The Current State of DeFi | Vance Spencer, Santiago Santos, Spencer Noon

In this special episode of Bankless, we bring on some of the best minds in the space to discuss where DeFi is and where we're headed. ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 🎖 CLAIM YOUR BADGE: https://newsletter.banklesshq.com/p/-guide-2-using-the-bankless-badge ------ BANKLESS SPONSOR TOOLS: 💰 GEMINI | FIAT & CRYPTO EXCHANGE https://bankless.cc/go-gemini 🦊 METAMASK | DEFI PASSPORT https://bankless.cc/metamask 🦄 UNISWAP | DECENTRALIZED FUNDING http://bankless.cc/uniswap 🔀 KWENTA | EXCHANGE SYNTHETIC ASSETS https://bankless.cc/kwenta ------ The Current State of DeFi Panel: Vance Spencer, Santiago Santos, and Spencer Noon It feels like we're living out a crucial moment in the story of Decentralized Finance. A variety of perspectives will collectively yield that we are at a tipping point, from a macro and micro standpoint. As we witness the emergence of a new technological ecosystem, the stakes and implications are ever increasing. Thus it only makes sense to bring on a panel of some of DeFi's smartest minds to hold a summit on where we are and where we're heading. This panel comprised of Santiago Santos of Parafi Capital, Vance Spencer of Framework Ventures, and Spencer Noon of the Variant Fund. In broad terms, DeFi refers to open, blockchain-based finance. The root of this stack consists of primitive financial services – the money verbs like borrowing, lending, trading, escrow, etc. It involves programming smart contracts to execute logic that transfers value on the blockchain. Within these parameters, there is infinite expressivity and room to explore. The internet of value has set itself up to be a game of optimizing capital efficiency through logic. The winners of this game will be the protocols, apps, individuals, and institutions that minimize counterparty risk while maximizing anti-fragility and resilience. The key here is finding ways to balance the values of consumer agency and protection with the power of capital efficiency. Maximalism and absolutes will be pushed to the margin as the realities of tradeoffs become increasingly apparent. DeFi, despite its youth, has shown itself to be resilient and deeply anti-fragile. Good logic doesn't break. As it matures, the growth and depth of DeFi infrastructure will demonstrably contribute to its Lindy effect. The total addressable market (TAM) of this ecosystem difficult to quantify, as it is a non-zero game that currently encapsulates the entire global economy at present. Conversations like these should leave an informed viewer feeling optimistic, inspired, and determined to face the obstacles ahead with resolve and conviction. ------ Resources: Vance on Twitter: https://twitter.com/pythianism?s=20 Santiago on Twitter: https://twitter.com/santiagoroel?s=20 Spencer on Twitter: https://twitter.com/spencernoon?s=20 ------ Topics Covered: 0:00 Intro 4:00 Santiago, Vance, and Spencer 5:40 What is DeFi? 12:01 Can't Be Evil 17:10 Total Addressable Market 20:39 DeFi Eating the World 24:50 Capitulating Institutions 31:26 Regulatory Winter 34:39 Stablecoins and Yield 44:36 El Salvador & Usability 49:30 Uniswap V3 57:51 Layer 2 Madness 1:05:21 Being About That Life 1:09:10 Closing & Disclaimers ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:13Ryan Sean Adams?

  Hey Bankless Nation, we've got an exciting 60 Minutes planned for you. We are doing a current state of DeFi panel with three of the biggest DeFi brains that we know. David, I know you're excited about this, man, because it's all you've been talking about for the past two weeks. What excites you about this panel? Why is this so interesting?

• 0:33David Hoffman?

  Yeah, the context for this panel is that I went on to a different panel a couple of weeks ago, and it didn't really, it wasn't what I wanted it to be when it was a what is the current state of DeFi panel. And so I got teased by what I thought was going to be a really dope panel, but we are, now we actually are doing it. I think Bankless can do it better. So Bankless is doing what is the current state of DeFi panel? And we have brought on three big brain guests to give us their perspective as to what they see on the frontier. We've got Santiago Santos of Parafi Capital, we have Vance Spencer from Framework Ventures, and we have Spencer Noon from the Variant Fund. And these guys are both DeFi investors, and so they think like investors, but they are

• 1:18David Hoffman?

  importantly also DeFi users. And so they know about it from both sides, like they use this stuff and they invest in this stuff. And so I think this is going to be a fantastic panel to go through a ton of topics really quickly. If you have consumed Bankless content, since you're viewing this, I'm assuming you have, you know that we kind of tend to really take our time and distill stuff. This is going to be a little bit quicker. This is, we're going to, we're going to move really quickly through a lot of subjects.

• 1:45Ryan Sean Adams?

  Zippy.

• 1:46David Hoffman?

  It's going to be zippy, yeah. And so if you guys like this content, like this panel content, let us know. We have other ideas about panel content. This is kind of in contrast to the AMA stuff that we do. And so if you like this panel content, leave a comment in the show notes. Also, like and subscribe to the YouTube, because we do these at least every single week. So Ryan, without any further ado, shall we just go ahead and get right into it?

• 2:09Ryan Sean Adams?

  Yeah, and guys, of course, like any other AMA, you can leave questions in YouTube. We will get to those questions if we have time as the panel has an opportunity to. Before we get into the panel, though, we want to thank the sponsors that make this episode possible.

• 2:28David Hoffman?

  Synthetix is Ethereum's decentralized derivatives liquidity protocol. What does that mean? Synthetix is a platform for creating and trading synthetic assets, which are assets that are priced via an oracle rather than bids or asks. Traders can use the Quanta exchange, which hosts and trades all of the synthetic assets created by Synthetix. Traders on Quanta can trade synthetic tokens like SBTC, S Oil, or S DeFi. Because Quanta is powered by Synthetix, traders experience zero slippage on their trades. No, I didn't mean low slippage. I meant no slippage because that is the power of the Synthetix platform. No slippage on your trades. You can also easily short assets with ICints,

• 3:11David Hoffman?

  which are synthetic assets that move inversely to their target asset. Synthetix isn't just for traders. Developers can build on Synthetix to access the infinite liquidity offered by synthetic assets. Or investors can stake collateral to the protocol and earn fees that the protocol collects. If you're a trader and you're looking for a trading platform and not found in the legacy world, check out quanta.io. If you're a developer or you just want to earn yield on your collateral, go to wwwsynthetix.io where you can stake your SNX or ETH and earn fees from Synthetix.

• 3:47David Hoffman?

  AVE is a borrowing and lending protocol on Ethereum and just recently released AVE version 2, which has a ton of cool new features that makes using AVE even more powerful. With AVE, you can leverage the full power of DeFi money Legos, yield and composability all in one application. On AVE, there are a ton of assets that you can deposit in order to gain yield and all of those same assets can also be borrowed from the protocol if you have deposited collateral. Here you can see me getting a 200 USD. C loan against my portfolio of a number of different DeFi tokens and ETH. I'll choose a variable interest rate because it's a lower rate than the stable interest rate option.

• 4:28David Hoffman?

  But I could choose the stable interest rate option if I wanted to lock that interest rate in permanently. One of Aave's V2 features is the ability to swap collateral without having to withdraw your assets. Trade them on Uniswap and then deposit them back into Aave. Aave does all of this for you, all in one seamless transaction. So you don't have to repay loans in order to change the collateral you have backing them. Check out the power of Aave at ave.com. That's A-A-V-E dot com.

• 4:57Ryan Sean Adams?

  Hey, Bankless, welcome back. This is our big brain DeFi panel. We are really excited to talk about the current state of DeFi. We're going to whip through a whole bunch of topics here today. Keep this zippy. As David said in the intro, I wanted to introduce you to Santiago Santos of Parafi Capital. We've got Spencer Noon from Variant Fund and we've got Vance Spencer from Framework Ventures. Guys, how are you doing today? It's great to have you.

• 5:23Speaker 02

  That's great to be here. Thanks, Ryan.

• 5:25Ryan Sean Adams?

  Awesome. All right. Everyone looks good. You guys are looking good, ready to talk some DeFi. I'm sure you don't do this on a regular basis. I'm sure this is a rare event for you. But let's, let's start with this because I think this is important. The definition of DeFi, how do we define DeFi? I was team, call this thing open finance. I felt that was a bit more fluid. Lost that battle. This ended up being called DeFi. How do we define what it actually is? Spencer, can we start with you?

• 5:57Speaker 02

  Yeah. So thanks for having me, guys.

• 6:01Speaker 02

  I mean, this is obviously pretty difficult. I think the crypto community generally sucks at coming up with names for things. I think one thing is for sure, DeFi is not Bitcoin. So just wanted to get that out there first. But I would say, you know, we have this, these financial applications, these primitives that are, that are built. For me, DeFi is that and principally, I think their cash flows being on chain is the core thing that kind of defines them and unites them. So when it touches something that's on chain, I think of it as being DeFi. It's a spectrum. But that's a, that's probably the litmus test.

• 6:35Ryan Sean Adams?

  So touches something on chain, on chain cash flows, but Bitcoin is not DeFi. Vance, would you add anything to that? Do you disagree? Is Bitcoin not DeFi?

• 6:45Speaker 03

  Um, I, I think that Bitcoin is a subset of DeFi. And I, I don't think the two are necessarily mutually exclusive. I kind of build up my understanding of blockchains and of DeFi kind of from, from three steps. Number one, you know, blockchains are something that are built for a trustless transfer of value. Number two, blockchains are an open development platform that anybody can write logic on. And so anything that's on a blockchain that has logic built on, on top of it is DeFi. And you know, whether that's an escrow contract, whether that's trade, you know, from one address to another, whether that's a complex derivative protocol. And that's how I kind of built up the definition of DeFi in my mind.

• 7:29Ryan Sean Adams?

  Santiago, we, we haven't yet very much used the term decentralization. And maybe that's intentional from our other two panelists, but is decentralization part of DeFi? What is DeFi?

• 7:41Speaker 04

  Yeah, I, I think for me, what I think about DeFi is embedding a logic in a smart contract that executes in a very predictable, reliable and trustworthy manner. Certainly like the sediment layer, which is Ethereum or some other chain. You're relying on some degree of decentralization to make sure that that smart contract executes the way that, that, you know, it makes that state transition, if you will. But for me, DeFi is, as Vance said, you are transferring some value. And that might not just be, you know, tokens, it might be NFTs, it might be other things that have value via some sort of digital scarcity attached to it. But generally speaking, um, yeah, it is for me, the most exciting thing about DeFi

• 8:24Speaker 04

  is the predictability of a smart contract to do a specific logic if then statement that, and you can apply that to any money verb, if you will.

• 8:34Ryan Sean Adams?

  So when we talk about like DeFi, what it is and what it isn't, can we apply that to any specific platforms, right? So Vance thinks that Bitcoin is maybe a subset of, of DeFi. Spencer might disagree. Uh, another investor might call Solana or Binance Chain DeFi. Uh, some other people might disagree. Are, what about these platforms? Is Solana DeFi, is Binance Chain DeFi? Uh, what's your take on that? Where do you draw the line?

• 9:05Speaker 03

  I think the space is exploring all these trade offs right now. And so I think a lot of it is, you know, we will see. But a lot of things will trend towards kind of either side of the spectrum. So like, I'm sure at some point, someone will build an interoperable Google Sheet with Ethereum and they'll be transferring money around on a spreadsheet that settles on ETH and they'll call that DeFi. To me, that that falls outside the kind of scope of what is DeFi because it's, you know, naturally kind of decentralized. And so, you know, the criteria for, you know, what is enough decentralization to qualify as DeFi is kind of the heart of the question. And I think with with decentralization, you only really find out that you need it when the chips are down, when things are breaking, when,

• 9:49Speaker 03

  you know, regulations come in, when, you know, there's adversarial actors on a network, that's when decentralization really matters. And so oftentimes you only find out what's decentralized when, you know, things are breaking or things aren't going that well. And, you know, I think you can see that on things like Binance where it shuts down, uh, you know, where that would never happen with Ethereum or, you know, the Polygon Bridge, which, you know, isn't operable for hours on end when there's a market crash. Those things are not DeFi just because they've kind of fallen under that exclusion criteria. And I think more of these blockchain platforms that are not Ethereum will eventually not be DeFi as well.

• 10:24David Hoffman?

  Santiago, do you have an opinion on what is and is not DeFi?

• 10:28Speaker 04

  Yeah, very succinctly, it is minimizing counterparty risk because that's really the only reason why you want to do DeFi. Otherwise, you know, if you're doing BSC or some other chain, you know, you might go there for yield, you might go there for some other reason. If you're, especially if you're like a Binance user. And and but but largely, I think where this space really is going, where you have large financial institutions, aggregators, where a lot of retail will end up interacting. With these platforms and they might not even know that they're interacting in a DeFi context is I think when you're providing liquidity, when you're interacting in the system, you want to make sure that you're minimizing counterparty risk, right?

• 11:11Speaker 04

  Yeah, I'll give you an example in a day like Black Thursday where you have a market collapse. The first thing I thought when I woke up is, I didn't think, I wasn't concerned about Ave or Compound being insolvent. I mean, you could have looked at the state of liquidations in real time in DeFi and said, okay, things are working. Of course, it's congested. Of course, the keeper system is a little bit flawed, but things are working in a very predictable way. The thing that I wasn't 100% sure on was, are our centralized counterparties solvent? And to me, that's the most important thing. And you see that over and over again in the in the normal financial system in 2008, in Robinhood, like in these instances of market failure, I think traditional finance is quite fragile. And DeFi, time and time again, has

• 11:51Speaker 04

  proven to be a very anti-fragile system that is very adversarial and is by design, can't be insolvent.

• 12:00David Hoffman?

  Not only can they not be insolvent, but a frequent line that I like about DeFi and I hear a lot about DeFi is, can't be evil. Protocols can't be evil. And so, let's turn to Spencer. What does the phrase can't be evil mean to you inside the context of DeFi?

• 12:20Speaker 02

  Yeah, I think it's, it kind of goes to this idea that anyone can audit the code of the platforms that they're using, right? So the code is deterministic, it's being, you know, executed and you as a user have kind of like all of the tools at your disposal to figure out if it's evil or not. It can like be evil, right? There are, there are smart contracts that can do things that are antagonistic to users. So I don't know if I like necessarily agree with that, but um. Yeah, does that answer your question?

• 12:51David Hoffman?

  Yeah, totally. Maybe it's more like we can all audit the evilness, right? Where we can all exactly check on how exactly evil these applications are. Vance or Santiago or Spencer?

• 13:03Speaker 02

  I would just add one thing, too, I think is important is that users in DeFi have agency and that they can exit the system if the set of rules changes, right? So you have, I think, like we were saying before, decentralization, obviously, it's a spectrum. There are some protocols where there are only a few parameters, if any, that can be changed. There are others where their smart contracts are like truly upgradable in, you know, a very wide kind of amount of changes that can be made. And for that, you can leave. And so I think it's, it does also, one thing that you always have to come back to with DeFi is that the users have the agency to leave.

• 13:40Speaker 04

  Yeah, yeah, totally. Like you saw yesterday a statement by the CFTC, one of the commissioners saying, well, you know, in DeFi, you know, things can be manipulated and can't be enforced. I'm like, wait, wait a minute. That's, that's not true. I mean, the traditional financial system goes back to what Spencer's saying. You don't have agency, right? People understand that when you deposit your money in a bank, you have no idea what they're going to use it for. Now, you rely on regulators to kind of have some sort of oversight into what banks are doing. But the only oversight that they're doing is like top, like, what is it? Like a bank efficiency ratios and making sure that they're quasi solvent. But there are stress tests and those tend to fail. Whereas in DeFi, you kind of, you are your own bank. You control your assets, right? And so that's where, you know, I would, I would challenge when, when someone says,

• 14:25Speaker 04

  you know, in DeFi, things are perfectly transparent. You're in real time able to infer, anyone can be a watchdog and anyone can infer if there's a change to a smart contract, if there's a change, if it validates you're down or not executing things in the way that things are intended to, then you can exit the system. And I think it's that ability for anyone to be a watchdog that keeps the system much more resilient.

• 14:50David Hoffman?

  Something that we've seen lately is we've seen Brian Brooks being hired by Binance US. And we've also seen Coinbase also hire a particular regulator who used to be part of regulation and now is part of Coinbase. And one thing that really concerns me and Ryan when we chat about this on the weekly rollups or just privately is this is kind of what we've seen before. Is DeFi perfectly antagonistic to this? Is DeFi the counterpart towards all this revolving door politics that we're trying to escape from? Or is there something else there? Vance, let's turn that to you.

• 15:26Speaker 03

  And do you mean that people from the government wouldn't come work for a DeFi protocol? Or in what sense?

• 15:33David Hoffman?

  Well, even if they did, does it really change the nature of the protocol? Right? Can a regulator, even perhaps a benevolent regulator or perhaps a corrupt regulator? Does the DeFi protocol actually absorb corruption in the same way that the traditional nation state regulating body does? That we've seen throughout the end of time?

• 15:57Speaker 03

  Yeah, I mean, blockchains don't have a Wi-Fi connection. They can't tell who's good or who's bad. And smart contracts are the exact same. And so their ability to be, you know, kind of taken over is relatively small. I will say that because tokens are governance votes and those are effectively purchasable or borrowable. There is that attack factor. And there's also the attack factor of regulators regulating by decree. A lot of their power in this space comes from the fact that, you know, one statement, one speech, one indication can send prices downwards. And regulators oftentimes will do everything they can not to kind of draw formal lines in the sand.

• 16:42Speaker 03

  And instead kind of rule by kind of, you know, public speaking. And so I think that's kind of one of the bigger tools that they have in DeFi where they don't have elsewhere. But ultimately, I think regulation is going to be good for the space and it might not kind of break exactly the way we want to see it. But the total addressable market of this stuff is so large and it's moving so quickly that if we're able to embrace regulation in a way that's constructive, you know, it's going to be a positive.

• 17:06Ryan Sean Adams?

  That's where we want to get to you next, Vance, so maybe we'll stick with you for a minute. We often talk about, Chris Berninski has used this phrase "infinite white space" to describe the frontier that is DeFi, the frontier that is crypto. What I want to know from our panelists is, how big is this frontier exactly? You just used the word TAM, total addressable market size. But quantify this for us. We all remember the birth of the internet, or we were young when it was birthed. It's a big deal, right? And I think a lot of institutional investors hearken back to the early days of the internet. Is DeFi as big as the internet? How do we quantify its size, Vance, to you?

• 17:52Speaker 03

  Yeah, so in the US, there are about 3 trillion in market cap of financial services providers that exist within the traditional ecosystem. And if you add banks to that, it's more, maybe double or triple. And so you're talking about, and I just always go in orders of magnitude, probably 10 trillion to 100 trillion dollars of market cap opportunity, assuming that DeFi doesn't just reinvent the stack, it actually makes it better. And I think with all kind of digital transformations, that's proven to be the case. And so I think it's that large of an opportunity. And maybe that encompasses the base layers and the apps, or just the apps. But I think it's probably all encompassing. And so 10 to 100 trillion is about as large as I think it is, which would make it bigger than the internet.

• 18:37Ryan Sean Adams?

  10 to 100 trillion, okay. And so are we talking there, Vance, about Bitcoin as well being incorporated in this? Often Bitcoiners talk about the total addressable market of gold, 8 trillion to 10 trillion. Is that something different when you're doing the quantification of the DeFi market size?

• 18:56Speaker 03

  It's different. I think if you think about, so say the TAM for DeFi is 100 trillion, and you say the TAM for Bitcoin is 12 trillion, which is the market cap of gold. I think Bitcoin has a better chance of fulfilling more of the TAM, just because it's relatively a neutral

• 19:16Speaker 03

  Technology, you can cleanly put it into a regulatory bucket. There's not things building on top of things that you need to regulate. So I think Bitcoin will probably, you know, have all of that TAM where exceeded at some point. I think these financial apps, it largely depends on regulations, you know, what percentage of that TAM it increases. Does the world look like all of these DeFi protocols are offshore and, you know, we're doing this regulatory hopscotch? Or is it kind of, you know, embedded into the traditional financial ecosystem? I think that's the determinant of the TAM or the percentage of that that it occupies. But I think, you know, they're both going to be absolutely gigantic and there's definitely no lack of opportunity.

• 19:52Ryan Sean Adams?

  Spencer, what do you think about this?

• 19:54Speaker 02

  Yeah, I think I think DeFi is a like a superset of everything, basically is how I would think about it. All of the world's value will be instantiated on blockchains. It will clear on different layers of, you know, blockchains, whether that's Ethereum, because it's, you know, that's like requires an extremely secure blockchain or a layer two or a sidechain or any other smart contract platform where there's like some type of financial activity happening. I think like zooming out, right? The internet allowed us to kind of send packets of information. Crypto and DeFi allows us to send for the first time packets of value. And that's the most disruptive thing that has kind of like happened, I would say. So I think it eats everything and it eats the world.

• 20:40Ryan Sean Adams?

  Santiago, DeFi eating the world, tell us about this. But also, how are the traditional financial systems going to act? What's Wall Street got to say about this? What do traditional banks have to say about this? What about our friend Wells Fargo? What's Wells Fargo going to say when all of this transformation starts eating their core business?

• 21:02Speaker 04

  Yeah, I mean, like ultimately, they won't have a choice because a consumer will demand it, right? When you can earn higher yield on chain.

• 21:10Speaker 04

  When I was at JP Morgan, this was rat poison and now they're banking crypto. Why? I don't think Jamie Dimon will come up one day and say in the board meeting, we have to do this. It's if we don't do it, you know, crypto banks are going to eat our lunch. And so, look, I mean, the global financial services industry is 20 trillion. And to like to go off of what Vance has said. You know, it's very antiquated. It's very, uh, there's a lot of friction in the system and it's not capturing the, all of the value, right? And, um, and nor is it capturing all of servicing all of the TAM, right? There are many people that are unbanked. They don't have access to credit. And so really DeFi for me is about not only making, doing things as Spencer said, in a much like faster, better, cheaper way than traditional financial system. So by virtue of that, you expand, right?

• 21:55Speaker 04

  What it is today from 20 to maybe 40, but it's also capturing anyone that has an internet connection can now transfer value. And that has never happened in the history of the world. And so when you connect all of that and you leverage the infrastructure, the internet and the distribution of smartphones, then you start getting to, I think what Vance is saying, more to closer to a hundred or a hundred plus. Now you layer on top of that, the metaverse and things like NFTs where you're capturing, essentially you're combining global capital markets with digital scarcity and creating new forms of non-sovereign like stores of value and mediums of exchange. If you combine all of that, you get to a hundred plus in my mind.

• 22:31Ryan Sean Adams?

  Guys, I remember.

• 22:31Speaker 02

  Yeah. And I think the rocket. There you go. I was just gonna say, I think the rocket fuel here is that smart contracts offer developers unprecedented leverage. You have never had more kind of, um, value that you could pack into a line of code than you can with a smart contract. And I think like the prime example is Uniswap. I looked at this, um, calculation maybe in March, and I think where we came out was that every line of Uniswap code based on its market cap, um, was something like $18 million, right? And, and all that is to say that there are very few lines of code in, in, in these protocols.

• 23:07Ryan Sean Adams?

  Wait, wait, wait, wait. Every, every line of code was worth kind of uni market cap was.

• 23:12Speaker 02

  Right. So if you took the, the market cap of uni, right?

• 23:15Ryan Sean Adams?

  Yeah.

• 23:15Speaker 02

  And you divided it by the number of lines of code in Uniswap smart contracts. You got to, you know, it was like 18 million at the time. And, and, and all that, I mean, obviously it's not, this is not perfect science, but it just shows you kind of the relative level of, um, programming that is necessary. I mean, think about Coinbase versus Uniswap. You have dozens of people working at one protocol versus, you know, hundreds, you know, thousand plus at, um, a company. And they're doing roughly the same order of magnitude of volume. That is the opportunity, right? Everything is about to be disrupted because of smart contracts. And I think that's why like it's, it's, I, I don't like to, um, value like the addressable market just because it's like so, so big that it like would make my head explode.

• 23:57David Hoffman?

  It also sounds silly, I think, to some like outside investors when they hear us talk about these things like 10 to 100 trillion is the TAM. The TAM is everything, like the whole world.

• 24:10Ryan Sean Adams?

  But yeah.

• 24:11Speaker 03

  There's a one thing I think about is that like the internet was invented in the mid 90s, like around the time that, you know, probably most of us were born. And like, that is such a huge development and I don't think that has even been fully, you know, appreciated or explored in terms of the TAM and what that means to have a hyperconnected world. Like, it would be like being kind of born within 20 years of the wheel being invented or, you know, fire being invented. Like, I'm sure, you know, all, almost all measures of, of, you know, life quality were, went up over the next kind of 200 years. And I think that will be a very similar thing with not only internet, but also DeFi. And I see those things as very intertwined.

• 24:51David Hoffman?

  Guys, I remember in 2017, everyone was really, really stoked because the institutions were coming, the institutions were coming, or at least that was the narrative at the time. Turns out that took about four years to actually become true. But 2021 does seem to have been the year that institutions put Bitcoin on the balance sheet, institutions starting to allocate to Ether. And perhaps now also looking into DeFi and NFTs and understanding the excitement there. So why in your mind would you say are institutions here today? What do we have in 2021 that we didn't have in 2017 that are enticing institutions to finally come? Spencer, let's start with you.

• 25:32Speaker 02

  Large amounts of liquidity. It really comes down to that, right? Like institutions can access these markets and put on size in them. And that's kind of a testament to yield farming, liquidity mining, right? Like the, the innovation happening through a lot of the core low level DeFi protocols. I think. For me, I don't get excited about institutions with DeFi at all. I think they are just not the right users for this. This is about, again, kind of giving individuals financial tools that they've never had before, such that they don't have to go to an institution who rips them off, right?

• 26:13Speaker 02

  Or takes a massive cut. And so, yeah, I think the idea of an institution is being challenged as well, right? With things like DAOs, investment clubs. Yeah, there's a long way to go. This is a huge battle. But yeah, I totally understand why they're here.

• 26:33Ryan Sean Adams?

  Spencer, I was talking to you, David, when we were preparing notes for what questions to ask the panelists. And when we got to the institutions question, like, part of my discussion was like, whether the institutions come or not doesn't really matter, because what DeFi is actually doing is we're building new institutions. Right? So come aboard if you guys want. But back to Santiago's point, like, they're going to be forced into it, whether they come early or they come late. So echoing what you said.

• 27:06Speaker 02

  No, I think it's a great point that Santiago made. Like, you talk to any TradFi person, you explain them Compound or Abbe, and they eat it up and get it immediately, right? And they're starting to use it. But I just, yeah, again, I just think that's not like the end goal.

• 27:22Ryan Sean Adams?

  So Santiago, what would you add to that? So your background is JP Morgan. So you've seen the institutions from the inside. Are they coming? Or is this more about building new institutions? Or is it a bit of both?

• 27:34Speaker 04

  It's definitely both. I mean, I do think that there's two things that are different this time in 2017. One, there's much more infrastructure in place and much more Lindy to the space. There is also COVID, certainly, I think, was an accelerant to, for instance, stablecoin adoption. And if you look at the Circle, I think, put out a metric last summer that said like, there's been like a 600, 700% increase. And I think it was like, you know, year to date, in the number of non-crypto businesses using stablecoins. And you ask why? Well, because people Can't go to a bank and so digital money becomes much more, it it becomes the solution, right? Um, so anyone that has used a stablecoin doesn't want to go back to a wire transfer. So if you're Starbucks, if you're Walmart and you can pay your, you know, coffee growers in Sumatra with stablecoins.

• 28:18Speaker 04

  Well, why, why else would you do something differently, right? So it really challenges the operating flow. Why, the only reason why technology has ever gotten adopted is because it's faster, it's better, it's cheaper. Right? And so stablecoins fulfill that criteria relative to a wire transfer. So I think COVID was an accelerant to a digital transformation. Like you would have looked at Asia and the way that they've like totally leapfrogged financial infrastructure. And no one in Asia ever thinks of like brick and mortar banks. Everything is just sort of very native with a smartphone like WeChat and Kakao like. So I think like you extend that further in the US and other places and people have become much more. Uh, you know, in tune and I think stablecoins are a gateway drug to crypto, to DeFi. And so I think that's different.

• 28:58Speaker 04

  And for banks, look, I mean, the only, the only department that keeps growing in banks is back office and compliance and operations. All of those three can be totally like collapsed if you operate through a smart contract. Now you look at what Abbe is doing with a permission market, like whitelisted market where JP Morgan can underwrite loans and borrow from another counterparty and interact with the customer directly. What does that do to their operation? Well, all of a sudden they can process order of magnitude or two of mortgages and serve as a much wider audience. And so, you know, going back to this thing, like finance is perhaps the only sector that hasn't truly caught off to the internet and for the first time, banks are realizing that.

• 29:40Speaker 04

  And I think there are much, much more um friendly and welcoming to this technology than most people assume they are. Uh, because they appreciate that they can, any, anything, any technology that can strip away fat from their P and L. They're going to be very incentivized to adopt.

• 29:57David Hoffman?

  Vance, what's your take on whether or not we can just build our own DeFi native institutions? And if we can, what is, what is really different about these that are um, that are built on the inside rather than coming from the outside in? What, what does this new era of institutions look like?

• 30:13Speaker 03

  I think it's I think it's path dependent based on on the regulatory landscape like I can see a version of the future where consumer banking apps are able to interact with all D five protocols and I think that things like Coinbase Wallet which has you know a million users is is largely a representation of that future and that is a future where we can build our own institutions and we use the crypto exchanges as the on ramps and that's kind of our banking stack. You know, and I think that will be kind of the way that the world plays out. I think the other version of the world is where regulations are onerous and protocols are basically kind of separated into this kind of like shadow banking institutional world.

• 30:55Speaker 03

  Where you know Maker and Anave and all those things are kind of these these offshore, you know, banks and I think that's also a gigantic market. But it looks a lot more like, you know, kind of how finance develops and there are kind of restrictions on a regulatory or jurisdictional basis. And in that case, I think that it's going to be harder for these things to grow. So I think, you know, I'm optimistic and I think that, you know, regulators will come around and realize that these things are now positive. But it's extremely path dependent and you know, it's just worth acknowledging that.

• 31:27Ryan Sean Adams?

  You're almost implying, Dan, that there's a possibility we kind of go through a brief winter period of time in DeFi as regulators maybe come down on it relatively harshly or at least regulators in some countries. Do you think that's a likely path?

• 31:45Speaker 03

  I mean, it's it's I don't think it's a likely path. I think all of this will take years and years and years to to kind of sort out and there's going to be no regulators taking out kind of the worst actors like you look at the ICOs of 2017, they went off, they went off and got the worst people, the big connects of the world. You know, in the scam ICOs and I think they will go after those. And then the question is, you know, how far do they want to take it? Do they want to use that as precedent for further regulatory action or is that kind of the amount of of, you know, kind of regulation that they want to see in the market? And I think ultimately it'll end up being the former like.

• 32:22Speaker 02

  They'll want to get bad actors out of the space. They'll want to kind of, you know, honor what consumers are already using, what they want to use in the future. And that there won't actually be a winter. And so I'm super bullish on on the regulatory future of the US. I know that that's probably a minority opinion, but you know, we talk to regulators and and for the most part, they just want to see this space grow in a way that is helpful to consumers and it's constructive ultimately. And so I think there's really important work going on and it'll continue to happen and and ultimately it'll be successful.

• 32:51Speaker 04

  Thank you. Just to add to that, a good parallel is how they try to regulate the entertainment industry, things like YouTube. And and and like, certainly you have like the early instantiations of that, like LimeWire and Casa that in app serves that obviously like, you know, there were challenges with that, but ultimately you couldn't stop this this train. Um, and and I think like we we've been at this for 10 years. Uh, DeFi is certainly like younger, it's two, three years. But um, I think regulators like are are using that as a parallel and we've used it when we talk to them. It's like, think about how you try to regulate something YouTube. Well, you had to maybe create certain standards that if a YouTube video has a certain amount of time, you can only use like, you define how you

• 33:30Speaker 04

  redefine like IP and copyright in a similar manner. I think regulators appreciate that there's a lot of innovation here and they want to be competitive on a global scale. So, um, I think they want to sensibly regulate this technology with with new regulation, not old regulations that apply to an antiquated financial system.

• 33:48Speaker 02

  Yeah, well, one other thing that I would just quickly add um is is that there are a lot of people working behind the scenes in our industry to interface with regulators and other people that kind of work for the government. There is no like doom, gloom, black swan that's coming from out of nowhere to be like, oh, man, the industry is canceled. Like, that's not happening. And so, but it's funny how like you go on crypto Twitter, right? On any given day and it's like, oh, man, this SEC commissioner said that or whatever. And and it's just one data point. I just think it's worth kind of all of us um just kind of understanding that that this is an evolution of the financial system.

• 34:30Speaker 02

  Ultimately, it will be, you know, folded into society. It's going to require a lot of collaboration from many different stakeholders and it's happening. Um, so, yeah.

• 34:40David Hoffman?

  Guys, I want to turn the conversation to crypto dollars because crypto dollars, I think, kind of took everyone by surprise in 2018 and then continued to take everyone by surprise in 2019, which with their immense growth in supply. In 2021, crypto dollars alone went from 29 billion to 105 billion dollars in total supply. And also in 2021 alone, we went from 308 billion dollars in monthly volume to 766 billion dollars in monthly volume just last May. Guys, where are all the crypto dollars coming from? Why are they here? Spencer, let's turn to you first.

• 35:18Speaker 02

  Well, for starters, self-plug, I run a newsletter called Our Network. It's about on-chain analytics and kind of data analysis. And if anyone wants to dig into this topic, we would fund it. So, reach out to me. I think my hypothesis and what I've seen on-chain is that it's to chase yield, right? Like, they're going to DeFi protocols, they're farming, they're being used on exchanges for trading or as collateral. And, and that number is growing because the appetite is, you know, only continuing.

• 35:54David Hoffman?

  Vance, any opinions about crypto dollars? Why are they here? Is there other stuff other than yield, or is it all about the yield?

• 36:04Speaker 03

  There's a, there's a few different trades that you can put on that are just yield generative, that are, you know, within the strike zone of what kind of most institutions and hedge funds do. And I think a good portion of the stablecoin growth has been for things like cash and carry trade, where you're basically harvesting the yield of, of dated futures on exchanges. You know, probably that, I would say that's, you know, a quarter. I would say another quarter is kind of like, you know, emerging markets, people that are using US dollars instead of their current native currency. An interesting anecdote there is that when you go to the foreign exchange counter in Calhoun in Hong Kong, they don't quote you US dollars, they'll quote you USDT. And so, it's just...

• 36:49Speaker 03

  Well, the extent to which that's grown to be a real phenomenon in in emerging markets. And then, you know, the other kind of half, it's a it's a mystery. I don't think anybody knows, but it's it's just a global phenomenon that people are putting cash in. And it's not, once it goes on a blockchain, it's not leaving. And they're doing yield farming with it. They're having fun. They're using it to pay people. And so I think, you know, if we were really digging into the data, we'd find out it's a lot more international than we think. And it also has a diverse array of participants from huge hedge funds to people that are just sitting in their basements, um, yield farming.

• 37:22Ryan Sean Adams?

  Santiago, what do you think about this, especially what Vance was saying at the end of of crypto dollars being relatively sticky? Once the dollars, the fiat crosses that bridge into this new frontier, it tends to stay there. Is that the case? Or like some critics would say, look, guys, once all the yield evaporates in the next bear cycle, all these dollars are going to just disappear along with the yield. They came because of the yield. They're going to go when the yield disappears. What's your thought on how sticky crypto dollars are as a use case and the growth potential there?

• 37:55Speaker 04

  Yeah, well, I would challenge the assumption that yields will go down. Just full stop, and I can get into why. But no, no, I think, look, again, it goes back to the usability of a digital coin versus having dollars in a bank account. You know, not only is it just your your own bank, but there is, you know, people, people continue to criticize DeFi because it is all speculation, shitcoins and all this stuff and yield farming. At the end of the day, like, I think more and more people are waking up this idea that depositing your USDC in AVE or compound, forget about the yield for a minute, even if there was no yield. You're in control of that. And there's greater certainty. And I think people outside the US where you have

• 38:37Speaker 04

  different regimes and not as strong of a system to appreciate the certainty, the higher degree of security that you can have by having a digital dollar.

• 38:48Speaker 04

  Now, of course, I would like to see more truly decentralized stablecoins. I think that is a frontier in DeFi that has a lot of experimentation, but, you know, I think that's the next sort of wave where you see something like, you know, Faye or some other projects that are trying to experiment in this frontier. Right.

• 39:08Ryan Sean Adams?

  Okay, tell us why yields aren't going down. Well, first of all, where they're coming from, because some people don't even know that, where the yield's coming from, and then make the case for why they're not going down.

• 39:18Speaker 04

  Well, a number of reasons. Yields are either subsidized by sort of a combination of like native tokens, right? When you're yield farming, that that's one element where protocols might issue you their own governance, their own token. And so that has value. The other component is just by virtue of utilization. I mean, there is a lot of demand of perhaps borrow the stable coins. So for instance, you know, a subset of participants are looking to go levered long, for instance, or borrow stable coins to go farm and do other things with them. So that's another, you know, when you think about the utilization curve of what determines yields in these money markets, that's another component.

• 39:56Speaker 04

  And and and the third piece of why yields are not necessarily coming down. One, there's always a risk premium attached, and there will continue to be a risk premium attached to this industry because it's younger, it has smart contract risk. It's just more on the frontier. And the other is the ability to do derivatives, right? And create much, much like yield generative opportunities like credit default swaps and like and like, you know, something like Barnbridge or Saffron, like the ability to like tranche risk and create much and and interest bearing opportunities. I think that is a whole area that is very nascent in DeFi today, but will, you know, I think create my increasingly will create opportunities to capture yield in the space.

• 40:36Ryan Sean Adams?

  Okay, I have to ask.

• 40:37Speaker 02

  I would add, I would add a couple of things, uh.

• 40:39Ryan Sean Adams?

  Go do.

• 40:40Speaker 02

  If you wouldn't mind. Okay, so one, I don't purport to be like a trader. We we definitely don't at Varian. We don't know where the the market is going tomorrow. I think we make kind of like long term bets. I would say, you know, yields are very much, as we know, predicates on the price of the governance tokens that people are farming, right? But I think for the reasons that Santiago said, and two more that I'll give, that in equilibrium, I I believe that DeFi yields will be higher than C5 yields. And and the two others are, one, it's like a lower cost of capital, right? Like, if you're lending on.

• 41:18Speaker 03

  The the the difference between that and interfacing with an institution like JP Morgan or something like that, they have businesses and compliance and people to employ, right? Like, all those things are costs that protocols do not have. And and number two is composability, right? If you are an actor in the system, you can stack yields in a way that is just kind of unimaginable in the financial system for most, basically all participants, except for the the very few sophisticated ones.

• 41:50David Hoffman?

  Awesome. I I really like that take. The bureaucracy is one of the most attractive, or lack of bureaucracy is one of the most attractive features of this space. And since we have all these crypto dollars on chain, like I said, over to a hundred billion of them, how has that impacted market structures, right? Back in 2017, 2018, when we were dipping, people had to flee to fiat on exchanges, on centralized exchanges, and then maybe one step away from their bank account. But nowadays, people can just exit into into crypto dollars on chain and keep them on chain. How does that change the properties of the tokens that are proximate to all of these crypto dollars? I would assume Ether has the most surface area to crypto dollars, but also DeFi tokens

• 42:34David Hoffman?

  as well. Vance, how do you see this, the such a large supply of crypto dollars being so close in DeFi to all of these crypto assets? How does that change the market?

• 42:47Speaker 03

  Yeah, so also to 2017, Bitcoin has become less important as a medium of exchange, just because that was kind of your, like, you would go alt to Bitcoin or ETH to US dollars on an exchange, like, you can kind of just cut out one of those legs now. And so Bitcoin has kind of had to evolve as a result, as it's not kind of the the reserve currency of a lot of these these kind of alternative coins. So that would be kind of one of the biggest ones. But I think just the idea of user persistence and the fact that people are sticking around and it's not, you know, You withdraw to your bank, it's three to five days out, like it comes into your bank account. If you want to get back in, like you're making a conscious decision to wire money to Coinbase. Like that, you know, removing user friction means that people can use these things more.

• 43:32Speaker 03

  And I would say that's kind of a general benefit of market structure as well. Um, but just the ability for people to, you know, actively use those stable coins, earning more governance tokens on things like Ave or Compound or Curve or Synthetix. Like tha- that's a huge use case and I, and I think that actually helps liquidity of those underlying protocols and allows them to, to, you know, fend off a lot of the downwards perplexivity that they see in times of stress. Um, so I think it's ultimately a huge positive. I, I do think that with stable coins, like we've only seen the very beginning of the story. Um, and you know, I, I'm very bullish on things like DAI and SUSD and more decentralized alternatives to things like USDC, um, which I think will eventually just kind of come to be neutered in a lot of ways

• 44:16Speaker 03

  as that blacklist kind of gets more expansive and the list of protocols that they're allowed to interact with becomes, you know, more and more diminished over time. So, um, we'll see on, uh, on what that looks like in time. But, uh, people think the decentralized stablecoin race is like, you know, been won or, you know, it's, it's already finished. But we're really at the very beginning of that, that industry.

• 44:37Ryan Sean Adams?

  Well, here, here's another maybe new beginning and this goes to kind of current events, which is El Salvador talking about making Bitcoin a, um, a, like a, a, a legal, a legally accepted currency inside of their economy. And El Salvador is, as I understand, based on the dollar today. Um, you just said something super interesting, I think, Vance, which is what we've seen in the crypto economy is that crypto dollars have started to replace Bitcoin as a medium of exchange. I'm wondering if we might start to see this on the nation state level, right? So like one thing you might get with crypto dollars is an entire financial system in a box, right? And that could service entire countries in the future?

• 45:22Ryan Sean Adams?

  That's a hypothetical and also a question mark. Santiago, what do you think about that?

• 45:27Speaker 04

  Well, I'm from Mexico, as you guys know, and to me, like, um, yeah, most people don't want to hold their savings in pesos. You want to do it in a dollar. Now you can do that, a digital dollar and interface with an entire, as you said, out of the box, so much utility. I mean, Mexicans can't even invest in the US stock market. You can't invest in things like Tesla. Now you can, right, through synthetic products. I mean, that, the level of usability of this system, right? Usability, I'm not talking about speculation, just pure usability and access to new financial products that otherwise it would be impossible to get access to is huge. Um, you know, I think you look at the Turkish lira, you look at the Venezuelan peso, you look at the Zimbabwe dollar, their volatility,

• 46:07Speaker 04

  it, you know, you think shitcoins on Uniswap have volatility, you haven't, I mean, these things like lose value time and time again, right? And so in my mind, you know, it's, it's, it's, that is what really is exciting about DeFi is the usability. Most people talk about speculation, but don't appreciate the level of usability and what that truly means for, you know, most of the world's population.

• 46:30David Hoffman?

  Guys, we are going to, oh, go ahead, go ahead.

• 46:34Speaker 04

  No, I was just gonna say, in reality, like, why, why do you need to have fiat, like, local fiat currency or tokens, if you will, when you can, I mean, you can do, you know, a stablecoin, um, or, or something like ETH.

• 46:48David Hoffman?

  Guys, there is so much left in this DeFi conversation. We're going to get to the topics of layer twos that we all think, and some are already here, some, the rest are coming. I want to talk about Uniswap V3 and who is most capable of winning the Uniswap V3 liquidity providing competition. Is it DeFi apps? Or is it institutions and individuals? Uh, and then there's some other conversation I want to get to, such as what does it mean to be about that life? It's this Vance Spencer quote that we got out of the first podcast with him, and it's stuck in my brain. But first, before we get to all those questions, we're gonna have to take a moment to talk about some of these fantastic sponsors that make the show possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure.

• 47:32David Hoffman?

  Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswap ecosystem is the Uniswap Grants Program is now accepting applications for grants. We have been saying this for a while and we'll say it again. DAOs have money and they are in need of labor. If you think that you have something to contribute to the Uniswap DAO, apply for a grant to Uniswap. Just look at the size of the Uniswap Treasury. It's almost $3 billion. This mountain of capital is looking for labor.

• 48:17David Hoffman?

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• 49:02David Hoffman?

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• 49:47David Hoffman?

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• 49:57David Hoffman?

  Guys, we are back with our DeFi panelists. And I want to start off the second half of this show with Uniswap V3, because Uniswap V3 and concentrated liquidity has really kind of changed the game with what it means to provide liquidity in AMMs. AMMs already changed the game, but then Uniswap V3 changed the game again, where it used to be this lazy liquidity providing paradigm. Submit your assets, call it a day. Now we're kind of getting back into the world of competition. And now we're kind of seeing these order books form, these order books that look like pyramids rather than inverted pyramids that we would see on traditional order book exchanges. And so I want to ask you guys the question. Who is most capable of generating the most fees and yield in Uniswap V3? What parties of institutions?

• 50:42David Hoffman?

  Are we individuals who can move really quickly? Or funds who can have dedicated strategists? Or DeFi apps that are really yield optimizing, yield aggregating? DeFi apps like Urn? Who's the best party that's most situated to win the liquidity providing game in Uniswap V3? Santiago, let's turn to you.

• 51:01Speaker 04

  I think it's DeFi apps. You've started to see a few. We're actually investors and we're investing in one, incubating one. And I think it's going to be Urn-like strategies that really automate this for all kinds of users, not just retail, but also sophisticated institutions. For what it's worth, it is very time consuming and process to manage the liquidity provisioning in V3. And I think this is better suited for something like Urn to do.

• 51:31David Hoffman?

  Vance, same question. What do you see on the horizon of who's going to win the LP game moving into the future?

• 51:38Speaker 03

  It's not going to be passive LPs and projects that don't adapt to this new kind of regime of capital efficiency are really going to struggle, partly because they're not going to be able to get best execution, but also because they're just going to be basically hiring other people's LPs that are lazy. And, you know, there will just be less fees, there will be more people LPing, there's kind of less of a pie to go around. And so I'm kind of bearish on those. But I think there will be protocols that sit on top of Uniswap and basically democratize access to market making again, and those will be relatively profitable. But yeah, I mean, there's also kind of like this, you know,

• 52:20Speaker 03

  kid in the basement factor that's just figured it out. And there's tens of thousands of those types of people that can do it themselves. I think the question will be ultimately whether they want to, or whether they just want to pay urine, you know, 1%.

• 52:31David Hoffman?

  Spencer, same question. Got any opinions on the V3 game?

• 52:37Speaker 02

  Yeah, Sean, opinions. I think, I think everyone wins. And I think it's really, really early. So right now, you know, we don't have much of an ecosystem of apps that help, you know, the, the quote lazy liquidity providers right now. But that's going to happen. And I think people will organize, they will find a way to, to, I guess, equip themselves with strategies that like more sophisticated participants have today. So I think that's really cool, something I'm seeing behind the scenes with teams. But I think like taking a step back, Uniswap is permissionless. Anyone can add a pair to Uniswap, right?

• 53:18Speaker 02

  And so with that, you have a long tail of assets that frankly, institutions are never going to touch, right? They're going to touch them when they get bigger and they become a top pair or part of like the middle market. And so I think the beauty of Uniswap is like, it is the exchange for, we believe, all of the world's value. And so I think there is, there are fees to earn for literally everyone. It just, it comes down to kind of what pairs you're playing with.

• 53:49Ryan Sean Adams?

  I'm going to ask a quick question on Uniswap to each of the panelists, just to see your, your quick gut reaction opinion. Do you think we'll live in a world where Uniswap is the dominant AMM? Or will we have many AMNs? What do you think, Spencer?

• 54:03Speaker 02

  Uh, I would say it's, it's probably a, um, like a power law. I wouldn't be surprised if Uniswap, um, was the dominant player. I, I actually believe it will be. I mean, look at the market share now, right? There are, I mean, yeah, so you, we just saw about a 60% market share right now. Everyone has tried everything in terms of liquidity mining programs, different AMMs, different curves, and yet.

• 54:27Ryan Sean Adams?

  Vampire attacks.

• 54:28Speaker 02

  With that, yes, even without all of those things, Uniswap is still winning. And I think it's, it's worth interrogating why. Um, I think obviously first mover advantage was huge, right? Liquidity begets more liquidity. You have users that are coming and trading. That's more trading fees for the LPs. I think brand and trust is also a big thing, right? So when you're a liquidity provider or a user, you want to be somewhere. Um, you want to participate on a platform where you have, you know, the assurances that your money's not going to go away. Um, and you're going to get the best price. So, yeah, it's, um, it's really interesting. We'll have to see.

• 55:03Ryan Sean Adams?

  Vance, what do you think? Uh, are you as bullish as Spencer on Uniswap? Do you think there's many AMMs?

• 55:10Speaker 03

  Um, I think it's, it's, uh, like if you look at Polygon right now, there's an AMM called QuickSwap, which basically does all of their volume and, um, they dominate that area and that's honestly where a lot of retail is being on boarded right now. Um, and Uniswap is, is really amazing and it's capturing, you know, most of the market share of these AMMs, but like they're, they're kind of too principled to go and deploy there because, you know, Polygon is not really permissionless innovation. It's, it's kind of like a federated sidechain. Um, so I think it's kind of path dependent in terms of which L2 ends up winning. But, you know, Uniswap being able to go on or being willing to go on to Arbitrum makes me more bullish on, on Uniswap kind of winning out, you know, in the end game.

• 55:51Speaker 03

  Um, but, you know, there is a world where we explore these decentralization trade-offs and another layer two or another blockchain ends up winning. And Uniswap is not the AMM of that chain. Uh, so, you know, pretty path dependent, but we're extremely bullish on Uniswap. Um, we, we hold Uniswap, so disclosure, but, uh, yeah.

• 56:08Ryan Sean Adams?

  We're going to get more to layer two in just a minute, but I want to ask Santiago the same question about Uniswap versus a world of many AMMs.

• 56:17Speaker 04

  Yeah, I would think that there is a possibility to have, you know, sort of like a duopoly or like two or three dominant AMMs. You know, I think like Sushi, for instance, like, look, I love Uniswap and what they're doing, but certainly like Sushi is one that there, the areas of DeFi that need more solving are like capital efficiency. And certainly, Uni V3 like starts to accomplish that by being, you know, allowing consumer preference to say, hey, where, what continuum of the curve do you want to provision liquidity based on your interpretation of correlation of said assets, right, a pair. But, you know, Sushi's approach to capital efficiency is much different through like options and like Hashi and Ventobox. And so,

• 56:59Speaker 04

  in my mind, it's just sort of a different, a different approach to capital efficiency. Ultimately, what the consumer most and the liquidity provider most cares about is, you know, being able to maximize fees. And certainly, that might be possible in V3, but I think there is still a lot of room for innovation in this field of capital efficiency. And we've, you know, I'm personally interested in seeing different approaches to that. And so, I think by virtue of that, you're gonna, there is a possibility to have potentially competing AMMs. And look, it's a vast area, right? And so I think what you, I think, need to understand is that from a liquidity provider's standpoint, you know, you might value certain things, right? If you're a retail LP, it's different than if you're a treasury LP, if you're a like,

• 57:43Speaker 04

  you know, a much more institutional LP. And so I think there's different approaches and for that reason, you're going to see perhaps a multiple AMMs.

• 57:52Ryan Sean Adams?

  Spencer, it's been woven throughout this conversation today, but we talked about Polygon, other Layer 2s, right? And Polygon maybe is a sidechain, less of a Layer 2. But the Layer 2s are coming. It's really interesting to see. Those of us, all of us here have been in this space for a bit through the trajectory of Ethereum. The beginning, they said smart contracts would never work, no one would use them, right? Then Ethereum got so full and so successful that that became sort of the, the problem is how are we going to scale Ethereum? And now we have things like Binance Chain launching with an EVM, smart contracts, instant, massive, you know, transaction, Polygon, kind of the same. Now we're on the cusp of what David and I have been calling Layer 2 Summer. We've got Arbitrum, we've got Optimism.

• 58:36David Hoffman?

  We've got lots of experimentation with the Starkware stuff going on. Talk to us about what you see ahead for the next three to six months in Layer 2. Is it here? Is it coming? Is it gonna make a big difference? What do you think, Spencer?

• 58:54Speaker 02

  Yeah, I definitely think we're, it's gonna be, it seems like a lot of these projects are kind of marching towards a mainnet all around the same time. And I think to Polygon's credit and even BSC, they've kind of showed the playbook of how to get users, at least to like take a tour of their blockchain, right? And it starts with some type of fork of a battle-tested DeFi app that lives on Ethereum. And it's either juiced with liquidity mining rewards and even sometimes subsidized by the underlying chain itself, right? So like giving Matic rewards on top of CC rewards, that's a great incentive for people to come over and try it. And then you kind of couple that with the infrastructure.

• 59:39Speaker 02

  If it's an EVM chain, you can use things like MetaMask, you have Block Explorers that kind of plug in. And it's a user experience that feels very, very similar to Ethereum. So yeah, I think it's going to be madness, frankly. I'm curious about what happens after that, right? When the dust settles, what was sticky and what was not? Which users actually stayed? Were they mercenaries and just going to wherever the hottest yield farm was? Or are they a different type of user entirely? So yeah, it's going to be fascinating.

• 1:00:17David Hoffman?

  Spencer, you use the word madness, which I think is very proximate to the word mania. And then you also just indicated that there's going to be a bunch of yield farms around. And so one of my things that I've been speculating about is people tend to issue tokens in this space. And so I'm kind of thinking that every single L2 will have a token. And if they have a token, that means they'll need to distribute it. And so Santiago, how do you think all these L2s are going to distribute their tokens? What's the distribution plan, the logical distribution plan that you see coming for all of these L2s?

• 1:00:55Speaker 04

  Yeah, I think, well, first of all, I think there's a some like uncertainty if some L2s will issue tokens. I think I can't think of any network that is successful without a token. So like, you know, for that reason, I think every L2 will have a token. Purely for governance or for other reasons. On the distribution side, I think like we can look at precedence on what has been a successful like distribution strategy. I think most recently you've seen projects like Badger and others in Gitcoin distribute tokens in a much more sensible manner based on certain criteria, not just providing liquidity, but also what are going to be good stewards of governance that are going to be active in the community, active in governance. And I think, you know, for an L2, what is most important, right? Well, you want to attract partners, right? You want to attract apps to come on board.

• 1:01:40Speaker 04

  And so distributing to those treasuries and those users might be good as well as, you know, the underlying users. So I think obviously, as we all know and are in for the space, you know, being able to distribute those tokens, you know, widely is also important. And so, yeah, I think you will probably see some like guild farming opportunities purely to distribute this to a wide variety of users.

• 1:02:08Ryan Sean Adams?

  Lance, we just had you on the podcast, so I know you're bullish layer two, right? And I know you've got some stuff to say about it. I want to ask this question, right? I feel like in crypto, if you zoom out, we've seen a couple of eras. We've seen first the era of Bitcoin where we discovered digital scarcity. Then we saw the era of Ethereum where we discovered sort of smart contracts and DeFi was born. Is Layer 2 unlocking another new era? Is it that big? Is it that important? Is it that impactful? How would you characterize Layer 2?

• 1:02:43Speaker 03

  It's unlocking a lot. I think it unlocks both good and bad. So, you know, the good is, you know, high transaction throughput. It means to kind of port Ethereum culture, you know, forward in a way that doesn't, you know, crush the base layer and just new primitives that we can all build and enjoy in this new financial system. That's definitely the good. Bad is basically, um, you know, it, and I was talking to some friends from China last night. I was like, you know, how's BSC doing? Is it still interesting? You know, if you guys trade on it? They're basically like, no, you know, people got rugged too much. Retail stopped coming out of the platform. In Weibo, you know, people in Chinese, you know, calling for consumer protection against finance and CZ.

• 1:03:25Speaker 03

  Like the, these things, uh, I, I think layer twos oftentimes think that they are competing against each other, but really they're competing against not blowing themselves up and, and developing the wrong culture that turns users off. And so I, I think that's kind of the bad unlock that a lot of these layer twos will have to grapple with. Um, and I think, you know, BSC and, and kind of the relative death of that has, has largely been indicative of that trend. And so I think, you know, there's this idea that we're just going to open up the theme park and people are going to come in and have a blast. But like, in reality, you know, we have to make sure the rides are constructed the right way, you know, before I'm getting their heads chopped off on a roller coaster. Like, that's kind of how we lose the layer two battle, um, in the near term. In the really long term, I think the, the big thing is how do you productionize and utilize MEV?

• 1:04:08Speaker 03

  Um, that is basically the, the financial, where the rubber meets the road in terms of supporting Ethereum culture. Are you giving it to people that are not supportive to the ecosystem? Are you giving it to the lowest common denominator developers so that they can, you know, keep building their little dinky DeFi app that may one day become something big. And I think that's where kind of, you know, we end up long term, but, uh, there's going to be a lot of tokens issued before we get there.

• 1:04:30David Hoffman?

  Guys, I want to, go ahead, Santos.

• 1:04:32Speaker 04

  I'll just add something to that. I mean, for me, L twos are really like, you know, not finance marching. Like I appreciate like definitionally, like they might be included in that, but for me like L two are like arbitrary and optimism. Um, and, and, uh, like Starkware, like these are things that, you know, are, provide the same sort of security guarantees for an L one, but also allow for much higher throughput. And, and I think for that reason, Ethereum is migrating from dial up to broadband. And I think most people don't appreciate how explosive that will be. So if you think about like, you know, when you have those brick phones, people want to pay tons of money for like dial up internet. And your DeFi has largely been that, you know, you're paying high transaction fees, but it provides a lot of utility. Now imagine a world where that collapses orders of magnitude. What's that going to do? Like finance smart chain

• 1:05:17Speaker 04

  was just a foreshadowing event of what will happen in Ethereum.

• 1:05:21David Hoffman?

  Guys, this has been a really awesome panel and I want to finish off with a more high level question. You guys have all been in DeFi since DeFi was created in December of 2017 with MakerDAO. That's kind of when I think DeFi was really created. How has DeFi changed your life? As in, like, we all have these insanely awesome DeFi protocols right at our fingertips, right? They're inside our computer, they're just a few ledger presses away. How has that changed your life? Spencer, let's start with you.

• 1:05:51Speaker 02

  Yeah, I think, um, for starters, it's changed my life because DeFi kind of offers, frankly, investment opportunities that were otherwise unimaginable to me and other participants, right? I think there is so much low-hanging fruit, but also just kind of meaty, um, projects out there to take on, where, um, anyone in the world can access these opportunities too, right? Like, and that's really important. But I think the biggest thing is probably just the mission.

• 1:06:25Speaker 02

  We, the idea that we are creating a financial system that is owned and operated by users, I think is really important and it kind of transcends even making money or, um, um, you know, we're talking about how like society is going to change. And so I think that's given me a mission because we now have a blueprint to get us there. It's very, very early, but it's definitely changed my life.

• 1:06:52David Hoffman?

  Santiago, how has DeFi changed your life?

• 1:06:56Speaker 04

  Yeah, for me, it's sort of been a privilege to be part of a space where, you know, one, it doesn't discriminate. No one cares where you come from, who you are, what you look like. If you went to Harvard or community college or didn't even go to college. And I've seen that firsthand, like, I feel like interacting with these developers, like, someone like Hayden, no experience coding, and then teaches himself how to code and just built the most powerful, like, the most popular, one of the most valuable DeFi applications that is rivaling Coinbase. Like, just think about that. To me, it blows my mind and I think is very emblematic of Web3 and open source systems where...

• 1:07:31Speaker 04

  It really is the best way to express human ingenuity and creativity at a global scale. And then you latch on top of that, the ability to transfer value. And I think the combination of that, and you're seeing with NFTs and artists being discovered. We just hired a guy who's 18 years old, was anonymous on Twitter, and I found him on Twitter. And now he works at Perify. And to me, that's, that's the most explosive thing of, look, if DeFi works, great. If it doesn't work, I think generally this idea of open source systems where human talent is matched by capital in the most efficient way is here to stay. And that's very explosive. And that's like, why I'm here.

• 1:08:07David Hoffman?

  Vance, same question. How has DeFi changed your life?

• 1:08:12Speaker 03

  Um, for the better, for sure. Um.

• 1:08:18Speaker 04

  Vance doesn't sleep.

• 1:08:19Speaker 03

  Yeah, less sleep for sure. Um, I think like the financial returns have been cool. Um, and I always thought like, you know, once I made X amount of money, I would like go and chill on an island or something. Um, but like, that has kind of caused me to kind of reflect on like, what I actually want to do. And, and you know, what is actually the purpose of what we're doing? And just like working at Framework every single day, you know, with Michael, the rest of the crew and actually doing something that, you know, if you work in a big tech company, it kind of feels like, um, you're just like in this little cog. You're this little like box that you can't really get out of. Um, the DeFi is basically infinitely expansive and inclusive. And you can really make it your own or what you want out of it. And, and I think just, you know, echoing what Spencer said, just that purpose and that mission is really kind of the thing that's,

• 1:09:03Speaker 03

  that's really changed the most, um, you know, from, from kind of the, uh, the pre DeFi days. Uh, yeah.

• 1:09:11Ryan Sean Adams?

  Guys, uh, these stories are so cool. Uh, David, I hope you scratched your itch. This was an incredible panel. Just want to thank all the panelists for hanging out with us and sharing your stories and your insights. We appreciate it.

• 1:09:25Speaker 04

  Yeah, thanks guys.

• 1:09:26Speaker 03

  Thanks guys.

• 1:09:27Speaker 02

  Thanks guys. That was fun.

• 1:09:29Ryan Sean Adams?

  Yeah, it look guys, you know, I decided the same thing as these these panelists about five years ago. I was like, I missed the early days of the internet. There's no way I'm going to miss the next financial revolution. That's why we are all here. That is why you are watching Bankless. If you enjoyed this panel, make sure you smash the like button and subscribe. David, I said it this time. For the first time, we got it.

• 1:09:55Ryan Sean Adams?

  Of course, risks and disclaimers, everyone. None of this was financial advice. Eth is risky, crypto is risky, so is DeFi. You could certainly lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot. Like and subscribe.