State of the Nation #4 - HUNGRY (BUYING THE ETH NARRATIVE, $2B IN DEFI, AND THE DEFI VORTEX)

STATE OF THE NATION #4 - Tuesday, July 7, 2020 The State of the Bankless Nation is.... HUNGRY! The bankless boys discuss why. Plus a special guest... Luke Martin from VentureCoinist! Watch the video here https://www.youtube.com/watch?v=8eeswclmONI&t=8s. Covered: Is ETH a good narrative investment? What $2B locked in DeFi means The DeFi Vortex! ----- GO BANKLESS WITH THESE SPONSOR TOOLS: 💸 ARGENT - BEST ETHEREUM WALLET FOR GOING BANKLESS https://bankless.cc/argent-SOTN (we love it) - open one today https://bankless.cc/argent-SOTN! 🌈 AAVE - LEND & BORROW YOUR CRYPTO W/O A BANK https://bankless.cc/aave - earn some interest! 💳 DEVERSIFI - DECENTRALIZED EXCHANGE FOR PRO TRADERS https://bankless.cc/DeversiFi - use this exchange! 💸 AMPLFORTH - MONETARY EXPERIMENT FOR BASE MONEY https://bankless.cc/AMPL-MINE - learn about this experiment! We show: 1) DeFi Pulse hits $2 billion! https://defipulse.com/ 2) The DeFi Vortex https://twitter.com/paulsalis/status/1278920299136741378 3) Ethereum's tech tree https://bankless.substack.com/p/ethereums-tree-of-life-market-monday-34c --- Episode Actions: 1) Look at $2B on DeFi pulse! https://defipulse.com/ 2) Think: what are the next crypto narratives? 3) Watch for David's article on Bankless tomorrow! https://bankless.substack.com/ Also...subscribe to Bankless YouTube to watch State of the Nation every Tuesday! ----- Don't stop at the show! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState Follow DeFi Dad on Twitter https://twitter.com/DeFi_Dad ----- 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 is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

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

• 0:00Ryan Sean Adams?

  Welcome everyone to episode four of State of the Nation. State of the Nation is an every Tuesday episode where David and I talk about what's happening. We relate it to big picture stuff, the things that are going on in the Bankless community, in the Bankless Nation, and we hope to drop some insights and action items every single week. David, how are you doing, sir?

• 0:23David Hoffman?

  I'm doing absolutely fantastic, really stepping up the YouTube game with this brand new sexy graphics that you guys see on the screen. This is just a video recording, but soon it will become a live stream, really stepping up the Bankless YouTube channel.

• 0:37Ryan Sean Adams?

  David is now a certified video DJ. At least he's going to night school for it, so we're excited to see his skills. And if it's a little choppy, you know who to blame.

• 0:46David Hoffman?

  Wow.

• 0:47Ryan Sean Adams?

  I'm just kidding. It's gonna be great. So, okay, so every Tuesday, we release this on YouTube and then it comes out on the podcast on Wednesday. And actually, today, we are super excited to have a special guest. We're not going to tell you who it is yet. We'll get to that in a few minutes, but I think you are going to be excited as well. But David, we should talk about what's going on in the main podcast, too, because it's an exciting month already. We just finished a podcast with Chris Berninski, which was absolutely fantastic. What were your takeaways from that, sir?

• 1:22David Hoffman?

  Yeah, recording that episode with Chris was just fantastic. And I'm really glad that he allowed us to take a lot of time and go through diligently a lot of different topics, because they all related to each other and they all deserved, they all deserved their own time, right? And so Chris was really generous with us. He gave us like over an hour and a half just to go one by one through the various topics that have really surged in the Ethereum and DeFi world, going all the way back to like things like fairness and equity and the way that these digital nations are different from nation-states and how that relates to liquidity mining and the comp token system and the governance tokens. Everything kind of stitched together really, really well.

• 2:05David Hoffman?

  So just fantastic conversation with Chris. And we have a fantastic guest coming up next week as well. Ryan, you want to tell us about that one?

• 2:13Ryan Sean Adams?

  Yeah, you know what? So it's Vitalik.

• 2:18Ryan Sean Adams?

  Vitalik is one of those people who doesn't need a last name. I guess he's sort of entered the Madonna phase of his fame. But I am so excited to bring Vitalik on. I've never actually, you've done a podcast with him, David, but I've never actually talked to him or spoken to him. So I'm incredibly excited. The Bankless community is already providing a ton of fodder for questions. We are going to be uber-prepared for that. I gotta be honest, I'm a little bit nervous about this one. I don't know why. It's just, I mean, it's Vitalik. Like, is that normal?

• 2:53David Hoffman?

  I think when it all comes down to it, you will find that it's actually very chill. Vitalik's like one of the most chill people that I know. And so like, people get like, people think like, it's like a massive big deal and everyone gets nervous about Vitalik and, oh, there's Vitalik. And he doesn't think like that. And I don't think you should either. He's a very chill individual.

• 3:13Ryan Sean Adams?

  He is, yeah. And you know, he definitely has an incredibly interesting way of thinking. Just a funny story, when I tweeted that out, that we were having Vitalik on, Vitalik obviously already knew about it, but that was sort of a reminder for him and he pinged me. And he said, oh, when's our podcast again? And I was like, I told him the date and time. And then he goes, so in 46.5 hours?

• 3:37David Hoffman?

  Exactly right.

• 3:40Ryan Sean Adams?

  I whipped out the calculator and then I was like, yes, 46.5 hours Vitalik. We'll see you then. You know, he just has an incredibly unique way of thinking and that's going to be an exciting podcast.

• 3:52David Hoffman?

  So he's counting down. He's counting down until the podcast.

• 3:56Ryan Sean Adams?

  Maybe that's what he's doing. He's preparing his 46-hour timer to count down. All right, we've got a lot to cover. Before we get into the topics, we should talk about our fantastic new sponsors. We have dedicated sponsors now for State of the Nation. First time, David, can you talk about our first sponsor?

• 4:14David Hoffman?

  Yeah, our first sponsor is AVE, which is just elegantly floating onto the screen right at this present moment. AVE is a borrowing and lending protocol on Ethereum, except it's got cool extra gadgets, cool extra mechanisms that you might not be Used to with your typical borrowing and lending application. The one that I'm really excited about is the stable interest loans. And so you can borrow from Ave with an interest rate that won't change under your feet. So that's a really important system, a really important protocol to leverage. So you can have stability in your financial life. We all love MakerDAO, but watching a point zero, point five percent interest rate skyrocket up to 20.5% interest rate in 12 months.

• 4:58David Hoffman?

  That would have wrecked a lot of people if they had depended on that for their personal life or their business, et cetera. And so that's something that you can do on Ave. You can check them out at ave.com.

• 5:09Ryan Sean Adams?

  Awesome. And our second sponsor is Argent.

• 5:12David Hoffman?

  Which is also showing up right on the screen right now.

• 5:14Ryan Sean Adams?

  Nice, nice job, David. You are just nailing it. Well done. The night school is paying off, my friend. So, uh, Argent is a bankless wallet. This is one of my favorite wallets. I, you know what? It's my favorite mobile wallet, uh, in the DeFi space. I think it's the best, actually. So you have easy access to Ave, uh, compound, pull together, Kyber, token sets. This is so easy that your parents can use it. I'm telling you, it's just a mobile app download. Go to the App Store. You can download it. It's secure. It's easy to use. UX is fantastic. There's no seed phrase. There's no ledger to worry about.

• 5:52Ryan Sean Adams?

  You can set your guardians on it. So there's social recovery and they've got over $20 million locked inside of it today. So this is a non-custodial way to go bankless. This is the ultimate bankless wallet. I think Argent is definitely the future. You gotta go check them out if you're doing anything in DeFi and doing anything in the crypto space. Check them out at argent.xyz. We will include a link to both of these sponsors in the show notes. David, my question for you, sir, is this, what is the state of the nation today?

• 6:27David Hoffman?

  The state of the nation is hungry. We are hungry.

• 6:30Ryan Sean Adams?

  Hungry, okay.

• 6:31David Hoffman?

  Yeah, so, and this is exactly what we're going to get into with our special guest who is yet to be revealed. So

• 6:36Ryan Sean Adams?

  Wait, wait, how hungry are we? Are we like, like hungry, like, um, we've been intermittent fasting for like, you know, three days kind of hungry, or like?

• 6:44David Hoffman?

  Yeah, that's right. That's right. We, we have not done the 72 hour complete fast, but we are intermittent fasting. Uh, the tummy is grumbling. Uh, and, but the thing is like, we're also finding food, right? So, uh, another thousand BTC just came to Ethereum. Tether just in USDC continues to, uh, reach all times highs on Ethereum. A lot of assets come into Ethereum, right? Realty, by the way, passed $2 million in tokenized real estate on Ethereum. Uh, and so like, we're, we're, we're passing those milestones too, right? So, uh, anybody that has assets, off-chain assets on Ethereum is reaching all-time highs on Ethereum, right? Like, find one protocol or

• 7:25David Hoffman?

  system that, that puts assets on Ethereum that isn't at all-time highs, like right now. And so the, the Ethereum ecosystem is sucking in assets, sucking in value, and we're hungry for more. We want more.

• 7:37Ryan Sean Adams?

  Hungry for more assets. You heard it there. Uh, so

• 7:40David Hoffman?

  Hungry for apples?

• 7:42Ryan Sean Adams?

  Assets.

• 7:43David Hoffman?

  Those are the more you reference.

• 7:44Ryan Sean Adams?

  All right. So, yeah, so, I, but I don't think, I mean, you know, not hungry yet in a gluttonous way, right? So we're not, we're not filling our plate yet. There's, there's at the, at the all-you-can-eat buffet. There's a lot of room, I think, to grow. There's a lot of room in the belly. Is that the analogy we're going for? Um, so we'll talk about that today. But the first topic we want to talk about, and this is where our special guest comes in, uh, is on the subject of ETH, the asset. So, we brought in Luke Martin. He was kind enough to join us from Venture Coinist. Uh, Luke is one of, I think, the most interesting narrative investors in the space. Uh, he does a ton of

• 8:27Ryan Sean Adams?

  trading, lots of other things, a great account to follow. Um, you got to check out his full body of work. But I put out a tweet recently that said this. Um, so as David Saying Ethereum is hungry, it's sucking in all of these assets. And I said, I'm a fundamentals investor. I don't dabble as much with narrative investing. But if I was to put money on a narrative, it would be this. DeFi boom equals ETH moon. What's good for DeFi is good for ETH, the asset. Nothing certain, but this seems like one of the most obvious narrative plays I've seen in crypto. Again, I'm not a narrative investor as much.

• 9:06Ryan Sean Adams?

  I think a little bit more about kind of fundamentals, though narrative investing is incredible way to make gains in crypto. I will admit, I've seen Luke Martin talk about this and write about this previously. So we thought we would bring him on to sort to sort of weigh in on the subject. All right. So we brought Luke in. Luke, how are you doing today, sir? Welcome to State of the Nation.

• 9:30Speaker 02

  I'm doing well, guys. Good to be here. I'm hungry as well. You guys are talking hungry. It's got me hungry, hungry for breakfast, but I know a lot of people are hungry for yield and everything else. So a lot to talk about.

• 9:39Ryan Sean Adams?

  Yeah. And you know what else they're hungry about is narratives, because that can be a key way to invest. I sort of gleaned this through my travels, but also through some commentary that I I've heard you say on the subject. And I sort of think that there's kind of three approaches one might take to crypto. One is sort of a trader type approach, right? Where you're looking at charts and you're trading. The second is a narrative investor approach where you're looking at, hey, what's the next narrative we can front run? And then jumping on that. And the third is fundamentals. You know, and some people, whatever fundamentals are in crypto, right? That's there's some some room for debate there, but those are the three ways of thinking about crypto. Yeah. So what are your thoughts on the the narrative side of things?

• 10:23Ryan Sean Adams?

  You think this, like, we see the success of DeFi, and that's pretty clear, and Ethereum sucking in all these assets. But we're not seeing ETH price rise.

• 10:32Ryan Sean Adams?

  Is there a narrative here that like exists and that we can front run? Or do you think it's just not going to happen?

• 10:38Speaker 02

  See, this is a really interesting one. Even you saying that the ETH price has not risen yet. It's just been a muted rise, especially when you compare it to how well some of these DeFi tokens have done, right? You look at Lend, you look at Thor, Comp, and all these coins that have gone up many multiples over the past few months. ETH does look like it hasn't risen, but if you go back to March, April, May, ETH was one of the only majors that was rising. You know, compare that to Tron, or to Ripple, or to EOS, which have all kind of steadily gone down until about a week ago. So I think we're just starting to see maybe a more mature ETH. It takes a lot more money to move an asset like ETH versus some of these smaller tokens, which are now getting some traction, right?

• 11:19Speaker 02

  I do think this DeFi narrative is a massive tailwind for ETH. I just think it's going to take maybe a little bit longer to get the kind of moves we're used to in the past.

• 11:29Ryan Sean Adams?

  And how do narratives like these usually work, Luke? When you see them, how do they kind of propagate? And, you know, what's the art to this? Or what's the science in sort of predicting the next big thing?

• 11:41Speaker 02

  I honestly focus a little bit less on predicting. And it's funny, you know, we've had so many narratives. The narratives really never stop in crypto. You know, following the ICO boom, when all the tokens kind of first came out, when there was a token boom and new coins hitting the market 24/7, there was a massive focus on coins that could scale Ethereum. And even if a coin really wasn't focused on that, or if the project didn't have too much merit, if it branded itself as scaling Ethereum, people were rushing to buy that coin. And then we saw it with decentralized exchange coins. We've seen it kind of over and over again. We're seeing it right now with DeFi, and the funny thing is, you didn't even have to be early. I mean, I've made one of my first DeFi trades, I think, probably 30 days ago, or a month ago, and that's doing quite well. And I wasn't early at all, right? I was quite skeptical, kind of late to join on the train, but still doing okay.

• 12:26Speaker 02

  Momentum and trends just dominate here in crypto when there is, even if, you know, fundamentals do play a role, it's really hard to value how much the fundamentals should attribute to something's value. So narratives and momentum and the trend really kind of dominate what's happening.

• 12:44Ryan Sean Adams?

  And the thing about, go ahead, David.

• 12:46David Hoffman?

  How much do you think that this is the fact that like, so we have this, Ethereum is like this ecosystem, right? And it has the market cap of Ether, the asset, but then it also has the value of all the other assets on the platform, right? And so when all of these different DeFi tokens come into existence, like Compt did, and then smack their way into a billion dollar valuation, or you have things like Lend, AVE's token, that does like, I don't know, what, like 30x over like nine months or something? So the market cap of all the tokens on Ethereum grows. And so like, part of the narrative, I think, is just the fact that ETH is just proximate to all of these things. And so like, maybe in a more

• 13:26David Hoffman?

  concrete way, like investors are speculating that the profits from all of these tokens are going to just cycle back into Ether. But is that, is that, is that a narrative? Or is that actually something closer to fundamentals? And how does that impact your decisions?

• 13:43Speaker 02

  I think you could, you could tie that to Ether. I would say it's probably largely more a narrative, just because if DeFi is the narrative, right, is that DeFi is going to continue to compound, this infrastructure is going to last, more and more assets are going to continue to kind of be staked and be used in this infrastructure. That's the narrative. And the narrative is that ETH will take off because of that. I think you could also draw another relation and say, if you're a large asset manager, if you're a large investor, even a high net worth individual that wants to invest in some of these things, it's really hard to do, especially if, unless you're deep in, in understanding how these things work, you understand how wallets work, you can navigate a decentralized exchange. So really, the only way to get exposure to some of these things is

• 14:25Speaker 02

  to try to invest in the platform they're running on, which is ETH. So I imagine there's a pretty big handful of people that see DeFi, see that that's bullish right now, see those tokens are doing well, and say, how do I get involved? I'm just going to buy ETH, anticipating that that rises with this narrative growing.

• 14:42Ryan Sean Adams?

  I totally get your point earlier where you said, hey, look, the narrative actually is positively impacting ETH the price. It's not, you know, it's appreciated relative to other layer one assets like, you know, Tron or XRP or things like that. And I agree with that. That said, we haven't yet seen the the parabolic growth in ETH like we saw in 2017. So when ETH's first use case kind of blew up, which was ICOs, which I think of as DeFi, right? This is, this is, you know, permissionless DeFi fundraising, if you will, that we didn't call it that back then. ETH absolutely exploded in price, someone at the same time.

• 15:24Ryan Sean Adams?

  Yet now we have DeFi assets kind of going parabolic and reaching almost similar levels of hype.

• 15:33David Hoffman?

  Ridiculousness?

• 15:35Ryan Sean Adams?

  Yes, and ETH is not yet moving. So I guess my question is, do you think it's it's different this time? Do you think that there's some reason for that? Has the narrative just not sunk in enough or are we looking at a dead narrative?

• 15:51Speaker 02

  I think there's two key differences. I think the first one is with ICOs, you had to be buying ETH to participate. Right? It was the reserve currency and in order to participate in that ICO, you were buying ETH. You had to hold ETH to deploy it into the next ICO.

• 16:03Ryan Sean Adams?

  There weren't stable coins, right?

• 16:05Speaker 02

  Sure. Well, there were, but there wasn't that much of a focus on them. And you definitely weren't depositing into the ICO with your stable coins. It was very rare if ICO accepted a stable coin or Bitcoin, very, very rare, right? Like maybe one or two that I can think of. So constantly having to buy ETH. And then even after you sold that coin, you would have to reload your ETH to continue participating in this ICO boom. That's just not happening. And I know that ETH does work with some of these infrastructures, work with these work with these systems. But you don't have to touch ETH if you don't want to. I think that's one factor. I think the other factor is the hype is incredible with this DeFi thing. I think it's really the first meme and narrative that's taken a hold of the entire crypto space. You know, even if you're a Bitcoiner and you don't like what's happening, you still hear about this stuff 24/7.

• 16:50Speaker 02

  And that's new. So.

• 16:53Speaker 02

  But even kind of taking that into account, people outside of the crypto atmosphere, the crypto environment, I don't think they're as in tune with what's happening as they were with the ICO boom. I don't think it's reached mainstream hype the same way that ICOs did, and partially maybe because it's harder to get involved. Like I said, it's a very steep learning curve. If you want to get involved with lending or with yield farming or any of those things, just to understand what's happening and then to actually deploy assets into them is a way bigger step than it was just with ICOs one or two clicks. So I think those two things play a role, but maybe time kind of helps conquer both those.

• 17:29Ryan Sean Adams?

  Yeah, the nice thing with DeFi, of course, is that any asset can get involved. So if you are really excited about Bitcoin, the asset, you can start using Bitcoin on DeFi as WBTC or TBDC and some of these other derivatives. So I think, hopefully, it will draw some more attention and draw some more interest. But back to this idea of like, it feels to me a potential narrative is this. For maybe institutions, maybe more classic investors who are like, I don't necessarily want to buy comp token because that's complicated. But I want some sort of proxy to the value

• 18:10Ryan Sean Adams?

  appreciation of DeFi. And the meme of, well, ETH captures upside, like DeFi tokens are like the S and P 500 of Ethereum and ETH captures the upside of that as the reserve asset of DeFi. It seems like that narrative, even if it's not, like regardless of what you think of the fundamentals or how true the reality is, that narrative could take hold on the even the institutional side who can now, because ETH is a commodity, who can now start purchasing ETH in a fairly regulatory, unburdened way. What would it take for a narrative like that to sort of sink into the institutional

• 18:54Ryan Sean Adams?

  side of things and get more mainstream investors really excited?

• 18:58Speaker 02

  I mean, I think it's already happening, right? And like you said, whether they can't invest in comp because it's too risky or they don't understand it, or ETH is just more liquid, right? For a lot of investors, Bitcoin and ETH are the only options because those are the most liquid options. So I think it's already taken hold. If a crypto investor wants to be involved in this DeFi thing and can't do it in such a granular level and they want to be involved, they're probably choosing the ETH route. And it's probably going to continue as DeFi picks up steam. So I think that's only going to build on itself. There's also a couple of other narratives that I think could really help. You see ADA right now doing quite well and the staking and the yield farming is only going to continue to pick up steam as ETH 2.0 and staking and all these things kind of combine, they're really going to start to reinforce each other.

• 19:43Speaker 02

  So I think the narratives can kind of combine in a way as people continue to look for yield, as they get more comfortable finding assets that give yield in the crypto space. I think ETH is going to play a pretty big role in all those things.

• 19:56David Hoffman?

  One thing that's pretty interesting to me is that the ETH 2.0 hype definitely impacted the 2017 ETH price run up to like $1,400. And like, I think we're around the same, at least with what we understood in 2017, 2018, Ethereum 2.0 was like right around the corner. Like it was perhaps no more than 12 months away. And now that's roughly still the same projected timeline. But like, that means like the hype of Ethereum 2.0 is theoretically right around the corner. So like, maybe we're kind of just waiting for these stars align with Ethereum 2.0 plus this whole new narrative ecosystem that we've been generating.

• 20:36Speaker 02

  Yeah, I mean, it's, I remember when I first got into the space, that was early 2017. And I was reading about ETH 2.0 coming out. So who knows when it comes out? I'm sure Vitalik, your next guest, will have a lot more to say about that than I have any insight there. But yeah, I think, you know, yield farming and staking, we've seen clearly that people are chasing that trend. And momentum tends to last here. I try not to fight trends here because, you know, fighting momentum in any asset class is tough. Fighting it in crypto is pretty brutal. So, you know, who knows? I think as long as the ball keeps rolling with DeFi, I think ETH is going to be a very nice benefactor of what's happening there.

• 21:11Ryan Sean Adams?

  So Luke, you like yield farming, you like staking, you like DeFi. Any other narratives that we should be watching out for, for the folks that are tuning in and are interested in doing some narrative investing themselves?

• 21:24Speaker 02

  I'd say ETH is probably the most interesting and I want to make a note, I find all those topics incredibly interesting, but I learned a lot from you guys and people like Tony Shang and Andrew Kang. I am trying to learn as much as I can. I don't participate in some of the yield farming and all that. It's still over my head, some of those things, but I absolutely love when a narrative like this does take hold. And we are starting to see ETH and other assets benefit from that, assets actually moving there. So I think that's going to be huge. I think another thing to watch is if Bitcoin and the S and P, if this correlation actually does break down, I think that's incredibly bullish. So it's going to be a fun time ahead and watching how ETH develops through all this is top of my list of what I'm watching.

• 22:03Ryan Sean Adams?

  Luke, it's been awesome to have you. Thank you for taking the time for the Bankless Nation to share your thoughts on the narrative side of things. Luke, how can folks find you and learn more about what you're up to?

• 22:14Speaker 02

  Definitely. I appreciate you guys having me on. I'm most active on Twitter, @VentureCoinist, or you can just search Luke Martin, I'll be one of the first ones to pop up and on YouTube as well. But Twitter's where I'm most active.

• 22:24Ryan Sean Adams?

  Awesome. Luke, thank you so much. We'll talk to you soon.

• 22:27Speaker 02

  Appreciate it, guys.

• 22:30Ryan Sean Adams?

  Yeah, I think Luke's right on there, David. You know, ETH is definitely one of the big narratives to watch. How much do you personally partake in narrative investing versus, you know, just stacking your ETH, stacking your Bitcoin?

• 22:46David Hoffman?

  The only thing that narratives really impact me is how aggressively I stack or not. If there's perhaps less hype, less narratives, maybe I'll keep some more cash in my legacy world. But if the hype definitely comes, like it has recently, I will definitely back up the truck as much as possible. I've not ever been private on the fact that, you know, I generally hold as a minimum amount of cash in my bank account as possible because I want to live a bankless life. And so when there's value there, it gets moved over to Ethereum.

• 23:16Ryan Sean Adams?

  Yeah, absolutely. All right. Our second topic, this goes back to, I think, the state of the nation being hungry. So we just passed another milestone. And that's two, two billion locked in DeFi. I'm going to show it on the screen for everybody because I'm so excited about it. But David, what does, what does all this mean?

• 23:36David Hoffman?

  I think the, also the right milestone is the fact that not only are we into two billion into DeFi instead of the previous one billion where we were, but the speed at which it came, right? So it took us, you know, over a year and a half to get to one billion in DeFi, probably even longer than that. And it took us, what, like six months, four months to get to, get it to two billion. And so the, the narrative is that, you know, DeFi is going to be knocking down these billion dollar milestones faster and faster and faster. And so like the next step, in my opinion, is not three billion. It's 10 billion. Three billion is going to come tomorrow. 10 billion is going to take a little bit more time. But that's where we're going.

• 24:18Ryan Sean Adams?

  So you are saying basically DeFi Pulse should stop showing their graphs linearly and move to a logarithmic graph because this thing is going exponential.

• 24:29David Hoffman?

  Well, I mean, look at it, right? Like, so the first one, two, three, four, five units, lines, vertical lines that they have there are the, the majority of the line is all under that, that first five million dollar mark. And then this last two units or one and a half, really, it, it crushes three, three half billion dollar increments in the last like month and a half. So at some point like that, the, the linearness of a graph is not going to be able to tell you good information.

• 24:58Ryan Sean Adams?

  Yeah, I, it, it looks like here, it's, it's interesting to kind of look back and see what the rocket fuel was, that, that entire first segment here. Up until, you know, February or so, seemed to be driven primarily by collateralized lending, right? Sort of protocols like Maker. Is Maker not the king? Maker is not the king.

• 25:20David Hoffman?

  Maker is not the king.

• 25:21Ryan Sean Adams?

  Maker was the reigning king for a pretty long time. And I think that was basically the first two years or so of growth that we've seen. But now we see this very clear inflection point in around mid-June, where DeFi is taking off yet again. But this time, we know what the rocket fuel is. We did that episode with Dan Elitzer, and that's yield farming with comp tokens, that sort of thing. So that seems to be the next wave, and sure enough, comp, compound is now, is now the reigning king. So it seems like what's happening in the evolution of DeFi is we're going along, and then we hit some inflection point, and then things shoot up. And then we hit another inflection point, another breakthrough, and then things shoot up.

• 26:06Ryan Sean Adams?

  It, it seems difficult to predict what the next inflection point's going to be, right? Like, uh, is it, first of all, I think we'll probably get a really decent run on this yield farming stuff. But after that, what's next?

• 26:20David Hoffman?

  Well, so I think a lot of, you got it right. A lot of things are happening all at once here, right? And so yield farming and liquidity mining isn't really just one thing, right? And so it's, what that thing is, is really just, it broke the floor of what is possible on Ethereum. And it, and when I say broke the floor, I mean like, the gravity well that is Ethereum is now deeper, right? It's now stronger. There's more assets on Ethereum.

• 26:51David Hoffman?

  Hold on, I'm, I'm, something's going wrong with the stream. Uh, where'd Zoom go?

• 26:59David Hoffman?

  Okay.

• 27:01David Hoffman?

  That's weird. Uh, it broke the floor of Ethereum, as in like, it, uh, there's so many more and more different assets coming to Ethereum, like Bitcoin on Ethereum is at its all-time highs.

• 27:14David Hoffman?

  And stable coins on Ethereum are at its all-time highs. And just, and like I said earlier, like real T-tokenized real estate is on Ethereum at an all-time high, right? And so like, it's liquidity mining just allowed for the gravitational pull of Ethereum to become a lot stronger, right? And so all assets are coming into Ethereum from all different corners, because the gravity well that is DeFi, that is one single composed Ethereum structure of applications, is just more useful for all of these assets, right?

• 27:44Ryan Sean Adams?

  That I think brings us to the third topic, David, and I'm going to show this, this image, this graphic on the, on the screen in a minute, but that is this image of DeFi as a vortex. You're talking about the gravity well. I mean, you could, you could use a black hole as an analogy or image. This is really a vortex type of image, so almost like a hurricane on the screen that, that you're seeing. Can you talk a little bit about this?

• 28:13David Hoffman?

  Yeah, right. So this is a fantastic graphic. And when I, I wrote this, that article, Ethereum is an emergent structure way back when. And when I saw this graphic, I was like, this is what that is illustrating, right? So the whole thesis about Ethereum as an emergent structure is that all these applications on Ethereum are compose, compose themselves together. That's really the power of Ethereum is composability, right? And so this vortex, what this vortex is showing is that the liquidity gadgets like Balancer, Uniswap and Curve are directly related to the payments and aggregators and exchanges like Kyber, One Inch and, and DYDX, which is really connected, just intrinsically connected to the borrowing and lending applications

• 28:57David Hoffman?

  like Compound and Aave, which is intrinsically running on the demand for various assets on Ethereum, like that come from Maker, DAO, Synthetix and Uma and Set. And then those applications run on the liquidity pool. So we're back at the very beginning. And so this ecosystem, this one single composed structure offers incentives to place your assets there. Assets in this vortex are more useful, are greater, are stronger, are more valuable. It's more valuable to have your assets inside of this vortex, right? And so wherever value is coming from outside of Ethereum into Ethereum, it's getting funneled into this vortex because you are able to leverage the value inside of those assets better.

• 29:41Ryan Sean Adams?

  And so as it sucks those assets in, it also grows larger, right? Because liquidity begets liquidity.

• 29:48David Hoffman?

  Utility, it gets utility. Things beget things. Like it's, it's a place of begetting.

• 29:54Ryan Sean Adams?

  Yeah, and so, you know, someone was asking the question, where's Ethereum in this vortex, right? So there's DeFi, the DeFi vortex in the center, but there's no Ethereum. Where's, where's Ethereum?

• 30:06David Hoffman?

  The whole thing is Ethereum, like, right? Ethereum is the substrate. Ethereum is this, it's the background, right? And that's one of the beauties about Ether and Ethereum is like, the whole principle, the whole ethos of this system is that you can operate in Ethereum operates in the background. It is in the Ether, right? It is not in your face. And this is one of the core differences between Bitcoin and Ethereum, right? Bitcoin is designed to be in your face. You're supposed to think in Satoshis. You're supposed to think in Bitcoins, denominate yourself in Bitcoin assets. And Ethereum is the opposite. It's right, like, you can use and leverage Ethereum without having to think about Ethereum, the network, or Ether, the asset, because those things operate in the background. And so what this, you can just

• 30:49David Hoffman?

  rename DeFi vortex, and you can basically just label that Ethereum. That's what it is.

• 30:54Ryan Sean Adams?

  It also, not to break that analogy, because I like it, but it also makes me wonder, and this is kind of a question I have for Vitalik, right? We are very bullish on the DeFi system as a bankless money system, and it's being a primary use case for crypto. It's not necessarily the only use case for Ethereum. Vitalik makes that point, too. So it's possible you could have, like, you know, on the planet of Jupiter, how you have all of these swirling clouds, these swirling vortexes, and you have the red spot, which is the largest of the vortexes. But then you have all of these other smaller hurricanes that are happening in parallel. I

• 31:34Ryan Sean Adams?

  do wonder if other vortexes will emerge that aren't DeFi on Ethereum as well. You know, I haven't necessarily seen that yet. Most of the use cases have been tied to finance and money. But it is an interesting question, because this is a, this is really a general purpose settlement system, property settlement system for the world. And it's hard to imagine what the next use cases might be. I mean, I think that's the beauty of it, right?

• 32:05David Hoffman?

  Absolutely, and I think the I think the DeFi vortex in this image here, I think there's a theory that I have that this is also the L1 vortex, right? This is where all of the big applications, the tools that support everything else on Ethereum rely on, right? And so not only are we going to see certain transactions be on L1 or on on L2, but we're going to also see certain applications be on L1 and on L2, right? Like, I predict that compound and maker and are going to be perpetually L1 applications. And then some exchanges, perhaps like Uniswap, we see experiments on L2 balancer on L2.

• 32:46David Hoffman?

  Like, the difference between L1 and L2 is that like they're big heavyweight applications and the L2, each L2 is its own ecosystem, right? And so there can be L2 vortexes that build off of the L1 vortex, right? And so I think what we are showing here is the stitching together of all the different financial activity, but because it's all happening at the same time, like, that's why gas prices are so insane right now. And we've seen this insane emergence of L2 systems be developed and released in the last six months. I think we're going to start to see some mini vortexes spiraling off of this one big vortex.

• 33:25Ryan Sean Adams?

  Yeah, absolutely. And that reminds me, David, we should talk about our sponsors for a minute. All right, so we are super excited to have Diversify as a sponsor. Diversify is one of the vortexes that David was just talking about. This is a professional-grade DeFi exchange, a decentralized exchange. So it's completely self-custodial, it's built for serious traders, it's high-speed, it's low-fee, it's private, and it's deeply liquid. 900, 9,000, excuse me, transactions per second. So that's instant execution and low fees. My question to you is, why use a centralized exchange?

• 34:10Ryan Sean Adams?

  We are starting to build out exchanges like Diversify in the DeFi space, and you should Check them out. They also have a governance token called Nectar. That's N E C. You should check it out. It powers their DAO. It currently has over 400 ETH inside of it and a lot more ETH pledged. It's a perpetually deflationary token as well. So it's they have a buyback and burn scheme. And these guys with with neck diversify was one of the original liquidity miners back in the day. They were liquidity mining before it was cool. So check out what they're doing on their governance token neck. Also, check out diversify. Start using it as an exchange. Go to diversify.com. We will include a link in the show notes.

• 34:56David Hoffman?

  We have a new sponsor called Ampleforth, which is also a new experiment on Ethereum. And so this is kind of going to be a different it's a different category than than other other sponsors where because this is brand new, a brand new experiment. And so it's a new monetary experiment. It's like trying to be a new M zero. Except the way that it's different is that it's instead of having a variable price, it's a stable ish coin is supposed to track a dollar. But when demand for this token grows, instead of the price going up, the supply grows goes up. And so it gives you supply discovery instead of price discovery. And so amples, the the currency of the ample system is a new base money experiment and it's very rules based.

• 35:40David Hoffman?

  And like like Bitcoin, it's very non dilutive. So with a $20 million market cap, if you buy 1 million of them, you are have the assurances that you are going to own one one twentieth of the supply. But you don't have assurances of what that supply is going to be. So like crazy experiment where I'm excited to to watch this play out. So you can take part in the ample liquidity mining with the geyser at geyser ampleforth.org. Part of the health of the ample ample forth ecosystem needs to have distribution. And so if you are interested in helping ample distribute, you can go to geyser ampleforth.org. And check them out and get your hands on some ample via the liquidity mining that we all know and love.

• 36:27Ryan Sean Adams?

  All right, David, this is last topic. It kind of ties into the vortex that we were just talking about. And that's when you were talking about the vortex, it made me think about the tech trees I used to play, like games I used to play. Do you ever play, you know, games like Civilization where it's, you know, an RTS, you know, or turn-based strategy types of games? There's always in those games, there's always this tech tree component that your civilization has to discover. If you're a character in a RPG, you kind of have to level up using some sort of tech tree or skill tree.

• 37:05Ryan Sean Adams?

  So like in Civilization, you know, first comes the alphabet and then you need to discover the alphabet before you can discover writing and code of laws. And that leads to literacy and that eventually leads to a republic and then you can get nukes and you protect yourself from Gandhi who's definitely going to attack you.

• 37:23Ryan Sean Adams?

  That's a quirk of the game, nothing against Gandhi in real life.

• 37:27Ryan Sean Adams?

  So, but that's, yeah, great guy. So that's sort of what's happening with Ethereum right now is there is a tech tree being built out. This is a tech tree, we just kind of sketched out on Bankless that that looks at sort of the launch area where we started with ETH. And then we started with this very basic primitive that we discovered, we created, but also discovered called the ERC20. And that led to the birth of ICOs and that was sort of the first phase of unlocking in the tech tree. But once we had tokens, then we could start creating something else.

• 38:06Ryan Sean Adams?

  And we entered into this kind of collateral era where we're starting to create things like lending protocols, like Compound and stablecoin protocols like Maker. And also trading protocols like Uniswap. And then once we unlock all of those, we can then start to unlock other things like the die savings rate, which is basically a kind of a savings account for your die. And then once we have that, we can start to unlock other things like the Argent Wallet, which is new. Argent Wallet wouldn't be very interesting. If all of these other primitives in the tech tree haven't been built out and it's only possible in year like, you know, three or four of Ethereum, it would not have been possible in year one.

• 38:46Ryan Sean Adams?

  So we keep going through the tech tree as an Ethereum civilization, as a bankless nation. We keep unlocking things as we go and discovering new things. And then a whole new world of possibilities opens up. Like, who would have known that, you know, the invention of writing would lead to,

• 39:08Ryan Sean Adams?

  you know, landing a man on the moon, right? But we had to have writing in order to get us way downstream in the tech tree. And that's sort of what I see evolving on Ethereum.

• 39:20David Hoffman?

  Yeah, there's a classic line in the crypto space that crypto, the crypto world is relearning the lessons of economic and financial history just sped up. And that's what I see here, right? Like, the ERC token is a symbol of value. And then you have the store of value ETH. And then we have all this, we have credit coming out of the maker system. We have bundles of assets coming out of SET. And that's what I see. We are relearning the progress of history on Ethereum. And what I'm really excited for is seeing when we actually start to break through the frontier into brand new things. And perhaps that's what liquidity mining and DeFi tokens have been in this last new phase. And what really gets me excited is the compounding rate of progress that you get with this, right?

• 40:05David Hoffman?

  So, and at the very beginning, in your launch era that you have highlighted, there's only a few things that are really crucial. And then in the next area, there's a lot more things because the building blocks compound. And so in the world of Ethereum, the more protocols there are on Ethereum, the more DAI, the more Uniswap, the more whatever, Compound, AVE, Maker, like, the more things, the more potential there are for more things. And so, and so that's why developers are so important, right? Compounding progress leads to compounding developers, which leads to compounding progress, right? And so I think with this turn of the page that Ethereum has really seemed to have taken lately, we're about to see a lot of compounding progress on Ethereum.

• 40:48Ryan Sean Adams?

  Absolutely. I want to go back to that phrase that Chris Berninski used in our podcast with him, and he called this infinite white space. And I don't know if he's been influenced by Bankless, but he talked an awful lot about the journey west and how there was not opportunity on the east coast.

• 41:06David Hoffman?

  He did.

• 41:06Ryan Sean Adams?

  Yeah. And how, you know, pioneers and people who are looking for new opportunities, who predominantly were younger or outcasts, not part of the existing social structure, found their opportunity west. That's what this is. We are building an entire crypto nation, an entire crypto economy, and there's infinite white space. We have no idea what's going to be unlocked next. But once something's unlocked, there's, you know, dozens of protocols that can be built on top of it, hundreds of businesses that can be on top of it, ways to earn money. We'd like the opportunities here. And I think it's only a matter of time before millennials and Gen Z.

• 41:48Ryan Sean Adams?

  This is definitely going to be a Gen Z type of platform. So at some stage, David, you and I will have to pass the torch to the next generation to keep carrying us. But like, this is where the opportunity is. Not in the nation states anymore. They're squeezing that out. We've got opportunity in this infinite white space as we unlock each branch of the tech tree.

• 42:12David Hoffman?

  Yeah. And one last thing to wrap up this conversation is that when new protocols come to Ethereum, they make the older protocols better, right? And so the, hold on.

• 42:26David Hoffman?

  Got to fix it.

• 42:30David Hoffman?

  There we go. When new protocols come onto Ethereum, the old protocols that were their previous can tap into this new system, right? So like the oldest protocols on Ethereum, like Augur, are now benefiting from systems like DAI and ZeroX, which came after them, right? And so like compounding progress also works retroactively, right? And so that's why I always say that DeFi and Ethereum is this one single composed structure of financial possibility, right? Because everything relates to everything else. There's no, there's very few things that are disconnected from Ethereum at large, right? Any progress in one domain is progress in all domains.

• 43:08Ryan Sean Adams?

  Absolutely. David, you did a fantastic job today. We're gonna wrap it up here, but I just want to say you did a great job video DJing, man. He's, it's just, you blew me away.

• 43:17David Hoffman?

  Hey, I appreciate that, man. But let's hope that it actually works, because I haven't actually seen it when it, when it plays, but we'll, we'll see what happens.

• 43:25Ryan Sean Adams?

  All right, well, if, if it works, we should do this every week.

• 43:28David Hoffman?

  I think we will do it every week.

• 43:30Ryan Sean Adams?

  Bankless Nation. Yeah, exactly. Bankless Nation, you know, not a ton by way of action items, but one thing we'd like you to do is we'll include a link to the Twitter thread with Vitalik where we ask, what questions do you have for Vitalik? We'd love to tee up some good questions from the Bankless community for that. The other thing you can do is think about the next crypto narratives. If you want to dabble a little bit in narrative investing, you know, take a look at some, what Luke is doing and think a little bit about what the next crypto narratives might be, put your list together. We, we definitely advise that you have a, you know, a stronger fundamentals based portfolio,

• 44:12Ryan Sean Adams?

  but narrative investing can be an interesting way in, in crypto to produce yields as well. That is it from us. Thanks a lot for tuning in. This has been State of the Nation, episode four.

• 44:23David Hoffman?

  Hang on, I'm gonna do a little self show real quick. I got an article coming out in Bankless tomorrow that talks a lot about what we have been talking about in this episode. It's, it's titled, "The Global Public Goods and the Protocol Sync." It definitely relates to how all protocols impact each other. And also, it talks about what, what is at the very bottom of the gravity well? That DeFi liquidity vortex, what's at the bottom? And the, that answer, that article answers that question. So that's coming out on Bankless tomorrow. So stay tuned for that.

• 44:55Ryan Sean Adams?

  I want to find out what's at the bottom.

• 44:57David Hoffman?

  What's at the bottom?

• 44:59Ryan Sean Adams?

  All right. Thanks a lot.

• 45:03David Hoffman?

  Boom.