Unchained - The Chopping Block: Why the Lack of a Fee Market Created 'Bread Lines' on Solana - Ep.313

Episode Date: January 26, 2022

Welcome to The Chopping Block! Crypto insiders Haseeb Qureshi, Tom Schmidt, and Tarun Chitra chop it up about the latest news in the digital asset industry. Show topics: Analyzing the market drawdown Twitter-native NFTs + Crypto Coven LooksRare — real or BS? Solana’s disappointing network performance What broke during the market downturn: OHM, Solend, and MakerDAO Predictions for market action going forward   Episode Links   Hosts Haseeb Qureshi, managing partner at Dragonfly Capital https://twitter.com/hosseeb Tom Schmidt, general partner at Dragonfly Capital https://twitter.com/tomhschmidt Tarun Chitra, managing partner at Robot Ventures https://twitter.com/tarunchitra  Robert Leshner, founder of Compound  https://twitter.com/rleshner    Background on certain topics covered: Twitter NFTs https://www.theblockcrypto.com/post/131052/twitter-begins-rolling-out-access-to-nft-profile-pictures Loot adding royalties https://twitter.com/DappRadar/status/1486005954520907778 LooksRare versus OpenSea https://dune.xyz/hildobby/LooksRare-VS-OpenSea Tom’s issue w/ Dune queries https://twitter.com/tomhschmidt/status/1485721279663534082 Robert and his Crypto Coven NFT https://twitter.com/rleshner  Rune’s tweet about MakerDAO https://twitter.com/RuneKek/status/1484663000443371520  Solana’s poor performance https://www.theblockcrypto.com/post/131278/traders-are-complaining-about-solanas-performance-raising-questions-about-its-status-as-a-wall-street-darling https://twitter.com/solendprotocol/status/1485315186797936646?s=21 Block’s DEX https://www.coindesk.com/business/2021/11/19/square-releases-white-paper-detailing-protocol-for-a-decentralized-bitcoin-exchange/  Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, it's me, Laura. At the end of 2021, we here at Unchained introduced a new show called The Chopping Block, where insiders chop it up about the latest in crypto. And this show features four crypto investors who are Haseem Koreshi, managing partner at Dragonfly Capital, Tom Schmidt, partner at Dragonfly, Robert Leshner, founder and CEO of Compound Labs, and Managing Partner of Robot Ventures, and Tarun Chitra, co-founder of Gotlet and Managing Partner at Robot Ventures.

In each episode, Haseeb, Tom, Robert, and Turun will discuss recent events in crypto. They will be live streaming their conversations every other Tuesday at 6 p.m. Eastern and 3 p.m. Pacific on the Unchanged YouTube channel. And we will then later release these conversations on the podcast. But the live stream is where you can participate in the chat, perhaps affect the conversation, and also catch all the visuals. So you've already had a chance to watch the first two or listen, and both of them are super fun and insightful conversations. I am now here to introduce this third episode and just generally explain to anyone who happens to be on the channel why I have these four people here discussing crypto events without me. But in the future, I will just leave them to dish about the latest in crypto on their own. So thanks to all of you for tuning in, and I hope that you enjoy listening to their discussion.

as part of your regular crypto news intake on Unchained. And now I will turn things over to Haseeb. All right. Thanks, Laura. Okay. So, hey, everybody, welcome back to the chopping block. Every couple weeks, the four of us get together and give an industry insider's perspective on the crypto topics of the day.

So quick intros, Tom is the Defy Maven and Master of Memes. Then we've got Robert, Crypto Connoisseur, and Captain of Compound. Then we have Turun, the Gigabrain, and Grand Puba at Gauntlet. And then we have myself, Haseeb, Chief Hypeman at Dragonfly. The four of us are early stage investors in crypto, but I want to caveat that nothing we say here is investment advice,

legal advice, or even life advice. So, Robert, this is, we failed a couple times in trying to get the show started. But you were telling us in the pre-roll about your new NFT profile pick. Let's kick it off. So, yeah, last night, I got peer pressured into buying a new NFT by Caney. of synthetics, it turns out that all the other DeFi founders were purchasing crypto-coven NFTs and making them their Twitter avatars. And I love rotating Twitter

avatars. You know, it's something I do frequently. And so I leapt at the opportunity to buy the least attractive crypto-coven, which I could find out of the entire collection, the most demonic, least traditionally appealing. Tom, can you throw it up on the screen? Yeah, yeah. Yeah, let's take a peek at this, this bad girl, bad boy. Yeah. Bad girl.

Bad girl. It's a coven. It's a coven. Yeah, it's a covenant. I actually looked up, I didn't know what a coven was. I just sort of knew it was kind of a dark, evil thing. But apparently a coven is the plural for witches. Yeah, exactly. It's a plural of which, which I did not know. Yeah, there we go. Yeah. Yeah. That's nice. She's a beaut.

Yeah. But the thing that makes this interesting is this is not a hexagon. And what I find. interesting is that, you know, I am somebody who recently paid Twitter $3 to get Twitter blue so that I could hexagon my photos. But I actually have multiple Ethereum wallets, and you can only link one wallet easily to Twitter. So highly experimental future, there's been a lot of people on Twitter complaining about the ability to link wallets. There's people because they have to link it on their phone who are taking, you know, a QR code and, like, moving it to their desktop and, like, importing it into their Ledger Live app. It's just a mess.

So multiple addresses. Some of the profiles I use have the hexagon. Some of them don't have the hexagon. Obviously, this feature created a lot of controversy this week. A lot of non-crypto folks were really dunking on it pretty strong. But I'm proud to rock hexagoned NFTs as profile picks and brand new ones that don't yet have the hacks. I think we need to take a man just appreciate how crazy it is. is that, like, Twitter actually added NFT, like, verified NFT profile pictures,

independent of the quality of implementation, which I also have issues with. Like, it's insane that this actually exists in, you know, in this year. It's awesome. I mean, the minute the Jack left, you know, and he's a Bitcoin massive, as soon as he was gone, I mean, like weeks later, they're rolling out Ethereum integrations with the most popular Ethereum wallet providers. So that should say a lot about the sort of. internal direction of the organization of where they want to go.

I don't know if that's true. I mean, they tease this while he was still there. So it must have been that it was just under wraps. Think about how long it would take to depose a public company CEO. You think that that's like a, this is not a guillotine French revolution, like, throw them into the guillotine. This is like, you know, the board has to like publish enough evidence and like they have to have 20 billion meetings and then you have to go insult all your detractors on Twitter

who probably convince your board to fire you. Don't, don't forget about the body politic involved here. I understood, yes. I think it's likely that this was happening for a while. But I don't think, I mean, Jack, remember, Jack bought the Twitter NFTs on, what was that, what was that site that was doing? Sent, sent. Sent, right? Jack bought something on Send.

Like, I don't think he's a diehard, like, you know, screw the NFTs. Have you read that? Have you read the description of their really? shitty decks that Square put out. I mean, that thing, that thing is like a worse RFQ than 0x v1 to 2017. Like, it's actually like a horribly designed system. Like, I can't believe. Tom used to be at 0X.

So the important background is like. Anyway, I'm saying worse than 0xv1. Zero. That means they didn't even do any prior art. They didn't even like read the zero X paper. They were just like, oh, we had to reinvent science. And actually, we're back in the. Stone Age.

Forget about electricity. Describe what squares decks does looks like and how it works. Yeah, so it's a request for quote type decks. So basically, people who want to sell place orders and they place sort of like a thing that says like, hey, I want to buy 10 Bitcoin and I want it to be filled within like a certain amount of time. And then basically they have a sort of simple matching algorithm that happens. off-chain with trusted sort of like a federated trusted network of people who handle the Fiat

on-ramp and then also do the matching. It's not a Dex in any sense of decentralized. BISC is more decentralized than this thing because it effectively requires K-Y-Cing all of the people who are doing matching as well as all of the people doing Fiat on-Ramps. I thought it was a lot more hype and bluster than anything realistic. Like, the paper just reads, like, someone just ignored all of the advances in automated market making and on-chain lending and derivatives that have taken place since 2017. It felt a little bit like when Visa or MasterCard put out, like, white papers about crypto. It's just like, the story is that, look, they did something and they felt it was worth publishing.

Like, that's the story. Can Square do something? Is that the meme? Yeah. I mean. Yeah. So, I mean, look, long story short, to Tom's point, it is certainly a big milestone for the industry that NFTs have been legitimized to this extent. But now, you know, once Twitter integrates with Open.

And by the way, it's also huge boon for OpenC to be the place where it's not even that Twitter's going themselves. It links directly to OpenC. So you look at someone's Twitter profile and it is basically an advertisement to go, you know, sort of buy now on OpenC, which is, to my mind, pretty incredible. So I think it, you know, to Tom's point, one, it's a, it's a real moment of legitimization for the industry that it's going to be hard to look back on all this and say like, oh, you know, NFTs were just a flash in the pan. I think it's, it's fairly clear that NFTs are not going away, even if sort of the V0 of PFP's end up becoming less popular over time, which, you know, there was a thought, actually. I mean, one of the interesting things that kind of bring into the kind of the big news of the week was the market drawdown. and there's going to be a lot to talk through about all the different elements of what happened. But one of the interesting things coming in from NFTs is that NFTs actually did pretty well during the market drawdown, which was the most surprising thing because you would think, you know, generally speaking, this market drawdown was incited largely by fears of the interest rates set by the Fed increasing faster than otherwise expected.

And naturally, we talked about this last time, is that when interest rates grow up, that generally means that demand for risk assets goes down. because the opportunity costs, safer assets are now, they pay more because there's a higher interest rate on them. So you would think that like, okay, NFTs are the farthest out the risk curve you could possibly be. They're the riskiest things in crypto, and therefore they should have gotten totally hit, but instead what we saw was that NFTs held up really well.

What do you, I mean, Robert, you're probably the biggest NFT connoisseur of anybody on this show. What are your thoughts about why this happened? Yeah. So they didn't necessarily go up in dollar terms. They went up in ether and crypto terms, right? They outperformed other crypto assets. And I think the psychology of this is actually really simple.

When ether got smoked, I mean, we watched it go from 4,700 to 2,200, you know, in a relatively short amount of time, you didn't see NFT prices in ether terms dropped by that much, right? And suddenly there's a lot of people who, you know, are holding assets who said, wow, like NFTs got a little bit cheaper in some cases in NFT in ether terms or a little bit more expensive, but like they feel a lot cheaper, right? You know, all else equal, the price of an NFT is dropped by half. And so, you know, psychologically, you know, the ether you're holding, you may as well put it to work once it goes down in price, right? I think there's a component of that to it.

But OpenC is also posting all-time high volumes this week, which is generally not true of like the crypto market, right? Like if Bitcoin falls in price by half, like generally you're going to see volumes could go down as well just as a result of sort of the unit of account, you know, falling in value. Whereas Amt is like these things are going down in U.S. dollar terms. But the exchange volumes are going up in U.S. dollar terms. So it's a really weird dynamic. But I do generally agree with you that like we're seeing every pricing in each terms, but not in dollar terms. Yeah. In terms of open C's volume, you know, someone's going to have to double click on this.

But I read an interesting thread online recently where someone was saying that a lot of the Dune queries that were being used to like generate these reports became inaccurate as you Someone. That was me. I wrote that. That was Tom. Break it down for us. Break it down for us.

All right. All right. Here's the deal. It was a play-by-play. So, you know, disclosure, Dragafly, Fly recently invested in Gem, which is a, um, NFT aggregator, NFT marketless aggregator. So you go to gem, you'll see NFTs across every different, you know, NFT exchange that exists, including things like NFTX, and they'll help you bulk buy.

So if you want to buy, you know, five Cryptoven, you can do it in one transaction and you actually save a bunch of gas, sweep the floor. And so I was digging through some of their data, trying to see who's using this thing, where their volumes, blah, blah, blah. And I kept noticing weird discrepancies between the gem volume that was seeing on, on Dune and the OpenC volume that was on, I believe, Richard Chen, his it has like the main OpenC doone dashboard. And so it was diving into it.

And it turns out that the OpenC dash that was initially made didn't really account for the idea of there being multiple fills per transaction. So that's what's happening right now. Normally, right, you see an NFT on OpenC, you buy. That's one fill. That's one transaction. It's done. But with something like Gem, you can buy five or 10 different NFTs in a single transaction.

And normally, okay, maybe this creates some double counting. In this case, just because of the way the transaction, the, the, the Dune Quarry was written, it generated a squared number of transactions. So five buys would turn into 25 buys and 10 buys would turn into 100 buys. And so I basically put in a small patch, there's like a one line fixed to the query, but it sort of caused the estimated, you know, open C volumes that fall by like 30 or 40 percent depending on the day. So sort of a weird little quirk, you got to look at the data. You know, you got to do your own research. But I don't know, I think it's a testament to like the rise of these aggregators. They're doing, you know, I don't

know, four or five percent of OpenC volume every day. And I expect that to keep going up because they just provide a really great experience for, you know, buying and selling NFTs. Yeah, there was a really good thought piece as well by, I think it was Scott Lewis who said, you know, the rise of more marketplaces from OpenC to looks rare to whatever is going to necessitate the rise of aggregators, right? The rise of aggregators is going to then enable the rise of more AMM liquidity pools. for NFTs that wouldn't otherwise get any flow, right?

Because no one's going to go to, let's say, NFTX or whatever directly. But if you have aggregators that become more popular in the primary use cases as, you know, how you interact and purchase NFTs, you'll be able to more easily interact with small niche or passive pools of liquidity as well. So I think in terms of the evolution of this, you know, there's a lot of design space for, you know, NFT AMMs and either niche or. or strategy-specific, like, ways to create NFT liquidity, that will start getting a lot of volume

when they might not have any retail, go to a website, you know, click a button, direct flow. So I'm excited to see where this leads. I think aggregator is going to change NFT markets radically, and I think it's starting to. It makes them more fun. I mean, just sweeping the floor with one click makes NFTs more like ERC20s a lot of ways.

It used to be incredibly difficult to do these floor sweeps, right? there was a lot of fancy, you know, kind of smart contract level stuff that you had to do in order to effectively complete a floor sweep in a single transaction. And now that stuff is all getting commoditized. Like, anybody can now do a floor suite. So that, it is a market transformation that I think we're very, we're starting to see the very beginning of. It feels to me like, you know, one of the things that we were expecting for a very long time.

So, you know, another disclosure, we're investors into one inch. One inch is the leading defy aggregator of, you know, trading EOS 20 tokens. And for a long time, we thought that DeFi, and for the trading of normal tokens, especially at spot markets, that almost certainly is going to transition to becoming majority driven by aggregators as opposed to people going directly to the most popular front end, like something like Unoswap. And interestingly, that hasn't really happened. It's, it's, you know, the aggregator market share has been stuck for most of DeFi somewhere between like 10 to 20 percent market share. And it kind of floats around depending on what's going on at a given day. And, you know, our belief is it probably that will trend upwards over time? as the market gets more sophisticated, but right now, it doesn't really seem like that, that, uh, that, that's happening. And the question is like, for NFTs, do we expect that to change? Certainly it's been the case that OpenC has just run away with it. They've just been so completely dominant in NFT volumes. And the two-sided marketplace nature of OpenC makes that work really well. But do you guys think that the market structure of NFTs is going to evolve,

such that it's going to be a winner-take-all where there's, one OpenC and nobody else can really stand up to them, or that they're going to be other challengers to OpenC's dominance. I think every founder working on an NFD marketplace needs to read the Cold Start problem by Andrew Chen from Andresen. Like, I think I see a lot of founders who are building new NFC marketplaces thinking they'll win on like tech. And really that's not how you, how you break through like, you know, a liquidity mode, right? Like a two-setter marketplace mode. Do you need to get really aggressive going after one vertical and starting the liquidity there early? If you look at where do you actually see volumes that aren't on OpenC,

you know, maybe outside of some of these AMM platforms, it's exchanges that are vertically integrated, right? Like the Punks marketplace or like Katana on Ronin for like Axy, things like that, where it's sort of specially designed for these assets and they sort of go after these assets alone. I think that's where you can kind of start to see liquidity fragmentation. But I think for the most part, you know, teams are trying to compete on. on having a nicer UI, but if there's nothing to buy, you know, it's not really compelling enough to sort of overcome that activation energy to sort of break out the moat. Maybe this is actually a good segue to talk about looks rare. I don't know what you guys have been, if you guys have

been looking at them this week. Yeah, so maybe I can briefly summarize the looks for a story. Actually, Tom, maybe you should give in how close you've been to it. Sure. So looks rare is a, I think now that OpenC has recently raised at around a, at $13 billion. It has a huge bulls eye on its back and all these founders are looking for ways to go after this sort of giant. And one of the more popular things we've seen recently is the idea of vampire attacking OpenC or basically making a competitor and trying to suck up all of its liquidity and then eventually sort of overtake it. And it looks rare is sort of the latest and arguably most successful in this category where they're starting out giving a big

irdrop to everybody who's traded on OpenC with their own proprietary token and trying to get people excited and build a long tail token distribution. And And then what Lux Rare has implemented is basically trade mining. So they're compensating people with fees for trading on looks rare with the idea of basically generating enough volume over time to slowly sort of wean off of OpenC and sort of wean down on the on their rewards. And I think, you know, for the most part, they've been successful in generating volume. If you look at, you know, day over day, they're doing several times more volume per day than then OpenC, which is pretty impressive on the face of it. I think the maybe flip side of this, if you look at it, is that a lot of people are accusing them of wash trading or basically people washing on look sprayer to get their rewards because the rewards are basically much higher than the fees that you pay to actually trade, which is kind of the peril that you need to avoid when you're designing like a trade mining program. Very briefly, for those who are not aware, wash trading is basically when you essentially trade with yourself to give the impression of trading in order to get some kind of.

auxiliary benefit, right? So wash trading is generally illegal in normal regulated exchanges because you are sort of pumping up volumes with illegitimate trading activity. In the case, something like looks rare, the reason why people might be wash trading is because by trading on looks rare, you can earn some of the looks rare token. And so it turns out that the looks rare token is priced such that if you just list an NFT yourself and you trade with yourself to buy the NFT, even if you pay the 2% fee, or what is it, 2 and a half percent, 2%? I think 2%, yeah. Less than 2.5 of the opency.

Exactly, exactly. Once you pay the 2% fee, you actually come out ahead with the Luxraire AirDrop. And so that's why you're seeing so much incentive for there to be all this wash rating. And so to be clear, the accusation is not that the looks for our team is wash trading, but that random people who are trying to make money off of the looks where a token are wash trading. And one of the strongest indications of this wash trading that Tom, you were pointing out to me

earlier, is that the collections that are seeing the most volume of trading on looks rare are not the same collections that are being trade on OpenC. So if you expect it to be organic volume, what you would see is that people are trading on looks rare, the kinds of things are trading on other platforms, right? It's the same kind of popular things. But instead, what they're doing is they're only trading collections that have zero percent creator fees. So a creator fee, what's it called the creator tax or what's the name for? Royalty. Yeah, royalty, royalty, royalty, royalty, zero creator royalty. I guess the term. is important.

People definitely get offended if you say creator fee and not royalties. Please excuse me. So the creator royalty, basically the idea is that if you transfer or you affect a sale of an NFT, the original creator of that NFT will get a percent of every single transfer that happens hence. And this famously, we talked about last week what happened with Pudgy Penguins when they were wrapped to avoid this creator royalty. So what's happening is that the only collection is getting.

traded in volume on looks rare are these that don't have a creator royalty, which is a dead sign that, okay, the reason why they're trading these things that don't ever create a royalty is because they don't actually care about trading the collections. They're just trying to mine theirdrop. So what are you looking at, Tom? I was just showing off sort of exactly what we were talking about looking at looks rare versus open sea volume segmented by royalty versus royalty free volume and it's just like nine day. Like looks rare is like 99% royalty free and open sea is like 1% royalty-free. I actually heard a crazy story recently, which is loot has the as a switch that could be flipped to basically add a royalty to loot trades. And it's historically been traded turned off.

But I think the loot community got kind of pissed about people watch trading loot on looks rare. They basically very sneakily flipped it on before people could notice. And they earned like 500 in fees into the looks into the loot treasury. So yeah, now they have like a few mill in in the loot treasury to spend on whatever they want to spend on. So you've got to be careful when you're when you're wash trading is maybe the lesson. How dastardly. How dastardly. Yeah.

Well, it turns out this is the chopping block, the number one place for watch traders to get their tips on which assets to choose. Yeah, looks for, looks for I think is probably not the, the primary example of how to take on the open sea monopoly right now. Although it's getting a lot of attention, it doesn't seem like. Time will tell. That's true. That's true. I feel like it's not even clear that their monopoly status can be, we can't really say that until the Coinbase thing launches, right?

Because I feel like the Coinbase NFT, like if Coinbase is unsuccessful with launching their NFT platform, then I think it's like Crown OpenCity of Monopoly. But I feel like we have this kind of looming big event that we haven't really figured out how to factor in. And it does seem like Coinbase is trying to get a lot more like celebrity involvement and sort of more mass market appeal, I think, then a lot of what's on OpenC. And so we'll see if that has like an NBA top shots like effect or not. I do think like one thing that's interesting is like the towards the aggregator market is one of the benefits of being non-fundable, right, is like you can you buy portfolios of things, right?

So it's like a real estate investment trust. I bought a portfolio of houses. In this case, it's like I bought this portfolio of NFTs. The problem is most pricing mechanisms are hard to have a lot of liquidity in. If you have too many different types of bundles, right? Like, oh, I want like arbitrary subset of board apes. Like I want all the apes with this quality, but not this quality and this quality. And as you add more of those, you kind of blow up the state space in a way that makes it like much harder to source liquidity for every single bundle.

But I think the interesting thing that's. To the point of, to Robert's point with aggregators is sweeping the floor is sort of like a bundle that's random to some extent, right? It's a bundle of subsets of the NFTs that's like somewhat random, somewhat signal. And like somehow that's like the market has cohered on that bundle as being like worth buying one unit of roughly. And so I think the the NFT market will probably standardize to some extent a little bit like the way the real estate market or commodities markets do where there's just certain types of bundles that get bought as like a unit like a floor price type of thing. It's like I bought like you know if you think about oil there's like three different types of oil futures you can trade one that's like the really shitty oil one that's like

the medium grade and one that's a high grade but like what does it mean to be the shitty grade there could be some good batches in the shitty grade ones just they all came from the same place and I kind of think we're going to see a lot more market structure in NFTs that looks like commodities and real estate. And we'll see what NFTX was doing. I mean, NFTX was doing exactly this. And it kind of didn't. I think they were a little early.

It wasn't designed very well. They were early. They were early. And like, I think this idea of like the floor being the right portfolio was just like not really totally known at that time. Like everyone was just like, oh, you want like a equally balanced portfolio of punks. But when you have puns, the max, minus max over min price ratio being like, 100 or something. It's like that not really, right?

That is definitely, yeah, that's definitely true. That's definitely true. They got a lot of things wrong. But I do recall NFTX having like tiered rarity indexes for some of the different NFT collections. But I agree with you, they were early. It's just like it's hard to figure out what bundle people want, right? OpenC memed the floor into a bundle. And like that was actually the sticking point in my mind for them and why everyone is instead trying to copy by by like these vampire attacks that incentivize floor trading on aggregators. Yeah. I agree with you that the one potential savior here is Coinbase. Coinbase is NFT marketplace. But I worry that we've just seen such bad execution so far from everybody,

like all the traditional companies trying to get into NFT marketplaces. I mean, I was, I was worried for a while about the FTX's NFT market place, and I haven't heard a peep about it since it went live. The news flash, if you're trying to make Solana NFT is the hallmark of your NFT platform, spam issues will make it very hard to be usable. Yes, indeed. Okay, that takes us back. So let's rewind a bit, move away from the NFT conversation,

and go back to the carnage that we saw this week, because it brings us actually quite nicely into some of the stuff that you were talking about. So a lot of stuff, during the market downturn, we saw a lot of stuff break. We actually saw MakerDAO, which is the largest lending protocol on Ethereum by TVL.

We saw MakerDAO get very dangerously close to basically having a massive liquidation that would have totally, you know, caused the entire market to buckle. I think it was something like $600 million of ether that was extremely close to getting auctioned off. We saw OM, Olympus Dow, which we've discussed a few times before in the podcast. We saw Olympus Dow draw down to something like $60 up from a high of near what,

$1,000, looking like that. Yeah. Yeah, the market cap. And so the market cap is down from $600 million to $600 a mill right now. So, yeah, quite a drawdown for, for OM. Yeah. And so basically what you've seen is that every instance of on-chain leverage, which, you know, Olympus Dow is a good example of sort of implicit on-chain leverage.

But then, of course, Maker-Dow and many other lending protocols on-chain are the same thing. We saw lots and lots of both massive drawdowns and some near-death experiences in other parts of the market. What were some of the things that you guys were paying attention to during the market drawdown that you thought were interesting? Well, Maker-Dow was fascinating, mostly because you had to see Rune, the founder of Maker-Dow, get on Twitter and start saying we have to contact one specific borrower. Like that was absurd. Solend

had major issues on Solana. Salana had uptime issues during, you know, a disastrous market environment, which you know, if your blockchain's not live, defy doesn't work, right? And that's fine if you're a Dex.

Okay, you can't trade. Boohoo. Like wait 12 hours and trade. but if it's a protocol that relies on risk and collateralization and like leverage and borrowing, if your blockchain is not up, bad things happen, right? If you can't be liquidated or liquidations aren't orderly or the price feeds are off or delayed or whatever, you know, you're going to get events that ruin traders and users. So, you know, we're in our infancy of seeing the interactions of defy on unstable platforms. it could have been a lot worse.

You know, there's not a plug, but, you know, a couple years in, protocol at compound was, like, the most boring and uneventful participant. You know, it had like $15 billion of liquidity. And, like, you wouldn't have even noticed anything, like, during the market sell off. Like, massive liquidations, but, like, everything was just, like, completely humming, right? I think the areas of the market that are newer are going to see the most craziness. You know, it was a little surprised. You know, to see Maker sort of running around, but the system at Maker performed correctly.

It was just the size of a position that was at risk. So I think we'll continue to see people talking about defy, like, is it working during massive market selloffs in the newer corners of the market? Next time it might be, you know, is defy on avalanche working? You know, now that it's large enough, you know, there's the risk of it not working. So that's what impressed me was that in general, the Ethereum ecosystem performed pretty well, albeit one massive, massive borrower at risk in MakerDow. But aside from that, like, it was uneventful, you know? Yeah.

I think in some respects, this kind of reminds me of like March 2020 for Ethereum when it's like the Maker Oracle broke and then, you know, Baker had to issue a bunch of more MKR. And so it was sort of like, that was sort of like a little bit of a growing up moment for like Ethereum defy. And I think maybe this is sort of the equivalent for like Solana defy. Like I think in Solon's case, again, disclosure, we're an investor. It wasn't like, you know, their fault. It was like the Pith Oracle, which everybody in Solana uses, like, couldn't get through because there's so much transaction spam. And so it's like thinking through, how do you make, but the blockchain more robust, but also, you know, adding more backup mechanisms in the past. Because I think like, you know,

luckily in this case, it wasn't too bad. And they like refunded people who got liquidated because of the Oracle, but, like, you know, in the future, it might not be so lucky. Maybe it's going to be even, you know, too large to sort of fix as we saw with like Ethereum this, this time around, you know, if this, this, you know, maker liquidation happened that's 600 mil in cell pressure on the market. I don't know if there's actually like enough to sort of, you know, mend that back up if some of that is, is liquidated incorrectly. I do want to correct you guys a little bit on the 600 million dollar liquidation.

I feel like it. I actually almost feel like Rune overhyped it because, uh, you know, we spend a lot of time monitoring liquidity on different markets and how much slippage you can actually tolerate when there are liquidations in this world. And it was roughly about $60 million every 30 minutes. That was like the max that the auction was actually doing. So it would actually auction off over six hours. And at that sort of time, there was roughly like close to a billion dollars of open liquidity for ETH. So, doing 60 million every 30 minutes was not so it's not so crazy it actually would have been fine i think

ruin maybe in order to wake up mr seven siblings uh decided to overhype it as 600 million dollars in three seconds but if anyone has ever bothered reading the maker auction documents or read the code it can't do that so i just want to point out that everyone very good fact didn't you didn't you didn't check the chain It's true. It's interesting. So I agree with what's been said prior. I didn't know that about the maker auction,

so I'm glad that we got the reality check there. On the Salana side, I thought it's a very good point. Look, Ethereum's been through this. Every major protocol on Ethereum went through Mars 2020, which was much more violent and much more sudden than what happened this week or earlier over the weekend. I think for Solana, what it showed us is that, look, Solana is not done.

Like, it's not a finished protocol. And one of the most obvious failures of Solana that contributed to so much of the turmoil that happened over the weekend was that Solana doesn't have a fee market. And if you don't have a fee market, this shit is just going to keep happening. So for those who are not aware, right now on Solana, Salana does not have a gas model. There is no metering that happens the way that it happens on Ethereum of all, if you do this much transaction and then you have to pay this much gas. Solana has a fixed fee for every single transaction.

And if you are consuming a lot of gas or a little bit of gas, it doesn't matter you pay the same fee. Even if you want to pay more, you're like, hey, my vault is about to get liquidated, and the entire market is going to get screwed if I don't top up this vault. Like, you know, let's say you were the maker guy who was just like, look, everyone is yelling on Twitter for me to top back up. Everyone wants me to top back up, or I'm Pith. And I'm like, everyone wants me to submit this Oracle update. I'm willing to pay $100 to get this thing on chain.

But you can't. because it just so happens that there is no way to tell the blockchain that, hey, my transaction is really important compared to everybody who's like trying to snipe cheap NFTs because the NFTs are not getting repriced. And so as a result, people are spamming, you know, the transactions that are getting through are not the most important transactions. That's why fee markets are so important. Basically, when you don't have a market, what you get is you get breadlines. You get people sitting and waiting because there are, because there's no marketplace. so people who have the most willingness to pay

cannot actually get their transactions done. That is why Salana failed. Salana did not fail because it's not fast enough or it's not whatever. It failed because it doesn't have a fee market. And that's what caused this over-c congestion of spam transactions because the spam transactions

don't cost anything more than they normally cost during an outage. So all the people who are running Salana bots trying to snipe AMMs are still running those bots while everyone else is running for their dear life. And that just can't, you know, that's just a sign that, look, your blockchain isn't finished.

So we had a ton of news here. Oh, sorry, go ahead. Go ahead, Drew. Yeah, I just wanted to add one thing to this, which is like, you know, the interesting thing is that in a lot of ways, the no fee market, or like, I mean, they do have a sort of fee market, but it's like, it's not like a mempool, right? There's not actual like congestion at that level.

You do still have to pay a transaction fee. And it does float somewhat. It's not perfectly constant, but it's kept artificially low. So you might as well treat. it as a really low constant fee. And the interesting thing is like, A, it looks like normal finance, right? Like, this is exactly, when I worked in HFT,

this is like what happens on the days everything goes down, which is like five routers at the CME are down. Oh, except for like three people who found this one extra route through the data center and they're over everyone because they're causing everyone to take a huge liquidation. This actually looks very similar to like traditional, I mean, maybe not totally surprising, but this actually really does look like what the CME looks like.

This looks like what Eurex looks like. This looks like, you know, like traditional trading, less like crypto trading. And the other thing that's interesting to note, I think, about the DFI protocols on Slana is that a lot of the people who have built them, you know, I don't think they, they, a lot of them are coming from high frequency trading. A lot of them are coming from sort of like Fang, manga, whatever it's called now, places. I think they didn't spend time understanding why Ethereum DeFi

kind of evolved the way it did. They didn't maybe do the anthropological and historical survey of why did this Uniswop thing come in? They just kind of were like, oh yeah, we're going to make something better that looks like what our systems look like in our old jobs.

And in the process, what happened is people made a lot of DeFi protocols that have a ton of transactions needed to do a single action. So in Ethereum, one of the reasons Uniswap really beat out everything else at that time in late 2018, early 2019, partially was it only took one transaction to do an arbitrary-sized trade.

In an order book, you can't do that. You may have to send like tens, 20s, 30s of transactions to clear out the order book to make a huge trade. That might be like a liquidation. And something like Pith, another, which is, I think, a really nice protocol. It's like a very clean protocol mathematically. it has infinitely more transaction volume generated on chain than a chain link or a traditional kind of simple spot price oracle because it does this confidence interval calculation on

chain. And so there's a sense in which a lot of the defy protocols on Solana were built with this idea that, hey, transactions are really cheap. Who cares? Do as many transactions as you need regardless of scenario. And that kind of ignores a lot of what people learned. in ETH-Dephy, right? Like, the Ether-Delta, you know, a lot of the Pith failure does resemble a little bit,

like a lot of the Ether-Delta failures in January 2018. And so I think, like, this is a learning lesson for that ecosystem in terms of, hey, like, there's a reason that some of these inefficient things are done in ETH-D-Fi. It's not because, like, the developers are dumb necessarily, right? Like, it is actually because there are these extreme cases. Some of us are dumb. I'm just, I'm just saying, like, it's like, it's like, There's a lot of like hubris in that ecosystem sometimes of like people like, oh, like, yeah,

these East people are all dumb. They don't, they made this like kind of inefficient thing. And I think like sometimes it does, it does help to make sure you understand the history and anthropology of why we, you know, like why those mechanisms evolved. I think the Solana ethos has done a lot to convince people that Solana is not even a blockchain. That it's basically just a computer and you can just run an ordinary program on it and expect perfect uptime. You can expect availability.

you can expect, you know, the idea is like, well, everything's, you know, 400 millisecond or 500 millisecond blocks. So you don't even need to think about the kind of tradeoffs that someone on Ethereum would normally think about, about liveliness and availability. And that leads to things like today, or not today, but, you know, this weekend during the market drawdown. Like, if you're building a financial system, the first rule, the first principle rule is that it's got to be robust in the times when it most matters, which is of high volatility. And everything in Ethereum is built with that in mind because everyone remembers March 2020. And Salana wasn't even around in March 2020.

This is kind of the first time that they've actually gotten punched in the gut of, hey, when shit goes really haywire, you're just another blockchain. And you behave exactly like one and that, oh, crap, the market's going nuts and there's downtime and like no one can get their transactions through. And suddenly the things that we thought were buttery smooth are exactly the things we are not working and the things that we most need. That being said, I do want to give them a lot of. credit for actually, you know, I think I was, you know, in the in the discord throughout the

kind of like their resolution of things. And I, you got to give them a lot of credit for actually getting the hard fork through. Like in EOS times, like EOS developers never showed up. And like, no one cared enough to actually go like fix things and like try to make these updates. And I don't think it's like malintentioned. That's true. I want to be clear. I want to give them a lot of credit for like taking a really shitty situation. And, you know, actually like kind of pulling through. And like, I think they understand these problems, right? Like at the end of the day, they just wanted to build the fastest thing ever.

And unfortunately, the fastest thing ever does look a little bit like Equinix NY5, right? It doesn't really look like geo-distributed blockchain as much. And you're making this tradeoff. That's fine. But I do think like there is a sense in which the developer community in Solana is actually extremely strong. and I think like I'm I certainly think there it doesn't feel like the EOS stays we're like anything bad would happen on EOS everyone would just point fingers at each other and like no one would push an upgrade and no one would fix their protocols so I I want to give a lot of like you know

to all the deaths together we're up 24 hours a night like for mad props mad props absolutely nothing but respect for the Salonacore team what they've done in terms of building performance and building a great community has been amazing right and it's early days and it's very very clear like look ethereum has gone through so many face plants in its history that like look every blockchain is going to go through that especially when you're rebuilding the stack piece by piece so i i think you you make a great point to ruin and i don't want to belittle the work that any of these developers or entrepreneurs are doing in trying to build robust systems so with that being said my hope is that the salon ecosystem is going to

learn from this and realize that like look uh you guys are a blockchain too and the problems that every blockchain worries about, about, you know, sort of uptime and scalability and decentralization and blah, blah, blah, like you've got to worry about that shit too. Because no matter how high your TPS is and no matter where you sort of sit on that tradeoff spectrum, at the end of the day, when markets are going down 25% in a single day, like every blockchain basically looks the same and they all suffer from the same problems. Yeah, for sure.

And I think that, like I said, there's sometimes in history in this industry where we've seen, like, chains that was their disappearing event effectively. And I don't feel that way. I really do feel like the community. The community really came in here. It's definitely not the case. I mean, we're still seeing, you know, there was a lot of press coverage around that time. There were some, there were some like traders who were going and talking to all the press outlets. They're like, oh, I can't believe that Solana is not being performant at the time when it most matters. And that felt a little, it felt a little BS to me because like, okay, look, you know, it's, yeah, like, every, everything is doing terribly right now.

Like, why would Salana be any different? And all this stuff is obviously very new. And look, the Salana team has been relatively clear in saying, look, this is beta software. You know, the blockchain is not done yet. So, you know, chill out. Like, you know, use it at your own peril. It does make very clear that, like, look, the Salana story, people are now, I think, coming to appreciate that, like, the Salana story is not quite as, it's not quite as magical

as was originally portrayed to try to get a system with this kind of. performance is going to come with downsides. And you're going to see some of that come up, especially when you build an entire stack from scratch and then try to put billions of dollars of TVL into it. Yeah, one thing that is kind of interesting that like I'm kind of hoping the next we see in the next crash when there's like more bridges. The next crash. There's always a crash. You're the only one who's looking forward to the next crash at this point, Tarud. I'm just saying there's always, you can't, you can't like assume there's not going to be one. There will be one in some finite time, right?

But I guess the interesting thing is, like, once we're in this more interconnected interweb-looking set of blockchains, there's like way more volume in the bridges, higher throughput, it'll be interesting to see if, like, the networks that are less spam-resistant somehow have all their flow, so they're sort of like pushed off into the ones that are more spam-resistant. And you have this sort of like, in very calm times, you can like use these kind of Solana-style things. And then the moment things are bad, like everything just crosses and goes to like the higher fee networks. I mean, wouldn't that happen with like Bitcoin and Lightning or Bitcoin and DSV maybe? If we saw enough, if you actually saw real usage there, sure. But like the usage there is just exchanges dumping their coins or moving between wallets.

Yeah. It's like there's not many real, real like Bitcoin users other than exchanges now and custodian nowadays. Tom, Robert, any thoughts on the Solana drama? Well, it won't be the last time there's Salana drama. Just like any time there was Ethereum drama, it wasn't the last time there was Ethereum drama. You know, I think there's going to be some growing pains for Solana for Ethereum as it migrates to F2, you know, on L2s.

I mean, you know, blockchains are fragile, right? No more is two, by the way. You're not allowed to say that. Yeah. Yeah. Isn't it consensus layer or something now? Yeah, exactly. I don't know if you got the memo, Robert. That will make me change my ways.

But like the magic of Bitcoin is that it's not fragile, right? But, you know, smart contract platforms are exponentially more complex and they are still fragile, right? And so, you know, I think it'll be a decade before like these systems really hardened to the degree that we look at Bitcoin as. So more drama ahead. I think of it a little bit in sort of like the traditional software. you know, I feel like there's always this sort of tension between doing things, sort of the, like, native way. And then people saying, oh, like that, like, it's really hard and complicated, lithful and abstraction that allows any developer to come on, right?

This is like electron or, like, the Adobe thing, like, in the early mobile days, we're like, oh, we just write it in, like, you know, flashcript. And then you can deploy it on, like, iOS and Android. And it turns out, like, actually, that's really hacky and inefficient and bad. And then after a certain point, you end up just, like, rewriting it natively. I feel like Salon is in a similar point where they're like, yeah, just like, you know, it's just like, you know, your normal HFP job, just bring the same exact architecture. People are discovering, hey, maybe this isn't super efficient and then sort of finding ways to actually like, you know, busy speak to the way the system's actually designed. And so maybe that's kind of we're going through a similar path right now with with crypto.

Fair enough. Well, I think the one thing we can all agree on is that it's still early days. And there's a lot more that we're going to learn about all of these platforms over the coming year. There's, you know, Solana hasn't been out for that long. And so if anything, it's a testament to how amazingly that team has done to get as far as they have and to get the attention. And usually the history of technology tells you if there's one thing that people get mad, keep getting mad at, it's probably going to win at something important. So I have one last market comment. Cosmos ecosystem really killed it during all of the turmoil.

Yeah, what happened? And why? And also transaction rights. Osmosis had like almost 10x its ever volume it ever had and and was like totally fine. Is there is there a broader story beyond just like nothing in Cosmos broke? I mean, I also just think it's actually hard to short things in Cosmos other than Amazon. There's a market structure issue there. Okay, okay. But but I do think the interesting thing is like the validator set stood up. This was like probably the biggest test because Cosmos never really had that many apps that were using IBC. Well, Luna got hit pretty hard, right?

But Adam and some of the other things in the Coszica system did well. Yeah, Luna got hit. That's more for economic reasons for Luna, not that like the Luna validator set had issues processing things. But I think this was the first time we saw IBC like cross-chain bridges really get like 100x the volume of their normal thing. and see if they can actually survive. And so I think that was actually, we should give a shout out. I want to give a shout out to the Cosmos ecosystem for having a good time. Well done to Cosmos.

And so as we close up this episode, obviously markets are still pretty choppy out there. In the spirit of not offering investment advice, not being investment advice, where do you guys think the market is going from here? We'll just go around real briefly in one sentence. Tom. I am definitely not the person to be asking about this. I mean, I suspect we are close to bottoming out. I think there's probably still more room to go.

But overall, I was saying in our team meeting this week, like, it feels very different from 2017 in my mind in that you actually have, you know, real usage of these protocols. There's like actual, you know, real traction. I mean, even just like the Twitter and a thing this week. So it's not like we're going to zero. But I certainly think we're seeing secular repricing within the crypto as well as sort of, you know, macro issue that we've been talking about. Robert?

You know, crypto's an asset class, just like equities and fixed income and all the macro, macro things. Right now across the board, I mean, for every asset, prices down, volatility up, implied volatility way up, right? So, you know, I don't think that crypto is unique. I don't think a lot of the sell-off is even because of, you know, specific price. properties of crypto. I think it's just because risk assets in general have just gotten smoked. And liquidity, whether it's in equities or crypto, is the same thing, right? And more and more

there's interconnecting this and shared ownership between equities and crypto, right? Whereas five years ago, that really wasn't the case. So I think in general, you know, what equities do, crypto will do, more than people expect. I think that correlation is probably higher than most people expect. going forward, I think, you know, it's probably going to rebound because risk assets generally always do rebound. You know, I don't think if there is a bare market, that it's a, you know, bare market that's unique to crypto, I think it would probably be shared and coupled more closely with other asset classes, especially now, especially with, you know, inflation in the Fed is like the primary

drivers of everything. So crypto is less unique. Okay. Well, I did just see that Danieli of Wonderland got liquidated for $18 million. So that seems like an interesting observation to note in this

chat, since we mentioned Ome earlier. I think this is the year of the next Alt L1, right? Like, there's this really good... I thought this is quite good podcast with Hasu and Suu on you know, this like the mercenary

Alt L1 rotation of like people who have big size, like Sue kind of like keep moving to whichever new L1 has like new stuff. And I think like this does seem to be like at least from the defy standpoint, the year of near in Cosmos. I think they're going to, I think the saloon ofax 2021 becomes Cosmos near 2022. And you know, you're seeing a lot of stuff on Aurora like starting to actually exist. And I overall market structure, I don't know.

I'm not totally. I don't think I have like some great predictions. but I do think in those two ecosystems, you know, it seems like there's a lot more, you know, growth happening. So my very briefly, I think that probably we'll see crypto give a little bit more away as interest rates creep up, but I don't think it's going to be too much worse than where we are today. But yeah, my view, similar to Roberts, I think that you're going to see crypto kind of stapled to, you know, growth tech stocks for a while until I think eventually you're going to see a decoupling, but I don't think we're there yet.

But overall, I think, like Tom said, fundamentals look good. And so although I think you're going to still see private valuations really high, I think the public market is going to be relatively cheap for a while. And at the end of the day, I don't think rates are going to be elevated forever, especially, you know, kind of going into midterms. There's going to be demand for the S&P to bounce back. And I think political positioning being what it is, I don't think that either party is going to be accepted,

is going to be happy with rates being super low and the S&P not doing great, you know, over the next few years. Yeah, actually, do you think rates will go up at all? Just quick binary question. Yes, rates will definitely go up from where we are right now. I don't know. Do you not think so? I'm pricing in a K-Fabe from Uncle Powell. I would bet you any amount of money that rates get hiked at least once this year. Maybe marginally, but like I don't, I kind of feel like the market is. bad line right now? I'm very per this. The market is trying to manipulate Powell by crashing.

It's a pretty bad way to manipulate it. I just like have been getting a lot more of a sense that like inflation seems to be very heterogeneous right now. Or like the crash has caused people to measure inflation very differently. And it seems to not be like this like the the transitory narrative thing has clearly like there's some truth to it. It's not totally. lie. And I'm not convinced it's going to be like this big interest rate increase because like some sectors of the economy are like really crashing. Okay. Well, in the interest of time and also in the interest of subject matter, I think we'll have to revisit this as the year goes on. But expect this to continue to develop in future episodes. So for now, thank you,

everybody. And we'll be back again in a couple weeks.