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

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

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

• 0:07Ryan Sean Adams?

  Hey guys, welcome to another State of the Nation episode. I'm Ryan Sean Adams. I'm here with David Hoffman. This is an episode where we, this is a show rather, where we talk about what's going on in crypto. We zoom in on one item. We relate it to some of the big picture stuff we discussed in the podcast and in the newsletter. We tried to drop some insights and action items to you as well. This is streaming live right now on YouTube. This also comes out on the podcast. David, how are you doing today?

• 0:36David Hoffman?

  Oh, absolutely fantastic. It's Coinbase week. It's all time high day. It's building day. There's so much to talk about, which is why we actually have two guests today on today's State of the Nation.

• 0:47Ryan Sean Adams?

  So what are we talking about then today?

• 0:49David Hoffman?

  Yeah, yeah. So some interesting projects have come out with a slightly different flavor to them, I would say. They're really cool projects in of themselves, but it's also the people behind these projects that I think is also uniquely interesting. We have people who have been in the actual Ethereum protocol, building the Ethereum protocol, Preston Van Loon and Will Villanueva. Hopefully I got that pronunciation right. I forgot to ask him ahead of the show. Preston Van Loon has been with the Prismatic team, building out ETH2, and Will has been doing R and D with Phase 2, the sharding aspect of Ethereum 2 in his past as well. And so the through line here is that we have Ethereum builders turning into app builders.

• 1:34David Hoffman?

  And that is a unique story that we have not yet seen coming out of the Ethereum ecosystem.

• 1:39Ryan Sean Adams?

  Yeah, I think that also gives them a unique perspective too, David, on like both the protocol layer on Ethereum and also the app layer. And you know what, David, I won't be able to help myself. I'm definitely going to ask some ETH2 questions at the very end of this, because I just want to, like, we're five months into ETH2 staking launch. What's happening next? What do they think? How they think it's gone, timeline, that sort of thing? So we'll try to fit that in at the end. David, what is new in the Bankless community? We got to talk about Bankless Badge Week that starts next week. So next Monday, let's see, Monday, the April 19th. What is Bankless Badge Week? What are we doing?

• 2:17David Hoffman?

  I thought it was Bankless multiple badge weeks. I thought, I thought this, yeah, so we're gonna be giving.

• 2:22Ryan Sean Adams?

  It's badge week that lasts two weeks. How's that?

• 2:25David Hoffman?

  Badge weeks, yeah, so we've been, we've been hammering this out in previous episodes. And so we finally figured out the raffle giveaway agenda. First week is all about BAPS, all about BAPS. People are getting their, gonna get, people with the Bankless badge are going to be getting BAPS. And that's what these are. And so there are only six BAPS left, which means only six more people will ever get the shirt that you can, you are seeing Ryan wear right now. And so that's pretty cool. And then that is week one. And week two will be, and I'm soon.

• 3:02Ryan Sean Adams?

  Yeah, week two. The rumor is it, the, the raffle weeks is gonna rain raffles for the next two weeks, starting on the 19th. Rumor is the last day of the raffle, we will be raffling off one ETH, sir. Wonder what the price of one ETH will be at that point? Could it be 2,000? Could it be 10,000? We don't know, but one ETH is one ETH. And that's what we'll be raffling. And for, for those of you don't know, the way to get a badge is you can become a Bankless subscriber, get a badge. But we're doing this raffle really because we want a lot of the people who have subscribed already and have a badge link somewhere in their email to go back through. Make sure you claim your badge so you can participate in these raffles.

• 3:44Ryan Sean Adams?

  We want everyone who is a full Bankless subscriber, who already has a badge link, to go claim their badge. That's what Badge Week is all about. So go do that. This is a, what you're seeing on the screen, if you're viewing this in video, is how you enter the raffles when they come in. This is a GridPlus raffle that we did previously. You just connect your, your wallet to it. It has to have a Poet badge in it. It could be on Xdi, it could be on Ethereum mainnet. And then you're entered in the raffle and it randomly picks a winner every single day is, is how we're gonna be doing this. So, super exciting that that is, that is happening soon.

• 4:19David Hoffman?

  Yeah, so just to reiterate, if you are already a Bankless subscriber, you can go get your badge right now. You gotta peruse through your, your history of your email inbox. So go claim your badge. And then future raffles, if you want access to future raffles, you can go and become a paid subscriber to Bankless and then you will get your badge on the first of the month.

• 4:39Ryan Sean Adams?

  Yep, May 1st is when we minted those. If you're looking for an email specifically, search for [email protected]. He's gonna hate me, but that's where the email's coming from. It's all coming from Lucas. He is the master of minting, the master of coin, maybe I should say at Bankless. All right, what else we have? Hester Peirce, Commissioner Crypto Mom. Turns out she's also DeFi Mom. We had her on the podcast episode released on Monday. That was just a fantastic episode. Everyone should go listen to that to figure out how regulators, at least the good ones, how they think about crypto, and more importantly, how they think about DeFi specifically. Any takeaways you want to mention from that episode, David?

• 5:20David Hoffman?

  Yeah, the biggest complaint, I think, out of the crypto space is the lack of clarity that the SEC has provided our industry. And I think that's something that Hester Peirce is on a mission to help solve. And I feel like that's why she's coming on to shows like ours, to help explain her thoughts and her thinking about how things could be and what she hopes to have as a regulatory relationship with our industry. So that was my big takeaways, is Hester's trying to make things really clear. The other takeaway I have is that she loves the Bankless Podcast, which-

• 5:54Ryan Sean Adams?

  That was awesome. Not only Hester, but apparently the SEC, members of the SEC, listen to Bankless Podcast on a regular basis, which I'm not sure if I should be excited or terrified, but I'm more excited, especially after that conversation with Hester. The last thing I'll say about this is, it feels like 2021 could be a time for a blank slate in crypto. Gary Gensler is the SEC Commissioner. He's coming aboard as part of the new administration. So there really does seem to be a push to get some things right, provides some of that clarity you were talking about, David. All right, I've got to start with the question I ask you at the front of every State of the Nation episode, David. What is the state of the nation today, sir?

• 6:38David Hoffman?

  The state of the nation, this is a good one. Pioneering. We are pioneering. So in multiple different fronts and always, always state of the nations are always in, mean multiple things in multiple different ways.

• 6:49Ryan Sean Adams?

  I can't believe we haven't used this one before. Pioneer.

• 6:52David Hoffman?

  There's a decent chance that we have.

• 6:54Ryan Sean Adams?

  Okay, well.

• 6:55David Hoffman?

  If we did, it's one of the early ones. Yeah. So we are pioneering into the world of the NASDAQ today or in this week. And so coin is getting listed on the NASDAQ tomorrow. Is that why some of the crazy price action is happening right now? Is that why Ether is currently breaking through all time highs?

• 7:12Ryan Sean Adams?

  All right. What's coin? What's coin for people don't know?

• 7:15David Hoffman?

  Oh, coin is the ticker symbol for Coinbase, which is going to be listed publicly. So that is going to happen tomorrow. That's going to cause a bunch of news. The bankless opinion, we put this out on the market Monday piece yesterday, is that no matter what the valuation is on day one, coin pumps.

• 7:33Ryan Sean Adams?

  Price go up.

• 7:34David Hoffman?

  Price go up. It's just, it's perhaps the new meme stock. That's, that's my predictive statement about the future, not financial advice. But we are not only pioneering into the NASDAQ, but we are also pioneering with new DeFi apps. And this is what we are going to get Preston and Will on to talk about shortly is that Element, which is Will's project, is pioneering into the world of splitting one token into two, the principal and the yield. And then Preston's project is pioneering into the synthetic asset world of producing TCAP, which is the total crypto market cap. So new DeFi apps building on top of other DeFi apps and also allowing other DeFi apps to build on them, pioneering new surface area in DeFi.

• 8:14Ryan Sean Adams?

  Guys, you will not want to miss this upcoming brilliant conversation with these two fantastic ETH2 developers who are also now developing DeFi protocols. But before we get to the conversation, we want to tell you about the sponsors that made this State of the Nation episode possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum, which is what Ryan and I call a money robot.

• 8:48David Hoffman?

  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. Do you have something of value to contribute to the Uniswap DAO? No matter how big or small your idea is, you can apply for a uni-grant at unigrants.org

• 9:31David Hoffman?

  and help steer Uniswap in the direction that you think it should go. That's exactly what we did to get Uniswap to be a sponsor for Bankless and you can do the same for your project. Thank you, Uniswap, for sponsoring Bankless.

• 9:43Ryan Sean Adams?

  MetaMask is your go-to wallet for the Bankless journey. If you're going Bankless, you need MetaMask, period. Browser and mobile, get them both. This is your tool to unlock the world of DeFi. Here's my favorite part. Now you can swap tokens directly in MetaMask with a single swipe. This has got to be the easiest way to trade Ethereum tokens. Choose a token you own, a token to exchange it with, and get your quotes. If you like what you see, you hit swap. That's it. What makes swaps so useful is what happens behind the scenes. It compares DEXs, aggregators, and market makers to find you the best price with the lowest network fees and the least slippage. This means you can swap a wider range of tokens and swaps can even automatically split

• 10:28Ryan Sean Adams?

  up your trade to give you access to better liquidity. You don't even have to think about it. Try it out. Download MetaMask for desktop or mobile now at metamask.io and start swapping.

• 10:42David Hoffman?

  All right, Bankless Nation, we are here with Preston Van Loon and Will Villanueva. Guys, welcome to the show. Thanks so much for coming on.

• 10:52Speaker 02

  Yeah, thanks for having us.

• 10:53Speaker 03

  Yeah, glad to be here.

• 10:55David Hoffman?

  I'm gonna do my best at your guys' bios and then I'm gonna hand it off to you to help fill the gaps. But Preston, you are the founder at Prysmatic Labs, which is perhaps the most downloaded ETH2 client. I think it has the most ETH staked in it, so congratulations to that. And Preston's been working on Ethereum ever since he was full-time at Google and then started working just on Ethereum on the side out of passion. And then I believe what happened is Vitalik Yolo'd 1,000 ETH into the Prismatic treasury and that's what really enabled you guys to go full-time at Prismatic. And then, Will, you were part of the Quilt team at Consensus doing R&D on the sharding side of things, so specifically Phase 2.

• 11:38David Hoffman?

  And now you are working as the CEO of Element Finance, which is what we're about to get into. So Preston, let's start with you, give you a chance to correct any errors in the bio that I might have just made and also expand on it as well.

• 11:52Speaker 03

  No, that was pretty close. So yeah, I was working full-time at Google and I was working on ads. And ads are not very globally impactful, at least positive to most people. I mean, they help people find products and whatnot, but it's not what I was interested in. And I found Ethereum at the tail end of 2017, kind of when ICOs were getting big and CryptoKitties and all this kind of stuff. And seeing like, wow, Ethereum has a lot of potential use cases, but it's super kind of maxing out right now, kind of slow. So I wanted to get involved with the protocol era with E2. So at the beginning of 2018, I ran into Raul Jordan online and he and I started Prysmatic Labs with Terrence and Nishant.

• 12:38Speaker 03

  We're the four founding members of Prismatic and we just kind of bootlit through all of 2018. We got some grants during that year, but I think it was the Yolo grant that really signaled the confidence of the EF and of the community that if we all quit our nice jobs, that we're gonna be okay. Like, we're not gonna... I mean, none of us had any Ether at the time. Like, we were just kind of interested, so. It was a big risk, but it really paid off. I mean, we have an amazing community and it's been really good. But I still have this passion for like, how do I further increase my impact?

• 13:16Speaker 03

  And so we started Cryptex Finance as a moonlight project to Prismatic. So I've been still working full time as Prismatic, but on the side working on Cryptex, trying to build a new financial product for mostly for retail investors. Like if you talk to normal people, they know Bitcoin and they might know Ethereum, but they don't really know how to invest in everything. They know there's a lot of cryptocurrencies, but they don't really know like, how do I get into the whole market? So that's kind of what we're trying to solve with Cryptex and T-CAP.

• 13:55David Hoffman?

  Awesome. And yeah, we are going to get into each, the details of each of your guys' projects in just a sec. But Will, maybe you can explain a little bit about yourself and your background as well?

• 14:04Speaker 02

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

• 14:34Speaker 02

  And then sort of after that, I was, you know, making a decision whether to, I kind of had two routes that I was going to go. I was very, very passionate about the burgeoning DeFi space. And at the time, you know, I had a friendship with Fernando, who, you know, is the CEO at Balancer

• 14:54Speaker 02

  and actually almost joined Balancer as the CTO there. But ended up instead, you know, at the time, Joe Lubin had, you know, asked if, you know, I could dive into some of the research on ETH2, you know, help, help look into some of the areas. And so I ended up doing that and, you know, I was, I was really excited about that, helping, helping scale things, diving in a bit deeper, working, working closely with the ETH2 research team and, you know, a lot of, a lot of bright minds there. So I did that, did that for a while. You know, we, we did a lot of, you know, research and development on, you know, what, what do shards look like in the future? How do we generalize them? How do we bring Wasm onto them?

• 15:38Speaker 02

  You know, how do we make it so, um, you know, ETH two in the long term can serve many different types of blockchains and, and many different structures that can grow on that. And so we, we explored a lot there, which is, which is really solid. And then also ended up, um, uh, working on some, uh, some research on ETH one. And actually, uh, you know, put, put forward an EIP 2938 on account abstraction, which brought some of the research we had done on ETH two into sort of the stateless world and some of the generalization we want to bring into ETH one. And we, you know, put together a implementation in the Goethian client and did, did a bunch

• 16:20Speaker 02

  of simulations on that and saw how that could, you know, improve some of the execution currently on Ethereum as well. And that was part of, you know, all of that was a part of a team quilt that I had started and had grown to just, you know, work and, and further develop and research things in the space. And so quilt, quilt is still moving forward strongly. And about six months ago, I had, you know, been really excited about some of the developments in the DeFi space, um, kind of going back to some of my roots and, you know, almost joining and building Balancer, uh, you know, a few years ago, um, kind of re, re-centered around that.

• 17:00Speaker 02

  And so, uh, that's what's, what has brought me here with Element and yeah.

• 17:06David Hoffman?

  Very cool, very cool. So like we alluded to at the beginning, the reason why we have both of you guys on here is that you guys are both building cool new DeFi apps with a unique perspective of coming from the Ethereum side of things. And so that's where we want to end up with the conversation is like, how has your guys' experience building Ethereum translated into, uh, skills building DeFi apps? And then also why have specifically you guys chosen to build on the app layer now instead of a year ago or perhaps? A year from now, like why now? And then also perhaps some conversations about what surprised you about the trajectory of Ethereum, both at the protocol layer and at the app layer. But first, we want to start with the actual details of your guys' projects.

• 17:48David Hoffman?

  And so Will's project, Element, got announced first, so we're going to start with Elements. And so, Will, can you kind of give us the bird's eye view, bird's eye pitch of Element? And then we can go in from there.

• 18:01Speaker 02

  Yeah, definitely. So the Element protocol, basically, you know, for the casual user, average user, they can come to the protocol and they can purchase Bitcoin, ETH, DAI, or USDC, and they get it at a discount. And essentially, that, you know, that can be translated into securing a fixed rate of income on that purchase. So if you're looking at 10% fixed rate APR on ETH, and you're looking at over a year period, then you can secure 11 ETH that can be redeemed a year from now. And so we make that process really simple. We make it really, really easy.

• 18:42Speaker 02

  And we let those users, you know, in reality, avoid a lot of the issues around variable APR, gas issues, having to manage their funds, which is really cool. On the, as far as like how it works behind the scenes, we essentially take positions that, you know, current DeFi users are already staking in, specifically in Urn. And we split that into two new tokens. So we're able to represent the yield that's gained in one token and then the principal. And essentially, for users who are already staking, they're given further avenues of revenue. So they can go ahead and take those two tokens.

• 19:23Speaker 02

  They can provide liquidity on an AMM and they can actually get, you know, higher APY off that. But also what it allows them to do is it allows them essentially to sell their principal and give them a bit more capital efficiency. They can sell their principal and they can gain more liquidity to get exposure to more and more interest. Essentially, when they're selling their principal, they're selling their principal as a fixed a fixed rate of income. And so that's for the casual user. Basically, it's subsidized by these more active users who are actively using their funds and selling their principal as as fixed rate income. So it's sort of like the circle of the the two sides of the market and how they how they benefit each other.

• 20:06Ryan Sean Adams?

  So Will, can we talk about like fixed rate income just in general? Like so in the in the old world, how does fixed rate income work? Are these like I go to my bank account and I know the interest rates are crappy. I know you're gonna tell me that, but like I go to my bank account, I have some money and I go and I buy CDs, right? Are like CDs in a bank account? Are these fixed rate income? Maybe you could talk about what this is in in the in the old world and how this translates into crypto?

• 20:36Speaker 02

  Yeah, typically, when you look at a CD or you look at a savings account that that you're evaluating, you're given, you know, a rate that that is fixed. And so, you know, it's, for example, on a savings account right now, I think the best that you can find is maybe, you know, half a percent APY, which is, you know, nothing in comparison to what we're seeing in the in the DeFi space right now. So people on DeFi on variable APY positions are seen anywhere from, you know, 10 to 50%. It can even be, you know, higher in some cases. And so essentially, you know, for the users in the traditional finance space who, you know, sort of are accustomed to at least being told like this is what we can guarantee and this

• 21:20Speaker 02

  is what you'll get. You know, the element protocol offers the same thing, but those rates are going to be, you know, significantly higher than what you see in traditional finance. And the the other thing that you could sort of compare, you know, deeply when you you look at the traditional finance space is also, this is somewhat akin to a whole space of, you know, zero coupon bonds. This is where you, you know, you essentially get an asset at a discount, but you you basically

• 21:54Speaker 02

  Commit to it being locked until until a final date. And because that asset is locked, that's that's essentially what introduces that that discount. You have an opportunity lost. Instead of using those funds, depositing and getting APY. You know, the the fact that it's locked means you can't do that. And for the opportunity cost, that's why it's it's sold. Essentially, you know, at at a discount.

• 22:21Ryan Sean Adams?

  So this is like a a CD for crypto assets, basically, and specifically like the the crypto monetary assets, which we call like Bitcoin, ETH and USDC. So if I'm bullish on ETH and I want it to generate yield, I I can park it into this this into your system, basically into Element. And then I have to hold it there for a period of time, right? And then at the end of that period of time, I've received my yield. Is this kind of how it works? Or am I paid the yield continuously?

• 22:55Speaker 02

  Yeah.

• 22:55Ryan Sean Adams?

  As time goes by?

• 22:57Speaker 02

  Yeah, so the the way it works is essentially, technically, yes. So you sort of go and you you bring your ETH. You trade your ETH for the locked ETH essentially. And that may be locked, let's say, for three months, six months. But you get it at a discount that then gets redeemed for a larger amount at the at the end of that period. However, sort of what's what's really innovative, you know, about about what we're doing is we've, you know, put a lot of effort and and research into making sure that market is liquid. And so what what that means, we're actually, you know, doing a custom trading curve where a launch partner with Balancer V2 as well.

• 23:39Speaker 02

  So we actually built built a a invariant. It's the constant power sum invariant. An iteration, some of the work that YieldSpace has done. And so we were, you know, launching that and it's, you know, been audited on Balancer V2. And so it enables liquidity for these assets. And so what that means is even though technically, you know, you have Three months that you know you have to be locked into this or six months, you can actually exit at any time. So you could go through, let's say you're on a six month term, you could go through halfway at the three month mark and decide that you, you know, you actually want liquidity again.

• 24:20Speaker 02

  And then at that point, you can, you can sell it, you know, with this, with this custom curve. And then you'll have gained the interest along the way as well.

• 24:30David Hoffman?

  This is not something you can do in like traditional consumer level, you know, CDs that you might get in your, your bank account, right? They're really locked in. I, I've never seen a way to like, you know, trade these on the secondary market.

• 24:45Speaker 02

  Yeah. Yeah, no, that's correct. And that's what's so cool about this is we sort of, you know, and this, this is what I love about the DeFi space. It sort of opens up all these new avenues of innovation and all these new primitives that, you know, I think a lot of them haven't even been explored fully in the traditional finance world. And just due to the, you know, nature of AMMs, the fact that, you know, like in Balancer V2, you can, you can write custom trading curves, which is, which is really, really cool. I have a lot of good things to say about Balancer V2, so a huge shout out to them. But it just opens up so many, so many cool things. And so something that, you know, you would have originally thought you would have been locked in exactly.

• 25:27Speaker 02

  You now have liquidity around being able to exit at any time. And so there's no real commitment toward that locking period, which is, which is beautiful.

• 25:35David Hoffman?

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

• 26:19David Hoffman?

  Go into details on the other half was whose, is there some other half of this equation where people are getting extra yield on this? Where's the other half of this equation fall in?

• 26:28Speaker 02

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

• 27:09Speaker 02

  And, uh, you know, it might not just be urine, it might be, you know, a number of different, uh, protocols that they're jumping into. And so what we do is, uh, they sort of feel the market. Um, and so we say that, you know, it's the sophisticated users who are subsidizing, uh, the discounts of the casual user and the casual users subsidizing the strategies of the sophisticated user. And so if I'm, you know, the sophisticated DeFi user and I am depositing into, let's say, the, uh, urine STE fall and the STE fall, um, is, you know, basically, uh, uh, investing in the ETH to, uh, staking position, right?

• 27:46Speaker 02

  And so, um, let's say I'm, you know, in investing in that anyways, um, then, uh, with the, with the element protocol, um, what I can essentially do is I'm still investing in that position, uh, but I get a little extra. So, um, I now, uh, kind of split, I split that position that I'm in, um, into the principal and the interest. And so this, this lets me do a number of cool things. Um, one, uh, I could, you know, stake both those tokens and get a bunch of extra trading fees. And we've simulated that you could, you know, boost your APY significantly, creating this market. Um, but, but additionally, it gives me other like ways of escape, right?

• 28:27Speaker 02

  So, um, I, for example, um, if I want to shift funds around, but I still want to keep exposure to interest, I can sell my principal, I have new liquidity. I still have exposure to that interest, um, on that position. And now I can use that liquidity for, um, to put into any other position in the space. And so however, we've dove into this concept called yield token compounding. And so this is, this is the idea where you, you sell your liquidity, your principal. And in general, you know, variable rate will always be higher or should always be higher than fixed rate. Sort of how markets, you know, generally work.

• 29:10Speaker 02

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

• 29:47Ryan Sean Adams?

  It's recursive, right?

• 29:48Speaker 02

  Yeah, it's recursive and I can do this like 10 times, do this more. And essentially it's another way of leverage. So I could have started off with 10 ETH. And assuming the variable position is going for 20% and fixed rate is going for 10%. You know, I can essentially get exposure to 63 ETH worth of, of interest. Yeah, yeah. And if you're doing this with, you know, there's really other cool things. Like if you're doing this with flash loans, as an example, you don't even have to put through the full capital. And this is where you can essentially get, you know, 10x leverage on these, on these positions.

• 30:27Speaker 02

  And on the interest by, by, you know, sort of selling your principal and doubling down on, on the yield. And your exposure to the yield.

• 30:37Ryan Sean Adams?

  So Will, we talk about money Legos so, so often on Bankless because that's kind of a great mental analogy for like what we're actually building here. Right? So I'm going to ask the question of like, you mentioned some other money Legos. What money Legos does Element build on top of? Like you mentioned Urn, is that kind of a strategy piece? Are there other pieces involved? And then a follow up, like a second question to that is. This seems to be built on Money Legos, but is its own Money Lego. It's kind of a new DeFi primitive. So any thoughts on what could be built on top of it? Let's first take the first question of what Money Legos needed to be here for you to build Element?

• 31:17Speaker 02

  Yeah, so Urn is a huge one. And then, right, Urn is built on the number of Legos too. So if you look at like, what, what sort of, you know, turns the DeFi, DeFi world around? A lot of that is, you know, Curve behind the scenes. And so a lot of, you know, the APY and interest that Urn is getting comes from Curve. And specifically also, you know, for example, the ETH position where, where, you know, likely supporting within Urn is also into STE, which in general is a ETH2 staking protocol, a tokenized ETH2 staking protocol.

• 32:00Speaker 02

  And so, yeah, there's, there's all these like Legos and it sort of depends on the vault. Certain vaults have different dependencies. And so we'll kind of finalize which vaults we're going to support out the gate, right, right before our launch. But yeah, those would be some of the, some of the core, core pieces.

• 32:19Ryan Sean Adams?

  So guys, the, the yield is coming from places like ETH2 staking. That is a source of yield. Another source of yield is Curve. And that's an exchange platform for stablecoins that also has a token, which is kind of like an, an equity token, if you will, capital asset that rewards users. And then Urn, WiN, Wi-Fi, we've, we've had Wi-Fi on the, on the podcast previously. That acts as kind of like a strategy layer where these, all these automated, like money robots optimized for the best strategy. And that's what you're using under the covers here. Now that you have this new Money Lego element, essentially, what, what cool things do you think can be built on top of it?

• 33:00Speaker 02

  Yeah, there's, there's a lot actually that we're, that we're super excited about and we're actually really excited for ideation from the community. You know, we're gonna be a community first protocol and we want the community really, really run it. But in, in general, so there are a few things, I'll mention some of the ones that I'm really excited about. So just first of all, introducing fixed rate to the market that has liquidity around it is, is a beautiful thing in and of itself. And so there's a lot of directions that that can be taken into. One thing that I'm particularly excited about is this concept called yield, yield ladders.

• 33:41Speaker 02

  And so essentially what this is, is you can get a, a AMM that essentially gives you exposure on a basically continuous rolling basis to categories of, of yield essentially. And so for example, you could have these yield tokens and you could have categories that are like ETH two or validator positions, right? They might be like ETH two or layer two valid, tokenized validator positions. And because we have these, you know, lockups in these, these times, you can essentially buy exposure to that whole category as a whole. And, and it sort of averages out the interest as, as it goes along.

• 34:24Speaker 02

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

• 35:09Speaker 02

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

• 35:49David Hoffman?

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

• 36:22Speaker 03

  Yeah, absolutely. So Cryptex is, it's an open organization. So it's, it's, we've kind of built this for the community to be run by the community. But the basic, well, the first token that's been created is a synthetic asset that's backed by different types of collateral, where it has over collateralized the value to create T cap. So you can be insured that Cryptex or the Cryptex org is not, you know, they're not just printing money. They're actually backing you up by something. It, it kind of borrows from the CDP idea from MakerDow, so the collateralized debt position.

• 37:05Speaker 03

  And with this, we're able to use an oracle price feed where TCAP can always be redeemed for the true price, which we just saw above, two, $210. And this value is really the total market cap of all cryptocurrencies traded on major exchanges. And that's currently 2.2 trillion dollars, which is crazy. I mean, when we started thinking about this idea, it was about $30 for TCAP. And, you know, I wish we could have launched it two years ago and given this product out then. And it could have been, you know, something where you're getting huge gains on. But the potential here is, is huge because it doesn't stop just at TCAP.

• 37:49Speaker 03

  With the same kind of model, we can really apply to any kind of oracleized data using the same CDP model that we have.

• 37:57David Hoffman?

  What's the collateral in this case, Preston?

• 38:00Speaker 03

  Yeah, at the moment, we have ETH-backed collateral. So it's very similar to MakerDAO where you have a vault deposit, the collateral, and then you can draw out a certain amount of TCAP. So we have ETH as one and then DAI as the other one. And then, of course, it's pretty flexible. So any ERC20 could, could be a vault if it's, if it's accepted by the protocol. So the potential for other types of tokens or, or backing vaults is, is open. Once the, like the, you know, the DAO is fully operational.

• 38:37David Hoffman?

  So here's a quick lesson for new Bankless listeners is that DAI is actually just a synthetic asset and it's priced by an oracle. And so what, what Cryptex seems to be is exactly what Preston said, a pretty similar system as MakerDAO. And so, but instead of collateralizing, just collateralizing all the collateral that MakerDAO lets you collateralize, you put in Ether or DAI and then you mint this new token. And this new token is priced by a price feed from Chainlink. And this price feed comes in at the total crypto market cap. And so this is something that the, the market has always wanted because no one's really been able to produce something that tracks the total value of the entire crypto industry,

• 39:20David Hoffman?

  at least all of our crypto assets, except that's what this is going after. And so, Preston, where do you, where does Chainlink get the price feed for TCAP? Where does all of that information come from?

• 39:32Speaker 03

  Yeah, so there are, there are five data sources they get it from. I'm gonna try to name as many of them as I can. But it's things like CoinMarketCap.

• 39:46Speaker 03

  Shoot, I'm not gonna be able to name.

• 39:47Ryan Sean Adams?

  CoinGecko I know is one.

• 39:48Speaker 03

  Yep, CoinGecko, things like that. I mean, it's, it's, it's if it's a currency tracked on one of these major sites or major exchanges even. Then it's eligible for consideration in the total, total market capitalization. So there's a little bit of vetting there. At least, at least that's the intention is that I can't go create my own like stablecoin and give it a insane market of $5 trillion market cap. It's not gonna influence TCAP because it has to have some credibility to it. So with the the data sources that are coming through Chainlink, there is the vetting process for those.

• 40:27Ryan Sean Adams?

  This is kind of, this kind of goes back to a recipe that, that we talk about so often, David, which is like on Bankless, which is like you, you take, you take a Money Lego, store of value, which in this case is ETH and DAI, and then plus an oracle, a price feed oracle, and you can create basically any synthetic that you want. So we have store of value, Money Legos, Oracle, Money Lego, and then on the other side of that, you get any synthetic. In this case, you're, you're creating a synthetic in index for the total market cap of crypto. And if, if I'm just a casual user, then Preston, right, I, I don't have to know the mechanics necessarily of how this works, although I might want to understand them for like, to understand what the dependencies are, what I'm really trusting in the system. But I can just buy

• 41:12Ryan Sean Adams?

  TCAP as NERC 20, and then I have exposure to the entire crypto index. And I don't have to make a bet on whether you know Bitcoin or ETH is going higher on a certain day, or whether you know Binance is having its, its pump, its temporary pump or not. I don't have to make any of those bets. I just get the entire market, right?

• 41:29Speaker 03

  Yeah, that's right. I mean, you'll get exposure to things that are very volatile. So like, for example, Ripple's been having issues with SEC lawsuits. So they were sued, the price dropped significantly, then the lawsuit's making progress, so the price goes back up. I would probably never invest in Ripple, but like, to have some exposure to, to good news is excellent. And I think that this is something that a lot of retail investors who, who don't even want to take the time to understand how those types of protocols work. They just see that this type of innovations that are out in cryptocurrency world have value and could be going up in value as it gains more mainstream adoption.

• 42:13Speaker 03

  Of course, they could pick the big contenders like Bitcoin and ETH, and you, you probably should do that. I mean, not financial advice, but, but for all the other things, TCAP can solve that problem of what should I invest in? Maybe I should invest in everything.

• 42:26David Hoffman?

  So, so Preston, what are the parameters for producing TCAP? I know at Genesis, when Maker Dow first launched, you needed to lock up 150% of Ether, and then you could mint up to a certain amount of DAI. Could you go into the details of the parameters around the system?

• 42:45Speaker 03

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

• 43:27Speaker 03

  since some of the vaults really move in tandem with the price of TCAP. So ETH, for example, doesn't move much compared to TCAP, but DAI might move a lot more compared to TCAP because it's pegged to the dollar and, and not really moving a lot. So maybe at a later date, some vaults have a higher collateralization ratio than others, but we started at 200% just to be safe.

• 43:53David Hoffman?

  Right, and this is uniquely different from MakerDAO where the Ether collateral is had it's the collateral against a stable asset. But this is not printing a stable asset. This is supposed to have an asset that ideally goes up in price. And so having die as the collateral for something that owes that where you owe something that could go up and twice as much in the future, that could that could get into some hairy circumstances.

• 44:21Speaker 03

  Yep. Yeah. So you can think of it as kind of opposite of the MakerDAO model where if I put in ETH and draw and draw out die, I'm kind of probably going to buy more ETH, so I'm I'm long on on that. Well.

• 44:36David Hoffman?

  Your short die, long, short die, long the collateral.

• 44:40Speaker 03

  Yes. So in this model, it could be the opposite. If you're short on the whole market, I mean, we're at the we're in a bull market, bull market's not last forever. Maybe you're going to be one of the people who can pick the top and say, I'm going to draw out a bunch of TCAP and sell it for a die with my dieback fault and then go back and pay it back later when it's a lot cheaper. I mean, that's that's one opportunity for Vol owners. The other one is that keeping the price in the secondary market stable. So

• 45:12Speaker 03

  the Oracle and Cryptex core contracts have no control over what it trades on Uniswap or Sushi Swap or any anything like that. But we do have a place where you can redeem this token for the for its true price based on the Oracle. So if TCAP's traded too high, you can mint some TCAP and then sell it on the secondary market. What's the stabilizer is buy it again, pay back your debt and then same with the opposites. If it's trading too low, it's a good time to buy and pay back your debt at a discount.

• 45:44David Hoffman?

  So the opportunity here to me is that not only could there be TCAP, but there's also this governance token, which could in theory govern over further further synthetic assets, which makes Cryptex in the same sort of boat as perhaps Synthetix, which is a a synthetic asset platform. What would you say would be the long term vision of Cryptex? Are you guys just going to pump out a bunch of synthetic assets? Like, what's the what's the deal?

• 46:11Speaker 03

  Possibly, I mean, we have a lot of ideas for for new innovations that we that aren't out there. And our founder, Justico, is more of a finance guy, Wall Street guy, and he kind of interacts with a lot of type of the retail investors and users of this type of protocol. So he really understands what they want. And we have a few ideas we want to work on. It's it's pretty interesting to me, being as a developer, not much of a finance person, to hear some of the crazy things that that people might want to almost, it's almost kind of like gambling, I guess, in the market. But there are some like synthetic products that you can come come up with that are specific to the cryptocurrency world that

• 46:55Speaker 03

  just don't exist yet. So we have a lot of interesting ideas and and potential future synthetic assets to come out.

• 47:03David Hoffman?

  So I'm trying to get my my mind mapped around how to compare Cryptex versus Maker Dow and Synthetix. And with Maker Dow, it's very different in this with the sense that like the the price feed Oracle is not DAI, or is not the dollar, it's TCAP. And it's also very different from Synthetix in the sense that the collateral is not the native token of the system, it's other assets. Between those two differences, is that basically the the main differences between other protocols? Or is there other aspects that are different that are worth highlighting as well?

• 47:33Speaker 03

  I'd say so. I'd say that captures it pretty well.

• 47:37David Hoffman?

  Okay, fantastic.

• 47:38Ryan Sean Adams?

  You know, what's interesting here is like, I've been surprised that Maker Dow actually didn't go down the the Synthetix route, but they've they've seemed pretty laser focused on DAI all of this time. So it's it's cool territory that you that you guys are covering. And we say this so often, David, that any experiment that can be tried on DeFi and on Ethereum will be tried. And so this is a new experiment, really excited about what you're building too, Preston. So we want to pause for sponsors. But when we get back, we are going to dive into this trajectory of how you guys have come from kind of an ETH to, you know, almost a core developer type of role, core researcher type

• 48:20Ryan Sean Adams?

  of role, to move to the app layer. We're going to talk about all of that when we get back. But we want to thank our sponsors for making this episode possible. And here they

• 48:31David 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 iSynths,

• 49:15David 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. Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got into crypto in 2017, and it's been my main exchange of choice to make my crypto buys and sells.

• 50:00David Hoffman?

  Gemini is available in all 50 states and in over 50 countries worldwide. And on Gemini, there are markets for over 30 various different crypto assets, including many of the hot DeFi tokens. And it's one of the few exchanges that has liquid DAI markets. Gemini just launched their Earn program, where you can earn up to 7.4% interest on 26 various crypto assets. If you're tired of paying fees in DeFi or you don't want to worry about DeFi exploits, but you still want to earn interest on your crypto assets, Gemini Earn is the product for you. Another product I'm stoked to get my hands on is the Gemini Crypto Back Credit Card, which gives you 3% cash back on all of your purchases, but paid to you in your preferred crypto asset.

• 50:41David Hoffman?

  When I get my Gemini credit card, I'm going to make sure that I get my cash back in ETH. So whenever I buy something, I get a little bit of ETH bonus back to me at the same time. You can open up a free account in under three minutes at Gemini.com/goBankList. And if you trade more than $100 within the first 30 days after signup, you'll be gifted a free $15 Bitcoin bonus. Check them out at Gemini.com/goBankList. All right, Bankless Nation, we are back with Will and Preston in the second half of this show, where we are going to go into topics around what it's like to both be working on Ethereum and also in the Ethereum app layer. And so Preston, I want to start with you. You're in the code for ETH2.

• 51:24David Hoffman?

  Like, not only are you working on Cryptex, but you are also still highly engaged with Prismatic. And you've been with Prismatic for multiple years now. What's it like to build on both sides of the spectrum? And how has the skills that you've developed with building in Ethereum translated into building in DeFi? And perhaps what are the other benefits as well? Do you have more connections, more people, more knowledge? What's it like to be on both sides of the protocol and the app layer?

• 51:55Speaker 03

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

• 52:37Speaker 03

  and what kind of impact that I can have personally and that Prismatic can have in general as a core protocol team.

• 52:49Speaker 03

  And I saw that...

• 52:51Speaker 03

  You know, there's, there's still these fundamental issues with the, the protocol layer like I, being a core protocol developer and not really interacting with the blockchain, you can kind of hear, oh yeah, gas is high, but you don't really feel it unless you're actually deploying contracts. Like I've interacted with, you know, whatever decks to do some swaps, but it wasn't until uh, last week, we deployed TCAP and I, we were paying for these contract deployments and it was, we spent like three ether to deploy a handful of contracts. And I'm like, this is, this sucks, right? So I see why people are complaining and, and it just brings, you know, more motivation to,

• 53:31Speaker 03

  back to improving the protocol itself. Um, we've also made a lot of friends along the way in the last three years, you know, we, we have been pretty lucky that the community supported us and that, um, you know, we've, we've done a great job. The Prismatic team is one of the best teams out there. They've done an amazing job bringing Prism to light and helping ship E2. Uh, of course, we're not the only E2 client provider. There are many out there and they're all excellent.

• 53:59Speaker 03

  Um, but just, you know, the community's been really great to us and, and we've been able to get feet as with building TCAP, I was able to get feedback from a few select people, uh, especially to validate the idea like, is it cool? Is it crazy? Will it work? What do you think? Um, so it's been interesting.

• 54:16Ryan Sean Adams?

  Which is harder, Preston, building a DeFi app or building an E2 client?

• 54:21Speaker 03

  Uh, I don't know. They're both terrifying, you know?

• 54:26Ryan Sean Adams?

  Yeah.

• 54:27Speaker 03

  There is like eight billion dollars running through E2, something like that. And Prismatic is a, a very large percentage of that. Uh, so that's terrifying. Uh, to see people um, committing their money in vaults to mint TCAP is also terrifying just because, you know, this is something that we built. And if it, if it doesn't work, how it's supposed to work, um, it's just not going to be great. And that's just something that, that I never want to happen. Like everything's got to be excellent. So, uh, I think the years with Prismatic have really prepared me for this is that we have to think about every single type of scenario that could possibly be out there, even ones that are ridiculous that don't.

• 55:09Speaker 03

  Really profit the the person in initiating these types of attacks, but that they would do anyway, just just for the for the walls or just yeah, like just be just to wreck it, you know, so just to cause chaos. So I think that adversarial thinking and more security minded focus has become, you know, really, it's really valuable to a DeFi developer and and especially at a protocol layer, it's you have to do it right at a protocol layer.

• 55:37David Hoffman?

  Well, what about you? Your experience doing R and D on the on the sharding side of things and and working at consensus? How would you say that that's impacted the development of element?

• 55:48Speaker 02

  Yeah. So in general, actually, Johnny and I both came from both did eat to research. Johnny actually had built the initial Taku client as well. And, you know, we all want to interrupt together. You know, it's all Preston there. I think me and Preston, we have some good, you know, some other stories that we can share at some point in the call. But in in general, Johnny Johnny and I both, you know, really take a an approach that we like to simulate. We like to be well researched. You know, we it's it's really important to us that we dive into mechanism mechanism design.

• 56:27Speaker 02

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

• 57:09Speaker 02

  a really strong understanding of the actual core protocol. That means, you know, when we start thinking about things such as, you know, scaling, moving to layer two, other mechanism designs, we have a much, much deeper context and understanding of that. And so that that's that's super helpful as well.

• 57:28Speaker 02

  And so I would say those would be a few things and then also just like all the people we've you know run into you know like Preston was saying as well along the way. So you know in general it's been good to to you know both work with you know with a lot of people at the protocol layer who have been very, very thoughtful in what they're doing. And we you know, in general, have a pretty strong confidence in the future of ETH and where ETH 2 is going at this point, having been you know, involved in that and knowing the teams that are working on that. And so I think that you know, that sort of gives us a really positive trajectory. And you know,

• 58:12Speaker 02

  in general, we we as we you know, build Element Protocol and you know, we put grants out for the community and different things like that. One of the things that we want to support is core protocol development. And we want to make you know, make a specific effort to do that. And we're hoping that you know, other other protocols do that as well. And that's that's in general, you know, really important, important to us in the process too, because that's sort of that's sort of what like gives makes everything run and everything work.

• 58:48David Hoffman?

  So I wanted to get into the question of why now? And not only are both of you guys working on ETH 2, or Will, in your case, was previously working researching on ETH 2, but with Element, you guys have Danny Ryan as an advisor, and with Cryptex, you guys have many other Ethereum builders on the team. So it's not just you guys. There's other Ethereum builders involved with both of your guys' projects. And you know, why it was interesting to both me and Ryan, and why we guys are why we're having you guys on the show is that these projects came out roughly around the same time, you know, give or take a couple of days of the of the announcement. Why now? Why not? Why not DeFi

• 59:28David Hoffman?

  Summer? Or why not a year from now? Like, what's what about the app layer is telling you guys that the Ethereum app layer is ready for you guys to start moving in and start building there?

• 59:41David Hoffman?

  And Will, I'll start with you.

• 59:42Speaker 02

  Yeah, yeah, for sure. So, you know, I've been like really excited about DeFi and what was burgeoning and developing there for a while. And so, in general, some of the research we were working on, some of the prototypes that we had done, was coming to a rap about six months ago. And that's when I started building Element and getting the team together. And about six months ago, I was sort of looking at the space and seeing the sort of explosion of innovation that was happening. And the Lego pieces really beginning to stack in a way that we hadn't seen previously.

• 1:00:29Speaker 02

  And you know, from my perspective, that's that's sort of the time to build, right? You want to put, you know, you want to put more foundational elements, more, you know, key pieces that can be built upon. Because this is sort of the foundation building period. And so, that's, that's, you know, what I saw, talked to Johnny about it, and he also was like really excited about this and what was what was happening. And so we figured this is the right time to jump in and build this.

• 1:01:00David Hoffman?

  And Preston, same question to you.

• 1:01:03Speaker 03

  Yeah, for me,

• 1:01:06Speaker 03

  you know, when I was working at Google, I had I put in my my 40 hours to, you know, keep the lights on, right? And then I would work another 20 to 30, sometimes even more on Prismatic. And then when I left Google, I was just spending all that time on Prismatic doing, you know, insane hours a weeks, like even, you know, even at

• 1:01:32Speaker 03

  Socializing events, you might find us on our laptop.

• 1:01:37Speaker 03

  Will seen us there, right at ETH New York, we were on our laptop, right?

• 1:01:42Speaker 02

  Oh, so yeah, so.

• 1:01:44David Hoffman?

  Is this the story?

• 1:01:46Speaker 02

  Yeah, no, this is like one of one of one of a few, but like, yeah, like Preston, Raul and Terrence. One of my like favorite memories is at all at all the events, whether it's ETH New York or some type of barbecue or whatever. You could find these three constantly on their computer.

• 1:02:03David Hoffman?

  Who are the prismatic team, by the way, for listeners who aren't familiar with those names?

• 1:02:07Speaker 02

  Yeah, yeah, they're always constantly on their computer and you know, everyone else is like talking and you know, socializing. You kind of you go up to Terrance or Preston, you're like, hey, how are you doing? They give you the time of day, they're you know, super, super nice, super friendly. And then you walk away and they're back there like hacking, you know, hacking at the computer. It doesn't matter what the event was. I think during that time, that was sort of when some of the, you know, infrastructure was still building. And they'd have little like bugs and things, things to tweak at that time. But yeah, you know, these, these guys were, you know, 100, 200% always, always, you know, heads down, which I think was really fun to watch.

• 1:02:48Speaker 03

  Yeah, we were busy, we were busy for the first couple of years up and up until it launched. You know, we are working crazy hours and just as much as we can like skirting on the edge of burnout.

• 1:03:00Speaker 03

  Thankfully, we were, we were all like a good team together and we could communicate, say, hey, I'm not like, I need some time, like, you know, we could share that with each other and kind of build each other up in that way. But then when we need to launched, we kind of had a little bit of breathing room, right? We said, wow, it's out there. We just make try to like get these micro improvements, get things making it really nicer, faster. But the crazy sprint was over, at least for phase zero.

• 1:03:29Speaker 03

  And in all that time, I had been thinking about, you know, building on the application layer specifically with this TCAP model, but had zero time to do it. It wasn't until after phase zero had launched that I actually had a little bit more time to to commit. You know, I could still do most of my time with Prismatic and then spend a little bit of time on T cap.

• 1:03:51Speaker 03

  And now with, you know, the the spec of E2 is getting wrapped up again in the last couple of months. And we're starting to build into the next pieces of E2. So things are getting a little bit busy again for me and and for my team. It was a good time to just say, take a break, work on something you don't work on your normal role, learn something new. I learned a lot of stuff building on the application layer, which I think that will help me build. And the protocol layer, because I really understand some of the pain points of what users are facing.

• 1:04:25Speaker 02

  I think that's key, actually, like that's, that's really, I don't know. I think that makes everyone really comfortable knowing that, you know, you can take the learnings from working on the application layer and, you know, make sure that the research and movement on E2 goes forward well.

• 1:04:40Ryan Sean Adams?

  Well, this is just part of the thing was like, I love the fact that you guys worked on, you know, E2 kind of core development, client development, and now you're in the app layer because you're like, you know, eating your own dog food. You get to experience what sort of the the users and the builders experience around this. And so I I love it and, you know, I'm hugely optimistic about it. However, at the back of my mind, I'm also a little bit worried because Ethereum has classically had sort of almost a a public goods problem in that protocol development is funded by, you know, the EF, which is kind of like,

• 1:05:19David Hoffman?

  Vitalik Yolos.

• 1:05:20Ryan Sean Adams?

  You know, yeah, Vitalik Yolos and, you know, Preston, you know this because, you know, the way Prism started, Prismatic started.

• 1:05:28Speaker 03

  We're Yolo funded first, that's right.

• 1:05:30Ryan Sean Adams?

  Yolo funded, Gitcoin grant, when's the next check coming? There's not a revenue stream associated with the public good that is the Ethereum protocol. And certainly there's the vestiges of the original ETH Foundation who has a treasury fair. And maybe as Will, you're pointing out, there are these other DeFi protocols. who will contribute into the future that now have some decent treasury. So I'm optimistic about that. And yet, you know, we might start to see a bit of a drain, a bit of a talent drain from the the protocol layer to the the app layer. Is this something that that worries you? Or do you think that this is, you know, this is good?

• 1:06:11Ryan Sean Adams?

  You know, like, are you worried in general about the public goods funding problem on the Ethereum core protocol? Maybe we'll start with you, Preston.

• 1:06:19Speaker 03

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

• 1:07:01Speaker 03

  But after that, what's their obligation to to keep us going besides a maintenance part? So we may have to scale back. So we're always thinking about with Prysmatic Labs, like, how do we reach that sustainability? And so, you know, it's always there a little bit. But I I think as far as E2 is concerned, I'm not worried about about it at all.

• 1:07:25Ryan Sean Adams?

  What about this? So like, you said, the hardest challenges attract the the best talent, right? There's also a financial consideration in this. Like, if you want to get really wealthy in this market and you're a smart contract developer, right? Depending on what you do, the app layer might be the place to do it. Or or heck, like, maybe the best thing to do is to go fork, you know, and create your own ETH killer, right? Now with your all of your Prismatic experience, is this maybe not a worry for you personally? Because it sounds like, Preston, you're here for a variety of reasons, right? Including like, the world you want to see moving forward.

• 1:08:05Ryan Sean Adams?

  But is this a a pressure point on the talent pool available to work on Ethereum client development? Are they just attracted to other financial sources that might exist outside of it?

• 1:08:17David Hoffman?

  Right, because it's one thing if grants and funding is available, but I don't think any amount of grants will ever be able to compete with tokens. Like tokens are lucrative and that is the competition that EF, EF and other and Gitcoin has.

• 1:08:33Speaker 03

  Yeah, absolutely. I mean, with, with, with Prismatic, we can offer some, some, some nice salary and like benefits and things and working on a missing team, solving hard problems. But there is no 100x opportunity with Prismatic. We don't have a token. We're not a core, we're not a core protocol, so we can't, you know, issue, there's no like premine or anything like that, or like anything like that. So if, if you're looking for something like that, I mean, it draws different people like, yeah, everyone wants to be compensated for, for what they do. And of course we do that, but there are, there's also like, you want to maximize your time investment, because time is finite, right?

• 1:09:17Speaker 03

  So you really want to like earn the maximum you can and, and that may not be working on the, the core protocol. But I can tell you this, that you will not find a bigger impact opportunity than working on the core protocol of Ethereum. So that is more valuable than 100x to me, or at least in terms of monetary value.

• 1:09:37David Hoffman?

  Will, what do you think about these questions?

• 1:09:40Speaker 02

  Yeah, I agree with Preston, like the, the core, the core value of, you know, contributed to the core protocol layer is,

• 1:09:50Speaker 02

  you know, it's really rewarding. You're, you're building the foundation for everything else. It's important work. It tends to attract extremely smart people.

• 1:09:59Speaker 02

  I'm, I'm somewhat optimistic about some of the future funding. I tend to think that in general, you know, and Element kind of wants, wants to lead in some of this as well, is a lot of the protocols that are, are doing well and are having an impact, you know, should really, really give back and, and put, put attention towards furthering development on the protocol layer. And so I think, you know, you'll see a lot of the DeFi products that are coming out, supporting protocol development in general. I think, you know, From Elements' perspective, we have a pretty diverse team of experience. So we have a good amount of researchers.

• 1:10:43Speaker 02

  And so from our perspective, this first launch that we're doing, we see this as introducing a number of primitives that's going to level up and move the DeFi space forward. But then we think about what's our next challenge, right? And from our perspective, we always want to be tackling the most interesting and I would say fascinating problems. And if that means we put some of our effort, because some of the L2 works needs to be taken to the next degree

• 1:11:21Speaker 02

  or some protocol work needs to be taken to or need some extra involvement, then that's what we'll do. And so I sort of want to see this happen. I want to see this merging between the two worlds. In the past, we've seen this separation. And so I think in the future, I think we're going to see more of these two worlds merging and working together a lot closely. And so I tend to be pretty positive about that. And I'm hoping that's the direction things are going to go in. I know that's what Element wants and what we will push for as well.

• 1:11:59David Hoffman?

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

• 1:12:41Speaker 02

  Yeah, I would just say, don't forget the devs and the hands that feed you, right? So if you're on the application layer, like none of what you are doing is possible without the strong and hard work the protocol devs are doing. So that should be front and center and on everyone's minds.

• 1:13:01Ryan Sean Adams?

  Preston.

• 1:13:02Speaker 03

  Yep, yeah, absolutely. I mean, don't forget when gas prices are back to the normal level because the protocol advancements who who helped do that. I mean, that's what we're trying to do is make it a much better place. But also, I want to point out that that this like it's even six years old, but this is still early. When I got in, I thought I thought I was too late. I was like, oh, you know, I missed. I didn't get a crypto kitty when they were like really nice. And, you know, I missed the whole thing. But then in the last three years, I've just seen incredible innovations and, you know, DeFi summer and DeFi like really starting to become

• 1:13:41Speaker 03

  a thing and NFTs and just constantly amazing people coming out of nowhere and building amazing things and just it's just there's still a lot to come from Ethereum and we're not even close to a mainstream adoption yet. So if you think you're too late, if you think the, you know, I don't know, because if they're reaching all time highs, it's not a good time to get in. I'd say any time is a good time to get in, even if the price is trading high. So.

• 1:14:09Ryan Sean Adams?

  Yeah, totally agree. Let me underline that point. There's only 500,000 DeFi users or less right now. This is so early. That's the population with like a, you know, midsize US city. That's what we're talking about here. So all sorts of ways to get involved here. Make sure you do that. Got to ask a question about ETH too, because I have two ETH to devs and experts here. So it's been what like five year, five, five years, five months. It felt like five years, but five months since launch. How are we doing so far, Preston? How are things going? Like, have there been any surprises, any hiccups? Or is it like going better than you thought it would go?

• 1:14:52Speaker 03

  Yeah, it's it's definitely been a roller coaster of of emotion, really like the if you look at the chain, it's not a roller coaster at all. It's exactly how it's supposed to go, very stable, smooth and and amazing. You know, we had a few incidents with slashing people getting slashed and as people are learning what not to do. This is becoming better and we haven't seen a major slashing event in a long time. So this is great. I think that the all of the clients are advancing in the right direction. They're getting cheaper to run, they're faster and they're also getting ahead of what's coming next.

• 1:15:30Speaker 03

  So they're prototyping quickly and building quickly and it's just like last year and the year before where we're getting ready to launch test nets and getting users in and getting things going. So it it's been exactly how I thought it would go, if not better, because you know, some people were worried how they're going to launch at the beginning of December. There's no way, you know, but then it far exceeded our expectations on the Genesis event. And since then, it has just continued to be this, you know, amazing protocol that's just been cruising along.

• 1:16:02Ryan Sean Adams?

  Do you remember when we were worried that we wouldn't get enough steak in the contracts at launch? Now look at us. I I am like part part of me was is kind of knock on wood because I'm a little bit surprised in a very pleasant way that nothing's blown up yet. Right? Like this is this is new territory. So credit to all the the client development that went into this and all of the teams that participated in it. But yeah, are you surprised nothing's blown up yet, Preston?

• 1:16:32Speaker 03

  No, we like everyone did an amazing job and there are several people in the shadows that help, you know, find things before they become an issue. Thankfully, there's not been any showstopper bugs in E2 because of all the audits, because of all the process. Because it took so long, people complained it took so long. But look, it's it's gone exactly how it should have. And that's why we took our time and did it right. And just thank you all, client developers, all security researchers, protocol developer, spec designers, everyone who has evolved did an amazing job. And that's why it's succeeding. So no surprises. It hasn't blown up. It's been just like we thought it would.

• 1:17:14Ryan Sean Adams?

  Okay, so what is now next in the path? So we've got to kind of phase zero launch, right? So the next milestone, big milestone in my, in my world, besides EIP 1559 on ETH1, is the merge. When is the merge happen? When do we get rid of proof of work? Or are there other milestones before that that you're paying attention to?

• 1:17:44Speaker 03

  Will, that sounds more like your.

• 1:17:45Speaker 02

  Yeah, sorry. A response. Yeah, yeah. So I don't know the, you know, exact timeline because, you know, I was, was a lot more involved with this, with this portion, you know, six months ago. But I do know that, you know, we've seen already the, the merge in a prototype of, for example, and some of the clients, you know, Lighthouse did this recently, which is, which is really cool. And so in general, you know, what's exciting about the merge is, you know, once you have this in place, you now have this data layer on ETH2, where applications, specifically L2 applications as well,

• 1:18:30Speaker 02

  you know, can also upload, you know, some, some of the state routes or things there that they're working on. And then you essentially can have, you know, ETH2, secure the ETH1 network. And then ETH1 point to the blocks in the ETH2 network. And so, you know, seeing that come to fruition is, is pretty cool. And, you know, TXRX, Johnny did a lot of that group. And Johnny, you know, my co-founder did a lot of work on the initial merge. And specifically with Mikhail. And, and so in general, very, very excited and seems, seems to be moving in a, in a good direction.

• 1:19:16Ryan Sean Adams?

  I want to get your guys' opinions on Justin Drake's proposal to, for a minimum viable merge, where we could move that merge up basically as soon as possible to what is secure, to really prioritize the removal of proof of work. With your guys' understanding as to the current state of the Ethereum protocol, how does that proposal land with you?

• 1:19:42Speaker 02

  Preston, let's start with you.

• 1:19:44Speaker 03

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

• 1:20:20Speaker 02

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

• 1:21:03Ryan Sean Adams?

  Well, guys, thank you so much for walking us through your individual projects at the app layer now, not just at the ETH to protocol layer. You're certainly doing some great work. Thanks so much for the ETH price. It's going up, and I think that's because we are shipping ETH to and stuff is happening. Question for you guys, if people want to learn more about your projects, where should they go? First, you will on Element.

• 1:21:32Speaker 02

  Yeah, so I would say if you look at, if you go to our website, element.fi, over there, we link to our mediums. We're going to be posting a bunch on there, but the most, I'd say the most informative thing would be our, our construction paper that we just released, which goes in, goes in a lot of depth.

• 1:21:53David Hoffman?

  All of the details.

• 1:21:54Speaker 02

  Yeah, and all the details. Yeah, yeah. So I'd say that's, that's a good place to start and then just follow us on Twitter, join our Discord. You know, everything like that as, as well. Real quick, before I pass it off to Preston, I want to give one, like, I want to give a huge call out to the Element team. They're all awesome. They all, you know, we, we have a good group that comes from Maker, 0X, ETH2 Development, and then even like the traditional space. And then I also, Johnny made a bet, a one eighth bet, if, you know, I could figure out how to braid Preston's hair.

• 1:22:31Speaker 02

  Fortunately, we're not in person, because if, if we were, I think me and Preston would have taken that bet and then we would have laughed because Johnny would be out, you know, a couple grand.

• 1:22:40Speaker 03

  Oh, yeah.

• 1:22:41Speaker 02

  Yep. But instead, alternatively, I decided to write a haiku for Johnny. So I'm just gonna, I'm gonna, you know, read the haiku real quick.

• 1:22:50David Hoffman?

  Oh, let's do it.

• 1:22:51Ryan Sean Adams?

  Yeah, let's do some haikus. And then where, then tell us where we can buy the haiku as an NFT, Will.

• 1:22:56Speaker 02

  Yes, yes. How about we tweet it and then we tokenize it? Good place to start.

• 1:23:01Ryan Sean Adams?

  Give it to us.

• 1:23:02Speaker 02

  His galaxy brain, "Why quit me? Can't quit me." Best hair in crypto. And there's a number of inside jokes there, so I had to throw it out there.

• 1:23:12Speaker 03

  Amazing.

• 1:23:12Ryan Sean Adams?

  That's live on Bankless.

• 1:23:14David Hoffman?

  Crypto culture is tight, by the way.

• 1:23:18Ryan Sean Adams?

  Back, back to you. Where should people go to find out more? And who do you want to thank? Who's gonna, yeah?

• 1:23:24Speaker 03

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

• 1:24:00Speaker 03

  E2 in the last, you know, three years. So without those guys, I would not be in this position on Bankless, building on the application layer. I'd just be some, some guys working on ads, you know, so really happy to be here and thanks to everyone that we've met along the way.

• 1:24:19David Hoffman?

  And Preston, we're ready for your haiku. Whenever you, whenever you're

• 1:24:25Speaker 02

  I do, I do think Preston, Preston has better, better hair than James Presswitz. So

• 1:24:31David Hoffman?

  Oh.

• 1:24:32Speaker 02

  That's a controversial statement.

• 1:24:34David Hoffman?

  Finishing off with a spicy take.

• 1:24:36Ryan Sean Adams?

  Yo, we're gonna leave that in. We're not gonna clip that, Will.

• 1:24:39Speaker 02

  No. That's gonna follow me forever.

• 1:24:43Ryan Sean Adams?

  Yeah. All right, guys. Well, it's been a lot of fun. Thanks for all of the work that you're doing to the Bankless community. We hope you enjoyed this episode, learning about these projects, of course. Risks and disclaimers. ETH is risky. DeFi is risky. So is all of crypto. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:25:08David Hoffman?

  And claim your badge.

• 1:25:11David Hoffman?

  All right. Thanks, guys. Thanks. Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcast and community as a Bankless premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks and exclusive content and even the Bankless token for airdrops, raffles and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings and weekly rollups where

• 1:25:56David Hoffman?

  we summarize the week in crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless nation.