, it fluctuates really because of how the trading works.

There have been days where the die market did like $2 million in trading off of, you know, off like a $3 million pool, which would be like a crazy return, right? It's almost, you know, it's like a 60% return on that day. If it did that every day for a year, it would be a 60% return. But then there are other days where it does, you know, $200,000 off of $3 million pool, which is a little bit lower. But the profits in general, the dye pool has been growing at a rate of about 11%. 11% return right now on the die pool, sort of averaged out, ignoring the losses side,

which once again I'll get into. And one of the interesting dynamics seems to be here, right? So let's say now in this dye example, I mean, if you have $2 million worth of trading on this market, then, okay, the return would be so high. But of course, it means that there's a huge incentive for anybody else to come in and, like, add liquidity to it. And then they can basically take a part of this return and you get this kind of dilution, right? So you'd expect that if there's a high trading volume, the liquidity pool kind of grows and then the returns come down again, right? Yeah, correct. You're sort of expecting the liquidity pools to grow. Basically,

the volume drive, in my mind, the volume drives liquidity, more than the liquidity drives volume, though it's kind of both ways. It's a little bit weird, right? Because if you have higher volume and then suddenly people have more liquidity, suddenly people can make better, there's tighter, like people can get better rates, then they can make larger trade, so maybe more people come into the market. So it kind of could be a positive feedback loop. It could be the reverse where, you know, everything's in a death spiral. Or, you know, it finds some happy medium. But yeah, basically, you're expecting the pools to grow proportional to the volume where everyone's kind of expecting to get some reasonable interest rate, kind of similar to where they might be able to get somewhere else. Is there any incentive for early liquidity providers?

So like, you know, let's say there's an illiquid market and, you know, I can be the first one or earlier to provide liquidity and that can help the market grow. There's only an incentive in that if there's already a high demand and there's no liquidity, then while you're the earlier provider, you're getting. a higher percentage of the fees until more people join the market. But the way Uniswav works is your fees are directly proportional to the liquidity that you put up. And, you know, so you can put in a million dollars and you're the first person and you do it for a month and you're getting 100% of the fees. Someone else comes in and puts in another million dollars, you know, they're getting 50%. You're getting 50%. And maybe, you know, they're willing to take less profit and than you. And so maybe you have to exit a little bit of your liquidity.

it's really just proportional to what you put in. There's no early, there's no benefits just because you were there earlier. And so is there any quote-unquote unbonding period from a liquidity pool? No, it's all instant. So as a provider, I could like, you know, given that eth is like the common trading volume, you know, it's in mind-centered to be running some sort of node that is automatically, like, rebalancing my eth from like different liquidity pools. Yeah, so I mean, I talked earlier about how like market makers could get the almost the Robin Hood level experience if, you know, with a little bit of work on our end.

But for people who are more sophisticated, who want to make higher profits, they can essentially adjust their rates by making a, so in Unuswop, you know, people say, you know, you can't, it always lags the market, you can't adjust your spot price. But you really can by making a trade and adding liquidity or making a trade and removing liquid. and then, or removing liquidity, making a trade and then adding it back in synchronously, you can just line up a series of transactions that sort of adjust the rate and your liquidity contributions. So there are definitely, there's definitely room for a lot more sophisticated market makers, and that's something that we're sort of very into and we're experimenting with as well. And also sort of optimizing, you know, ideally you can, you can model the optimal amount of liquidity for an asset based off certain properties such as volatility of the

asset and yeah and demand for it. So one of the things that seems like a challenging aspect here, let's say you have a market where, you know, there's not that much liquidity or kind of like liquidity goes down. Then, okay, but maybe I can go and I can lend my ethon, Dharma or like blockfire somewhere else and I make whatever, 6% there. But now the trading volume is very low and, you know, I'm only making 2% on Unosrop. So I want to take my eth out and put it somewhere else. But of course, that means that now the liquidity has decreased and the slippage is higher.

So it becomes like even more unattractive to trade. So like this is kind of like a death spiral seems to be like pretty likely to happen often. So that's what I was worried about when I released in a swap. It seems to have been the other side of the death spiral. It seems to be a life spiral of like trading drives liquidity, drives more trading, drives more liquidity, drives more trading, drives more liquidity. That seems to, I was worried about that early on. And, you know, it still is possible, especially in certain, you know, if some assets change a huge amount in value.

One thing I've noticed is that, well, but I, one thing I've noticed is that, you know, when a asset does go down a lot in value, there is also a lot more trading in that moment. Before we get too far into this, maybe I should explain a little bit of how the losses in Uniswapwork. I don't, I think that, you know, so profits are just, are there just based off the fee volume, right? And every trade that happens affects the fee profits. And every trade is profitable for liquidity providers in one way. But the other, the, so it's, you know, and we call it like path independent, right? Or path dependent, sorry. Everything that happens on Uniswap affects your profits, your fees.

Yeah, so basically, if a asset goes up in uniswap very high relative to the other, so you have ETH and MKR, let's say MKR triples and ETH stays the same. As MKR goes up in value, the contract automatically rebalances all the liquidity providers more heavily towards ETH, right? So it sells on the way up and it buys on the way down. And so you don't get all of the benefits of that MKR tripling. And so that basically loses you money, relative to holding those assets. And so what you need is you need the profits from fees to outweigh losses from this,

from this auto rebalancing. And those numbers are really kind of deterministic. So, you know, if you put in eth and die, and then the price of eth doubles relative to die, then relative, so when you put in eth and die, you put in 50% value of ETH and 50% value of die. So maybe it's, you know, $100,000 of each. And then if ETH were to double in value, you know, if you were holden, you know, if you were holding your assets outside of Uniswap, right? You would have, you would now have $100,000 of

die still, because the die is the same, but you would now have $200,000 of ETH, right? So your total value at the end would be $300,000. But in Uniswap, it would auto-rebalance some of your ETH towards die as ETH was increasing in price. So if ETH were to double, you'd actually have 5% less in value than you would if you were, if you held your initial position. And so, in order for that to be profitable, you need to have made at least 5% in fees during that period of time. And on the way down is the same way, right? So basically you're always worse off. I mean, again, ignoring the fees if you have your, you're holding kind of your liquidity pair, then if you're just holding like Eiff and Die in this example. Correct. Although the numbers at which you're worse off

is not insanely high. And it always performs in between the two assets. So one, one interesting way of, it's actually the geometric. You basically get the geometric mean of the returns instead of the arithmetic mean. So if normally if one asset goes up 200% and the other asset goes up 50%, 100%, then you get between the two, you get 150% returns on the initial value. Versuswap, you'd basically get the geometric mean, which is always a little bit less than the arithmetic mean. So off a 2x, that's a 5% less. Off a 3x, it's 13% less. Off a 50% change, it's 2% less.

Off a 25% change, it's like 0.5% less. But these numbers are really, you know, they can all be predetermined. You know if I put them in my assets and they start at this price, and I take them out and they end at this price, you'll know exactly what that loss is. And so if you know what the daily volume will be in that time period, you can sort of adjust your risk and you can sort of see whether or not it will be profitable for you. Let's talk about security. You know, DAPs are pretty unique because unlike other types of software,

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We'd like to thank Trillopits for their support. So, I mean, given that we can make, you know, it's pretty easy to mathematically model what the expected loss would be, is there no way we could design a fee mechanism to the market makers that ensures that it overcomes that loss essentially, where like, you know, to make sure that like, you know, not having it be so constant. Because that's another thing I see,

is that like, you know, the fact that it's like fixed at 0.3%. And, you know, right now there's no sort of way for anyone to change that. Like, we, you know, we had the DX Dow project on the show a couple months ago. And so they actually have like this Dow that controls the governance of this Dutchex exchange. And the reason that they're able to do this is that so that the Dow can modify parameters of the Dutch X in order to make it, you know, know, be competitive with like market forces. And so, you know, they could change the liquidity, uh, shares that like the fee and whatnot. But if there's no Dow here in Uniswap to like do this kind of stuff, how do we make sure that, you know, Uniswap is able to remain competitive. Yeah, yeah, there's a few

options. And definitely dynamic fees is a open research topic that we're heavily looking into. Um, there are all sorts of proposals such as, you know, automating the fee based, you know, proportional to the slippage of the transaction. You know, that's one example. Or, you know, so we're looking into it. And the other option is basically, you know, you could have a different contract for different fee levels and liquidity providers could just kind of deposit their liquidity and the one that they think is, you know, most likely to be profitable.

And, you know, you would assume that liquidity kind of accumulates in the one that has the highest fees. Part of the issue there is that you can sort of, you know, then you might split up your liquidity, which gives you worse rates for users. If half the liquidity providers on a pair put them in one fee level and half put in another. So it is, but it is something we're heavily looking into. And ideally, you know, governance DAWs are fun and all. We would love to have it fully automated in a way that can still be profitable. And, you know, that's something we're heavily looking into. And one option is also to have it proportional to volatility, because that is

one of the sort of most important metrics for losses and for fees. Right. So it seems that there's essentially three main things, like three or from what I can tell, three main factors we should be taking into account. One is volume, which is what it currently is doing. The other is spread, which is kind of what most market makers on order book basic changes. That's where their primary profit comes from is off the spread. And then the third is the volatility. And that's important to take into account because like we said, based off of how the loss. in uniswap work that is what mostly that that's what we need to offset so so kind of dealing with those three aspects is kind of the yeah i mean i mean funny enough it's it's been like it's

been working like you know the point three percent basically was a it was a yolo um from a conversation with me and vitalic about like what might be the most optimal fee and it was kind of um the way the way we chose it was basically to be competitive with other dexas um and sort of not have having it too low, not having it too high. And it's actually working for a lot of markets, which is kind of, which is pretty cool. So the MKR pair, for example, has been fairly profitable. The, the, the, the, the, the, the, the, the, the pair has been fairly profitable for liquidity providers. And it is working pretty well, have, with the, with the YOLO fee amount. And so now, but now we're putting a lot more time. We know, we have a lot more data to work

with because these, these, these, uh, this exchange has been running for a while. It's done, you know, close to $200 million in trading since November. It's, uh, it's, uh, it's 20 million dollars locked up. And so we're able to look a little bit closer and maybe see how different fee levels would have performed, see how different types of dynamic fees might have performed and kind of model it a little bit better. And I am, it is very likely we're going to propose a version two of the protocol that adds in some new features. Version one of Uniswap is very good, but I don't think it's like the best it can be. And then one more like thing that might, you know, I'd be personally interested in a version two would be, you know, more complex

bonding curves, right? Because like currently, I think, you know, X times Y equals K seems to be highly simplistic and it, you know, it's asymptotical on both ends and, you know, is there any reason why it couldn't be, you know, some closer to flat or like, you know, even have constants in, like, so it skews it somewhat? And so, So is that something that, one, what is the benefit of that X times Y equals K? Is there something, some special properties about this equation that makes it useful? Yeah, yeah. So the special property about the equation is that it always keeps a 50-50 value of both assets.

And it also, and there are other, there are other equations that might work. But it also minimizes slippage, or at least that's what the sort of current belief is, is that, you know, we haven't found any other curves that would allow you to have. Like, if your curve moves, like, kind of steeper in some places and more shallow in other places, then you're going to have more slippage on those places. And so in uniswap, because it's kind of an even curve, you know, no matter where you are in the market, you're going to have kind of the least slippage possible while maintaining a 50-50 value of each.

Now, one topic that we should bring up here briefly, which is, of course, always a topic for these contrast exchanges, is the topic of front of. running. For example, like a miner can see, okay, you're putting it in a big order. There's going to be some sort of slippage. And then they can try to exploit that in some way. Maybe they can like reorder the transactions and put one of theirs in first or, you know, maybe do some other things. So is this front running a concern? Have you seen any evidence of people actually doing front running? And, you know, what's kind of your false in general? There's definitely frontrunning. If you go to, I believe it's frontrun.me and I believe frontrun.me slash revenue or profit,

I forget which one it is. You basically can see a list of all front-running transactions on Ethereum. This is from Phil Dye, and it's some really interesting research. But, yeah, so there's definitely front-running very active on all Ethereum dexes, and any Ethereum of Dex that says there's no front-running, unlikely, except for maybe, unless it has some sort of centralized component to it, which is preventing it. I guess AirSwap is fairly front-running resistant,

and I guess DutchX is fairly front-running resistant. But so on Uniswop, the current parameters that are sort of preventing some level of front running is the, there's a minimum slippage parameter that you can set when you make a trade. So you can basically say, I'm making my trade. So the type of front running that's really scary for users is, you know, I'm selling one ETH. Then the frontrunner sees this transaction coming in. They put in a transaction ahead of it that pushes the price, gives me a worse rate. And so I make a trade at a worse rate. and then they trade back against my trade,

and they take some profits. And the most baked-in mechanism for, there's a few mechanisms. One is just the fees on the transactions. So if you do a large trade in both directions on Uniswap, that really pushes the rate of significant amount in a large liquidity pool, you might actually have to pay a pretty large fee

to liquidity providers for that. But that's, you know, still, you can still find trades where it's guaranteed profit for the frontrunner. So that's not really that big of, mitigation. There's also, but the min slippage value is basically, you know, I'm selling one-eath and the current price is 200 die, and if I get any less than 199.7 die, I want the transaction to fail. And so, you know, you don't know, someone can push the price ahead of you,

but only up to the amount that you've allowed in your transaction. And so that's the main mitigation in uniswap. The balance that you're trying to find is essentially, you know, if you make it too tight, you know, if you say even a 0.00 or, you know, 0.01% slippage will make my transaction fail, then transactions could fail from normal trading volume, which you don't really want to happen. It's kind of bad U.X to have all your transactions failing. So you want to make some allowance, but not so much that it's extremely profitable for frontrunners. Another sort of mitigation is these deadline parameters, which is basically, you know, this transaction can only execute within this time frame. and so it prevents minors from holding transactions

and executing them at a time where it's more profitable for the miner. Well, it prevents them from holding them for too long. If you set it to five minutes, then the minor only has a five-minute window where they can execute your trade at a better time for them and worth for you. Now, we're looking into some very cool stuff

which can help reduce front-running or to some extent socialize it. It's kind of an interesting mechanism. We call it Trader Dow, but it doesn't need to be a Dow. Essentially, what it is is a pool of liquidity that grants a specific party first arbitrage rights on Uniswap in exchange for rebating some of their arbitrage profits to the trader. It's kind of an interesting mechanism. But basically, the way it works is I want to make a sell on Uniswap.

So you know how like Khyber works, for example? Kyber basically, it's unlike Uniswap, which automates the spread, they have, you know, market makers that are posting prices. And then they have a spread, so they have their own like price oracle stuff, each reserve, on-chain reserve for a token. And then it creates a spread around that price. And so they'll always buy at one price, they'll always sell at one price. And so you could have a similar contract that sits in between traders and Uniswap contracts. and if I want to sell, let's say I want to sell a million dollars on Uniswap. If I'm selling it into a pool which only has $2 million in it,

I'm going to get 50% slippage on my transaction. That's pretty awful. And the person who profits off that 50% slippage is not the liquidity provider, as you might expect. The person who profits off that slippage is the first arbitrager to shift that rate, to make the trade in the reverse direction to shift that rate back to the real rate. They make all the profits from that, except for the 0.3% fee profit. And so instead, you could have a liquidity pool that maintains it, a sort of privately managed liquidity pool that's maintaining its own sort of price feed that has a large liquidity

reserve in it. And then I want to make my trade on Uniswap, I say, I want to sell this million dollars on Uniswap. You can either do one of two things. You can forward this trade onto Uniswap, and it will execute like normal. You can't make the transaction fail. You can forward it to Uniswap, or you can. execute this trade on uniswap, and then synchronously execute the arbitrage back,

and then, you know, if they shift the rate 50%, you can shift the rate back from 50 to 45. And then I will get, you know, I'll only have 5% slippage. And then the person who pushes the price back, the trader dial, basically could take profits on shifting it the rest of the way, so the 5% to the 0%. So that basically is an interesting way of giving better execution to users and reducing slippage for large trades. So it kind of makes sense. I think that does make sense in a high level.

I would love to speak a little bit about decentralized exchanges in general. So, you know, we've kind of talked about how UNISOP works. But what do you think are some of the unique things in like use cases where you think that, you know, maybe decentralized exchanges or UNISRP in particular? You know, they really have, like, an advantage versus centralized exchanges. Yeah. I mean, there are all sorts of problems with these centralized exchanges. You know, Mount Gawks, sure, but that's the one people point to, but, like, you can look two weeks ago to Binance losing $50 million of Bitcoin.

Or, right, so the biggest, the biggest vulnerability, the biggest problem with centralized exchanges is, it's probably security. But then they also, you know, they can shut down your account. I used to have a Bitrix account and they removed all trading in New York they deactivated my account this week so I can no longer use Bitrix if I didn't withdraw funds in time then I would have lost them all

I've never been able to withdraw Another example is someone wants to send me some ZRX tokens to my They asked me for my Coinbase address to give me some eth and I didn't realize that they were sending me ZRX tokens which you can send to an Ethereum address on Coinbase But because I was in New York,

York, you know, I was actually not allowed to withdraw them. And so they're just permanently locked in Coinbase, the ZRX tokens, because I thought I was getting paid in ETH. Anyway, so that's like another example of centralized exchanges not being so great. So there's all sorts of security issues. There's all sorts of issues with censorship and things getting shut down. You know, they're also charging really high fees, right? Coinbase, if I want to buy some ETH, it's like a 1% fee or something crazy. But you know, I guess, which Unswap, you know, tries to lower to 0.3%. Yeah.

Were you mostly asking about decentralized versus centralized or decentralized versus other decentralized? Yeah, I know. I think that was good. I mean, one of the things that I would encourage our listeners to watch. So this is great talk by Arthur Hayes. And he's the, you know, the, I think CEO or one of the founders of this exchange called Bitmex. and Bitmex is, you know, I think the largest volume kind of trading platform.

It's sort of a thing quite different from Binance, but gigantic volumes. And it's interesting because it's a talk about decentralized exchanges, and of course he runs a centralized exchange. But then, you know, he basically says, okay, what are the people kind of proposing that are building decentralized exchanges? And, you know, do people actually care about it? And, you know, he makes this argument that, okay, well, people care about it. you know, number one is liquidity.

You know, number two is leverage. And those are the two most important things. And then he says, like, three ease of use. And then your security is sort of like, it's nice to have, but people don't care about it that much. And it was pretty interesting, you know, because it kind of brings up the question, you know, to what extent, you know, are these things that we're kind of building out of this, you know, idealism and maybe coming to crypto if they said they're okay, people should own their own assets and control their keys and stuff like that versus things that people actually

truly, you know, demand and want and value. Yeah. I mean, I think that's kind of BS, not to insult Arthur Hayes, but like I think that it's true to some extent. I think that, you know, there are things people care about and there are things people don't really care about. But like if we don't care about decentralization and we don't care about censorship resistance and we don't care about being non-custodial, then like, why have blockchains? Like, what are, what are any of us doing here? Right? None of it matters if we don't care about these things. Like, I also think that, like, you know, hand-waving security is a little bit weird. And I think that security is one of the biggest properties of decentralized exchanges that matter, right? Reducing, you know, single points of

failure. I agree that you can get a lot of volume in a centralized exchange. I think a lot of people who are speculating don't care, but I think that a lot of people who are like building decentralized projects on Ethereum do care about decentralization. And I think that like uniswops kind of success so far has been evidence of that. You can see sort of some examples to kind of continue some of the kind of benefits of a of I didn't really even get through my complaints on centralized exchanges I just forgot some of them uh in the moment um which is that like for example token listing like if I want to list my token on an exchange like what do you what do I have to do I have to like you know sometimes I have to pay $20,000 sometimes I have to pay $50,000 I can't do it and

like if you know if you sort of envision a world with a lot of tokens that like sort of are each filling filling different use cases you know maybe you have personal tokens maybe you have personal tokens, maybe of communal tokens. Not everyone wants to like sort of pay the entry fee. And one thing you can do with Uniswap is basically anyone can create the exchange for their own token. And anyone can trade it. Anyone can pool liquidity.

And there have been some like really cool examples of this in Uniswap so far. So the one cool one was for example, was the Reddit Karma donuts. Or basically someone, uh, someone, uh, someone, created a on-ramp for Reddit Karma. Basically, Reddit introduced a feature that allowed you to track karma on a per subreddit basis and actually transferred around and use it in polls. And so they created a governance system on the East Trader subreddit, and they allowed people to sort of use their Reddit karma, and then someone created a bridge that allowed

you to turn that into an ERC20 token on Ethereum. And someone pinged me one day and was like, by the way, people are trading Reddit karma on Uniswap. I was like, wait, what? I created Uniswap. I made the smart contract. I made the front end, but like, I didn't know about this. And then, you know, I looked through the sort of the contract. And within, you know, three days of this, of this sort of someone creating this Reddit ERC20 bridge, people traded $30,000 worth of Reddit karma on Uniswap, which, you know, allowed them to vote in governance polls on, and then, you know, the guy operating the bridge kind of freaked out and shut it down. But, you know, ideally, the social media platform would have a more decentralized component

that wouldn't allow anyone to shut it down. Yeah, so, and another example would be, like, you know, for real tokens, like, you know, Spank or MKR that have not traditionally, the teams behind them have really been adamant on, like, not paying listing fees and not, like, you know, and they've, it's been really hard to buy MKR and it's been pretty high for most exchanges, but because of the permissionless nature of Uniswap. You know, Uniswap now has $6 million in the, in the ETH to MKR and it's basically become the largest exchange for MKR. And similarly, it's the largest exchange for Spank tokens, which, you know, also they don't want to pay any exchanges to list their token. And it's also the largest exchange for, or so it's one of the larger exchanges for foam, which is another

project that sort of follows these values. So I think that the permissionless listing, allowing anyone to deploy their own exchange, stuff like this is a big deal. I mean, I totally agree with that. I think like one of the places where decentralized exchanges really shine over decentralized ones is in this listing of exotic assets like you mentioned. And for example, let's say someone had like created a staking derivative of like bonded atoms to the course one validator, right? like which exchange is going to go list that on, you know, you're not going to get Bitmex to go list that and like, you know, provide all these features.

But like, you know, anyone can then go ahead and take that staking derivative and like, you know, create a Uniswap contract on it. And I think, and so, you know, I think given that that's where, you know, I think out of where Uniswap really shines is that it provides some level of usability to even very low liquidity assets. And because of this, I think. it works well where like you can have this like you know it I think Uniswap really kind of probably why we've seen Uniswop grow to be the largest decentralized exchange so far is because it really hit that product market figure where like okay it is the one that's best for dealing with exotic assets which is what people are actually using decentralized exchanges for yeah yeah no I agree with that it's also there's also a Ux component to it and a kind of integration

component to it. So UIDOSWP is incredibly simple. It's accessible folion chain. You can integrate it into your project very easily. You can bootstrap your own liquidity really easily. It's, you know, it's highly programmable. I guess one thing that we kind of didn't talk about, which I sort of, I think I saw on some of the notes, was the sort of like the aspect of liquidity tokens. And this actually plays into the leverage that Arthur Hayes was talking about, which is basically, if you're a liquidity provider on uniswap, you can, you know, you could lock up some eth and some dye. And actually, while your, your tokens are locked up, so if you, you know, you have the ability to withdraw your proportional share at any moment, but you also get an ERC20 token that represents your right

to withdraw that share. And so you could, you basically, you burn this token to withdraw your liquidity, but you can also transfer it around, and it can also be used in other contracts. So an example, eustage could be that you, you know, you lock up your, your liquidity in uniswap, you get your liquidity shares. You collateralize. And so you now have a position on both assets in Uniswap. You know, maybe Ethan MKR. And you're also generating fees on Uniswap.

And then you could lock up these liquidity tokens. You could actually take out a loan against these liquidity token. You could open up a CDP and multicilateral die. Or you could take a loan on Dharma. You could take a loan out against these assets trustlessly. And then you could increase your leverage. You could, maybe you could collateralize your liquidity shares and take out enough eth to become a, a validator, or maybe you, uh, in proof of stake when that exists.

And maybe you can, um, or maybe you could, you know, swap, you could take out some, you could take out some eth and you could swap half of it for a dye and you put that back into the liquidity pool. And now you've leveraged up on uniswap fees. Has anyone you created a uniswap market against liquidity pool, liquidity tokens? Yeah, yeah. You actually, someone did create a uniswap. liquidity pool for ETH to Die shares on Uniswap, which is kind of funny.

It's, you know, it kind of works. It kind of makes sense. There's not much liquidity in it right now. But it could be kind of a cool way to like on ramp onto Uniswap really easily. If you want to become a liquidity provider and you don't want to go, you could just send some ETH to this contract and you'll immediately get, you'll immediately be a liquidity provider. Another kind of interesting thing that happened is I think compound sort of saw this, this model that we were using. that we kind of created for Uniswap,

where you have shares that represent your portion of the pool, and they've kind of added this thing they call C tokens, or compound tokens, which are basically, if you lend your dye on compound, you get something called C-dye, which represents your ability to withdraw the die that you lent on compound, plus any interest generated. And so you can do the same thing in reverse.

You can lend your die on compound, and then take out the C-dye, and then you can lock those in a Uniswap pool against ETH, and actually now you can, you know, immediately go from ETH to, you could go from owning an ETH position to owning a, a interest generating die position and a single swap on EOswap. And this is actually happened, and it kind of allows you to increase your leverage once again. And this actually already happened.

Once again, without me doing anything, without me saying anything, because it's decentralized, compound or some people affiliated, or just some random person, took, you know, 150,000 dollars worth of compound dye and put it in a uniswap pool so now you can you know swap between ether and compound dye or compound dye in any other erc20 token through uniswap in a single transaction but yeah no i totally agree i think that's probably the most powerful thing about decentralized exchanges just this aspect of like okay you can like easily integrate it and innovate on top so let's speak about the business model right because uniswap doesn't you know many tokens like you mentioned or you many projects you mentioned for example bank

is an example which is similar, but then they put in the bank or token. And of course, the bank or token, they did an ICO and they own part of it. And if it succeeds, it will be worth a lot of money. And, you know, kind of the sort of, you know, traditional way of monetizing crypto project. And now you haven't gone down that way, right? There's no direct way that Uniswap is monetizing. You did raise a seed round recently. Congratulations on that.

And so you have a company now. what's the business model of that company? To jump back, I think that, like, ultimately, like, there was this traditional,

there was this ICO boom, and everyone was selling a token. But I think it became clear to a lot of people that it didn't make sense. A lot of these tokens didn't make sense. And I'm not going to point fingers, but, like,

I think that the projects that are going to be successful in crypto are projects that build the best version, version that they can, not a version that's easiest to monetize. And that was sort of the idea going into Uniswap. That said, you know, it's a very legitimate question. How do you make money on a public good? Because right now Uniswap is essentially a public good. And I will say that I raised money on the idea that there's value to the brand and the reputation that I'm

creating and this value to being at the center of defy and to being at the center of this like decentralized exchange thing and this decentralized financial system. We are still deciding, you know, we have a lot of cool things we want to build, like a lot, a lot, a lot of cool things we want to build on top of Uniswap. And we think some of them can have cool business models to them. I'm not ready to kind of like immediately just start listing things off. But I will say that you know, it's more about, you know, like, it's not that crazy to have companies that aren't immediately generating revenue that are valuable, right? You know, a lot of projects in this current, in Silicon Valley right now are still not profitable and worth, you know, $50 billion or something,

right? I don't even know if Uber makes money yet. Long story short, you know, we'll see. We have some really cool things we want to build, but, you know, still, I don't want to go too far. down the path of exactly what it is until we've more clearly decided on the exact route per cent. Did you ever consider integrating a token in there or like was it clear to you kind of from the start that it didn't really make sense? I'm not against tokens. I'm not even against integrating tokens into uniswap.

Uh, breaking news. I, um, I'm against doing things for no reason. If it becomes clear that for uniswap to make sense, we need. we need a actual group of people modifying parameters, then maybe we need a token to control that. But I'm not kind of letting the cart lead the horse on introducing unnecessary feature, or like introducing a token before it's very clear that it's necessary.

So yes, there are potential, you know, Dow mechanisms that could make sense. Or you could just, you know, generate, you know, maybe you build a contract that add some service or builds some cool thing on top of Uniswap that takes out a little fee, and it's not built into the core protocol. I don't think that everything needs to be built into the core protocol. Also, something that's been kind of, I'm still sort of thinking through, but something that I've been thinking about a lot recently

is that in this sort of Silicon Valley model for companies has been like someone creates something, they own a percentage of it forever for all eternity. and I don't know how much that makes sense. I think that, like, what if Mark Zuckerberg created Facebook, and Facebook owed him $10 billion? And then after he got paid $10 billion, like, screw Mark Zuckerberg, he doesn't need any more money

for what he did building Facebook initially. So I've sort of been thinking about this idea of, like, protocols owing their creators something, but not something forever. Anyway, it's, I, I, I, I still have to be very poor. More of Pakistan Zuckerberg with only $10 billion. Incredibly poor. Right? Like, how, how awful would it be if he only had $10 billion and not, you know,

50% of Facebook for all eternity? Yeah, so I, I just, it's something I've been thinking about, like, yeah, I think that, you know, public, uh, there is a really interesting tradeoff between, like, profitable projects and, like, optimal projects. in the crypto space, and it's kind of interesting. But ideally, you know, you can strike a balance. And I'm not, like, personally too worried. We have a pretty decent runway to work with from our seed round,

and we have a lot of cool ideas. Yeah, I mean, that's where I think, like, things like the Zcash founding founders reward and stuff are also, like, interesting ideas as well. Definitely. And so really quickly, you know, kind of going back to, like, exotic assets and, you know, your revenue model. You know, I think one of the most exotic assets I've heard about being traded on uniswap is these tokenized socks.

Could you tell us a little bit about these? Yeah. This is a project I really just wanted to do for an incredibly long time. It kind of came out of these, so I'm wearing one of these uniswap shirts, which were sort of cool. And so we kind of, you know, people kept telling me, oh, you should create a liquidity pool for your un swap shirts. And, you know, people, I've been sort of thinking about what it means. to kind of combine these digital assets with these physical assets.

And so sort of a high overview of what Unisox is, is we created a token, Sox, that's called, that's the ticker, and the name is Unisox version one, or addition one. And the idea is simple. You create these socks, a limited scarce supply, so we created 500 Sox tokens, and then we locked them in a liquidity pool with some eth. And so that sets this initial bonding curve,

where you can send ETH to the contract and you get socks out. You could send socks to the contract and you get ETH out. But because we put the total supply of all socks from the very beginning and no more can be created directly into the liquidity pool with ETH, that kind of starts you all the way at the bottom of the curve. And so every pair of socks you buy kind of increases the cost of the next one. But at any point in time, you can sell back into the market. So if you buy 10 socks and someone else buys 10 socks, then the first person can sell them back. and actually make some profit.

And so it's kind of a funny thing. But what will happen is that, you know, every sock token will be redeemable. You know, you can, so there's 500 sock tokens, and you can burn a sock token, and it will be redeemable and basically give a, you know, send your address, and we'll mail you a pair of socks, limited edition, high quality socks, with, you know, with the name, with some, with a cool design on it, anywhere in the world, basically. Well, almost anywhere in the world,

Phil Dian was creating attacks on Uniswap, or on Unisox the other day, and he would pointed out that two ways, two things we couldn't send it to is, you know, sanctioned countries, and you can't send, so that would be an attack if you were like burned a sock token and say, send it to this address,

and then sanctioned country, obviously we're not going to do that. The other attack would be getting a ordering a few pairs of socks to an address getting out a restraining order for some weird person sending you socks and then ordering more socks

but anyway that's kind of going way down a rabbit hole the point is that obviously we will only send it to a reasonable location but yeah so every pair of socks every sock token can be burned and will be redeemable for a real pair of socks

mailed directly to your address And it's an experiment with UX in buying stuff through crypto. It's an experiment in price discovery for rare merchandise. So an interesting thing is that like if you, if Nike's release is like a rare pair of sneakers, a rare edition, Yeezies or something, you know, there's a limited supply and they sell them at a flat rate, right? Or probably usually it's, you know, maybe it's $200 or $300 each. but then there's this whole secondary market that's created around it where people buy them for $300 and they resell them for $2,000 or the first people to buy them can sell them a lot more.

And strangely, you know, Nike's only indirect, doesn't really directly benefit from the fact that they're, and the creators and the designers of the shoes also, they don't directly benefit from the socks going to $3,000 versus $300, unless they maybe keep a few pairs for themselves or something like that. So the idea with this is that, you know, you put it on this bonding curve and then the price of the asset will just automatically go to, you know, whatever the value is, whatever people are willing to buy for it. And the company who created it, the designers behind it, they can kind of directly profit from the secondary market, which is kind of built in. There's only, it's like there is no need for a secondary market because it's built into the primary market. Right. That is your business model.

It's not our business model directly, but like it's an experiment. I mean, we didn't do it for no reason. We technically sold $10,000 worth of socks in like two days. And there's been about, and funny enough, you know, we sold $10,000 of socks, but people are trading them back and forth now. And there's been probably like $50,000 worth of socks trading, not stocks trading, not stocks trading, socks trading, in the past few weeks, which is pretty funny.

Cool. Thanks so much for coming on. And it was really interesting to hear about Uniswop and your plans. I think lots of exciting things here. And we're really excited to see kind of like what's going to come out of it with all these improvements and different plans and iterations on it. So yeah, thanks so much for coming on. Yeah, thanks for having me.

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