SoTN #6 - EXPONENTIAL, Special Guest: LUCAS CAMPBELL (DEFI TOKENS, ETH PUMPING GOOD, TOKENS VS ETH)

STATE OF THE NATION #6 - Tuesday, July 21, 2020 The State of the Bankless Nation is.... EXPONENTIAL! The bankless boys discuss why. Plus a special guest... Lucas Campbell https://twitter.com/0x_Lucas a Bankless Analyst! Watch the video here. ----- 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! ----- Covered: TOPIC #1: DEFI TOKENS - w/ Lucas Campbell TOPIC #2: ETH PUMPING GOOD TOPIC #3: TOKENS VS ETH BONUS TOPIC: AmpleForth discussion We show: Bankless Q2 Token Report https://bankless.substack.com/p/bankless-q2-token-report by Lucas Campbell TokenTerminal https://tokenterminal.xyz/ for P/E Ratios Dune Analytics chart https://explore.duneanalytics.com/dashboard/defi-users-over-time of DeFi users Messari Chart - Ethereum vs. Bitcoin settlement numbers https://twitter.com/MessariCrypto/status/1285277674915733512/photo/1 Meet the Nation playlist https://www.youtube.com/watch?v=5Fm5xNwfqNo --- Episode Actions: Read Q2 Bankless Token Report https://bankless.substack.com/p/bankless-q2-token-report Join us for AMA with Rune Christensen https://bankless.substack.com/p/announcing-bankless-amas-every-2nd on July 23, 12pm EST (Bankless Membership required https://bankless.substack.com/p/announcing-bankless-amas-every-2nd!) Watch Meet the Nation on YouTube https://www.youtube.com/watch?v=5Fm5xNwfqNo Also...subscribe to Bankless YouTube https://www.youtube.com/c/bankless 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, Bankless Nation. This is State of the Nation, Episode 6. David and I do these every single Tuesday. We broadcast them live on YouTube. Well, not live, actually. We're getting it.

• 0:13David Hoffman?

  One day, one day.

• 0:15Ryan Sean Adams?

  Yeah, it's the same day turnaround on YouTube and then we post it also on Wednesdays to the podcast feed. We are here to talk about what is happening in the Bankless Nation. That means what's happening in crypto, what's happening in DeFi. We relate it to the big picture things. We show you some visuals. We drop some insights and action items. Sometimes, we even bring in a special guest. And today, we have a special guest that we will surprise you with in just a few minutes. David, how are you doing today, sir?

• 0:48David Hoffman?

  I'm doing absolutely fantastic. Got down off of a mountain this weekend and came back to a totally different DeFi. It moved so fast. It moved so fast.

• 0:58Ryan Sean Adams?

  So you like was up like two days and you missed, you missed like two years in DeFi?

• 1:03David Hoffman?

  Yeah, it was, it was 36 hours and now I'm just behind. You're gonna have to find a new bankless buddy who can keep up faster than I can.

• 1:11Ryan Sean Adams?

  All right. Well, I was checking things over the weekend, so I think I've got us covered, but you know, there's a few things I don't understand as usual. It's becoming too much to keep up with. Before we, I ask you the question, David, we should talk about two things that are going on this week. So the first is, we actually have Rune Christensen, the founder of Maker, who's going to be in the Bankless Discord at 12:00 PM, July, Thursday, what's July 23rd? Thursday, July 3rd, 12:00 PM Eastern Time. So if you are a Bankless Nation member, make sure you make that. We get to ask Rune anything we want. We did this with Robert Leschner of Compound last week. Did this with Edamar from Argent. It's just a fantastic way to learn a bit more about these protocols.

• 1:58Ryan Sean Adams?

  So catch that. Also, David, you are releasing a new Bankless show. I hope to help you on that sometime, but you are taking the lead on that. Can you tell us about that and what you're gonna be releasing next?

• 2:11David Hoffman?

  Yeah, we now have the Meet the Nation series where new projects, kind of projects that need some more exposure, projects that people haven't heard about are able to meet the nation. So we just released our first one with the Reflexor Labs project, which is producing the Rye Stable-ish coin. And so if you want to know what Reflexor Labs and Rye is all about, you can go and listen to and watch the Meet the Nation where I interviewed Steven Yonescu, I believe is how you pronounce his last name, from the Reflexor Labs team. Their project is very comparable to Maker Dow and we kind of pull back the layers and get into it with Steven on the Meet the Nation.

• 2:54David Hoffman?

  And we're going to be rolling this out for every project that is new, every up and coming project, any project that you have questions about, you can always ping me, ping Ryan, tell us that you want to get some project on to Meet the Nation and we will get that done.

• 3:09Ryan Sean Adams?

  So this is like the way to learn about the next big things that are going on in DeFi. So on State of the Nation, we talk a lot about current events, current protocols. But Meet the Nation is a chance to, as we like to say, front run the opportunity and get a little bit ahead of what's happening next, what could happen next in DeFi. I learned a ton from your interview on Rye that these things are almost like,

• 3:37Ryan Sean Adams?

  they remove the volatility in a way that Dye doesn't, super interesting. And you're doing one today, right, David?

• 3:43David Hoffman?

  I'm doing one today with the Ampleforth team because there's a lot of unanswered questions I have about Ampleforth, which we're going to get into.

• 3:51Ryan Sean Adams?

  Oh.

• 3:51David Hoffman?

  It's gonna be a good one.

• 3:52Ryan Sean Adams?

  I have some unanswered questions too. We should, we should talk about that later in the show today.

• 3:58David Hoffman?

  That's exactly what we're gonna get into with Meet the Nation.

• 4:00Ryan Sean Adams?

  Awesome. All right. Well, let's definitely do that. So what do people need to do to catch Meet the Nation? Subscribe on YouTube, pretty much, right?

• 4:08David Hoffman?

  Yep, subscribe on YouTube. It's not, there's not going to be one Meet the Nation day. We're going to record these as, as we deem necessary. If no, if no new projects come out in a week, which probably, hopefully never happens, but seems DeFi, they always, something always happens. And so whenever something good comes out, whenever there's a worthy team that we want to meet the nation, we'll meet the nation. But if there's not, there's not. And so the only really way to do that and pay attention is to A, subscribe to the YouTube and B, follow the Bankless HQ Twitter account because that's where we will be tweeting out the Meet the Nation episodes.

• 4:42Ryan Sean Adams?

  You heard it. David, I've got a feeling you might be having to do one of these like every day pretty soon because DeFi is just coming fast and furious.

• 4:49David Hoffman?

  Absolutely.

• 4:51Ryan Sean Adams?

  Okay, so the question, the question of the state of the nation is always this, David, what is the state of the nation right now, sir?

• 5:00David Hoffman?

  Yeah, we've already hinted at it pretty strongly thus far, but the state of the Bankless nation is exponential. Things are absolutely crazy right now. Like I said, I went to the mountains this weekend and I came back and there's this brand new thing called Yiffy, this new token.

• 5:15Ryan Sean Adams?

  What's Yiffy? Y F I?

• 5:18David Hoffman?

  Yeah, is that, is that it? Is that, maybe I'm the one who pronounces it that way. Yeah, it's the curve, it's the curve token. Apparently it's DeFi liquidity mining, but like on steroids. I don't understand how it works. I've, I listened to Eric and Anthony on the ETH Hub weekly recap and, and I tried to understand how it works there and I still didn't get it. Like, and I'm, this, I live in this stuff and I still don't get it. And so like if I don't get it, like so many other people don't get it. DeFi is moving so incredibly fast. Like gas prices are above a hundred gray right now. They were at 70 gray yesterday and 70 gray the day before. That's absolutely insane. I have friends of friends who are asking me about DeFi. I have friends.

• 6:00Ryan Sean Adams?

  Wait, really?

• 6:01David Hoffman?

  Yeah, uh huh. Yeah, dude.

• 6:03Ryan Sean Adams?

  Like you're getting texts? Wait, are they saying, are they saying the words DeFi? Are they asking for like, like Ripple tips and stuff like that?

• 6:11David Hoffman?

  No, instead of Ripple, it's Link.

• 6:14Ryan Sean Adams?

  Okay.

• 6:15David Hoffman?

  It's DeFi and Link. It's DeFi and Link.

• 6:17Ryan Sean Adams?

  But they say DeFi because I got a link text from a buddy of mine.

• 6:20David Hoffman?

  Yeah, no, I got, I got one, I got one DeFi text. Yeah.

• 6:25Ryan Sean Adams?

  What did you say about Link? You're gonna make the Link Marines mad. Or maybe you're not, maybe you're gonna be bullish, I don't know.

• 6:30David Hoffman?

  Yeah, so like, okay, this is a little bit of a tangent, but like, I'm of, I'm ready to be convinced that like, things like link, things like synthetics, they're all, like, link is over a billion dollar market cap, but synthetics is below a billion. But then there's like Litecoin and Bitcoin Cash and like Cardano and EOS, they're still in like the top 10, top 15 billion dollars market cap. Like, link is totally worthy of displacing them. Like, link could go to, could go and take off EOS.

• 6:59Ryan Sean Adams?

  Wait, are you saying it's a better shitcoin than the other shitcoins?

• 7:05David Hoffman?

  Perhaps, perhaps, perhaps, yeah. And like, so could all the other, like, Kyber deserves to be up there, synthetics deserves to be up there, at least in comparison to Litecoin. Like, Litecoin doesn't deserve to be up there. And so, while I say the state of the nation is exponential, like, we could be in the very beginning of that exponential curve.

• 7:24Ryan Sean Adams?

  Alright, so, open mind. You've got an open mind on that. We're gonna talk about that too. I think that's our first topic with our guest, actually, to talk about what's going on with DeFi tokens and some of the exponential growth that we've seen. But before we do, David, we've got to talk about our sponsors. The first is Aave.

• 7:47David Hoffman?

  Oh, pardon me, that's me. Aave, Aave is a borrowing and lending protocol on Ethereum, one of the many tokens that are absolutely mooning, and I hope to one day have it displace all the other shitcoins out there, like Litecoin and all the other ones in the top 10 that I just mentioned. The Aave is a borrowing lending protocol that is a little bit different, got a little bit of extra tools and tricks up its sleeve. The one that I really enjoy is the stable interest rates loans. That's a really important money Lego in order to bring crypto to the mainstream and replicate some of the financial services that we find in the real world, but on Ethereum. Stable interest rates are incredibly important to be able to plan out and predict your financial future,

• 8:30David Hoffman?

  and you can access stable interest rates via Aave. For developers and the creative types, you can get real crazy with their flash loans protocol, where you can borrow up a large and large, large amounts of collateral for no collateral, no deposits, so long as you pay it back in the same transaction. So you can do some pretty crazy stuff with that. Check them out at ave.com.

• 8:54Ryan Sean Adams?

  Awesome. And also, speaking of AVE, I want to tell you about Argent. So Argent is the best DeFi wallet for DeFi, hands down, especially if you're using mobile. David was talking about AVE. You can access AVE. It's currently free. I think they've extended it. So if you're doing anything with AVE in Argent, there's no gas prices, and that actually means a lot these days. You can also access Compound, Pool Together, Kyber, token sets. This is really a, almost like a, if you're in the US, you know Venmo. This is like a Venmo experience for DeFi. It's super secure, easy to use. There's no seed phrases involved. You can have Guardian and

• 9:33Ryan Sean Adams?

  Social Recovery. So you can bring in some of your friends into recovering your wallet in the event that you lose your mobile. They've got over 20 million in locked assets. I bet that's going to climb as well. It is the most bankless wallet with good UX out there. So check them out at argent.xyz. That's A-R-G-E-N-T dot X Y Z. We will include a link in the show notes. Okay, David, we're talking about shitcoins. I don't, you know, I struggle with that term because I think it's a, I think it's abuse, you know, like particularly around,

• 10:12Ryan Sean Adams?

  like among maximalists. But there are some coins out there that clearly, unless they are viably competing as a money, they are not worth nearly the market caps that, that the market sees them as worth. Ascribes to them. Ascribes to them today. Our first topic, we want to talk about this Q2 token report. So the second quarter token report that Lucas Campbell put out on Bankless. Lucas is a talented researcher. He researches, you know, all of these kind of token economics, and he put out this fantastic report. We've actually, we're bringing him on the show. Lucas, are you, are you there?

• 10:56Speaker 02

  Hi, yeah. How you guys doing?

• 10:58Ryan Sean Adams?

  Good, man. How are you doing, Lucas?

• 11:01Speaker 02

  Just dandy on this fine Tuesday morning.

• 11:05Ryan Sean Adams?

  Awesome. Well, you killed it with this report, dude. It's like really good. When I read it, I was like, you know what? We're starting to get to the level where we've got like Wall Street level analysis and metrics supporting some of these token assets. So kudos to you. I think it was super well received. Well done on it. I'm actually going to share aspects of it, Lucas, on the screen so we can, we can talk over a couple of the findings. But maybe you could start with, like, we've talked a lot on Bankless about DeFi tokens being a new asset subclass in crypto. They are crypto capital assets. Can you talk a little bit about what a crypto capital asset is?

• 11:48Ryan Sean Adams?

  And how it's different from other assets in crypto?

• 11:53Speaker 02

  Yeah, so crypto capital assets are kind of this new emerging asset class within, you know, crypto assets, right? And I think the notable difference here is that these protocols or these assets are, you know, have tangible value flowing through them. So you're able to take, you know, traditional valuation methods like PE ratios and DCF models. And you're able to model how these tokens stack up to their peers and attempt to find, you know, like a fair valuation. So that's probably the notable difference. Like when you're talking about like other shitcoins like Litecoin and whatnot, there's marginal fees and what on the network. So it's really tough to value those tokens based on their cash flows.

• 12:38Speaker 02

  So that's kind of really the key differentiation between a majority of crypto assets and then the crypto capital asset is that there's this tangible.

• 12:48Speaker 02

  Amount of cash flows flowing through the the protocol.

• 12:53David Hoffman?

  And this is kind of what we talked about with Ben Hunt, right? Where there was, there's a very strong transition in crypto right now. While I still believe a lot of these valuations are kind of just based on traditional crypto valuations, where it's mostly just supply and demand and narrative and story. There is now ways to measure these things in very grounded and fundamental valuations. And I think that's partly why the DeFi narrative is so strong right now. It's because we can actually see cash flow. We can actually see real value in ways that we cannot see with like Litecoin or Bitcoin Cash or Cardano or whatever.

• 13:31Speaker 02

  Right.

• 13:31Ryan Sean Adams?

  Yeah, yeah, you know, like Ben was talking about.

• 13:36Ryan Sean Adams?

  Basically getting back to sort of fundamentals and the tie between true fundamentals. Investors who still see a world even in stocks that is, you know, based on cash flows as a fundamental. And this asset class is is starting to become that in crypto. So it's cool that like traditional investors who are used to models to value stocks can now value some of these DeFi tokens that way. That said, it's been absolutely explosive, like the growth. I want to maybe flip forward to this to talk about token performance in Q2. Right? So Q2, April through June, of course. I've got a chart up that was included in your report, Lucas, that shows token performance.

• 14:22Ryan Sean Adams?

  And we've got BNT, that's Bancorp, right?

• 14:26Ryan Sean Adams?

  We've got Lend, we've got Ren. These grew like the first two, they grew by over 500%. They did a 5X just in one quarter. Ren grew 2X, Synthetix almost 2X.

• 14:41Ryan Sean Adams?

  I mean, it's done a lot more this quarter, but like that's some pretty explosive growth. Is this growth deserved, Lucas? What do you think?

• 14:49Speaker 02

  Yeah, that's a good question. Had you asked me what the state of the nation is, I would have said mooning. Because these tokens just have been going off, like, most of them have increased by like triple-digit percentage gains. So it's just been, you know, wild. If you told me, asked me if you were deserved, that's a little bit more nuanced. Because if you look at like the fundamentals, like earnings have gone down by a substantial amount. This was largely due to Maker having this 0% stability fee, which drastically kind of reduced earnings in the DeFi sector.

• 15:25Ryan Sean Adams?

  Oh, so let's talk about that. So I've got the earnings chart open. So if you're on the podcast, I mean, check out the video. The video is where you could see this, visualize this stuff, or check out the report, you'll see this graph.

• 15:36David Hoffman?

  This is why we do the video.

• 15:38Ryan Sean Adams?

  Yeah.

• 15:38David Hoffman?

  Go, go to the video.

• 15:40Ryan Sean Adams?

  Go to the video. So we've got Q1 here, right? So look at the Q1 bar chart here. These are earnings, right? So to be clear, these are all of the cash flows that these DeFi tokens have actually generated. So real cash flows. We talked about this in our Chris Prinonce podcast. This is super cool. So Q1, the DeFi Protocols did 5.5 million in cash flows in one quarter, right? So that's annualized, it's about 20 million, right? Q2, it's down, this is what you're saying, Lucas, it's down to about 4 million. What's interesting about this is the bars, like the

• 16:20Ryan Sean Adams?

  tokens that make up that amount have completely changed from Q1, right? So like synthetics just almost evaporated. Maker, as you were saying, almost evaporated. They're tiny. Now, and, and other protocols, it looks like.

• 16:36David Hoffman?

  Yeah, there's no significant leader. Those are all pretty equal.

• 16:39Ryan Sean Adams?

  Yeah, so we see a drop, right? As you're saying.

• 16:44Ryan Sean Adams?

  But we also see great, far greater diversity in Q2. Is that, is that kind of what you're seeing too?

• 16:50Speaker 02

  Yeah, so we saw like a lot of notable new entrants, a lot of protocol upgrades in Q2. For one, we saw Uniswap V2 launch in May. We also saw the launch of Balancer. Ren launched on mainnet. Genosis launched their DEX. Loopring was launching their Layer 2 DEX. So we just saw like a lot of new entrants into the DeFi space, which, you know, in turn just made it a lot more diverse. But yeah, lots of new players in the space now.

• 17:18Ryan Sean Adams?

  And you said Maker is out because, because why? Because their stability fees, that's the interest they charge on their loans dropped to zero? And the reason it dropped is to try to stabilize DAI, is that right?

• 17:30Speaker 02

  Exactly, exactly.

• 17:32Ryan Sean Adams?

  Why did Synthetix drop?

• 17:34Speaker 02

  So Synthetix was kind of disproportionately reporting their earnings due to some front-running issues back in Q1 and early Q2. But I believe they fixed it for the most part. So now they're kind of reporting more accurate earnings, which is just a lot lower naturally.

• 17:52Ryan Sean Adams?

  Not all of these have tokens, I'm noticing here. Right, Lucas? So Uniswap V2 does not have a token that can capture that value. DYDX also does not have a token to capture that value. But the rest do. Is that another distinction you'd make?

• 18:11Speaker 02

  Yeah, definitely.

• 18:14Ryan Sean Adams?

  Okay, so very cool. So we've got real earnings, we've got massive price appreciation.

• 18:21Ryan Sean Adams?

  And you and Bankless, and I feel like Token Terminal and maybe a few others have pioneered this this additional look at relative valuations of tokens. That's super important. And that, that, that almost creates like a, a price to earnings ratio, right? So if you're analyzing stocks, maybe you talk about what a price to earnings ratio is in the stock world? And then how that relates to price to earnings in these DeFi tokens?

• 18:54Speaker 02

  Yeah, so a P E ratio is just like one of the, you know, basic metrics for valuing an asset. So really what it means at the core is that investors are willing to pay X dollars for every one generated by the company today. So what that means, let's say, Apple has a P E ratio of eighty. So investors are saying that they're willing to pay eighty dollars for every dollar earned by Apple today. And really what that measures is a future growth potential that the market believes that that asset has. So we can take that same framework and apply it to DeFi tokens, given that we had these cash flows.

• 19:37Speaker 02

  So, yeah.

• 19:38Ryan Sean Adams?

  So, so generally with P E's and stocks, you might see stocks that there's high expectations of future growth, like tech stocks. Those would have a higher P E ratio, right? It's not necessarily that they're overvalued, it's that the market expects them to grow faster, grow their. Grow into that valuation, right? Yeah, versus like a, a general electric or something, right? Which is like, I don't know, they're like. They're not ten X-ing anytime soon. They're not ten X-ing, there may be like a, an eight to a fifteen P E ratio, depending on the market. Whereas like a Netflix, that's going to be like a hundred or something like that. Wait, what's, how about a Tesla? Yeah.

• 20:23David Hoffman?

  Yeah, that's, that's the real one.

• 20:26Speaker 02

  Tesla's valued at two hundred eighty billion or so, and they don't even make any money. Right, so that's just like one of the nuances. And then like Zoom, which is just video technology that we're actually on right now, has a P E ratio of like twelve hundred or something like that, insane. Right, so like, when you're looking at these DeFi tokens and when you're looking at, you know, the addressable market, these are like open financial software accessible by anyone in the world. And then when you compare that to like Zoom, who's posting higher P E ratios than most of these DeFi tokens and it's video conferencing technology that's been around for twenty years. You just kind of see that there's massive growth potential ahead and like

• 21:07Speaker 02

  despite the fact that we're in the hundreds for a lot of these DeFi tokens, it's actually not that bad relatively speaking.

• 21:13Ryan Sean Adams?

  Yeah, so like what is a Netflix, for instance?

• 21:16Speaker 02

  Yeah, so Netflix, let's look it up.

• 21:20Ryan Sean Adams?

  I mean, I would guess somewhere in the in the current market like 100 range or something.

• 21:24David Hoffman?

  Eighty four.

• 21:25Speaker 02

  Yeah, it's about eighty four right now.

• 21:26Ryan Sean Adams?

  Okay, so that's eighty four P E. And we've got in this chart, we've got a Bancor at ninety two.

• 21:34David Hoffman?

  That's the lowest one, right?

• 21:36Ryan Sean Adams?

  That's the lowest one. The other thing that's interesting about this, I think, Lucas, is both protocols and companies can kind of, you know, dial up their earnings and dial down, right? Like, so Amazon went through a large phase, they're still in it at to some level, where they, you know, Bezos was just like, I'm going to recycle all of our profit. We're going to make zero dollars because I'm going to recycle all of our profits into making our prices the most competitive. And I'm going to do that to gobble up market share and get network effect and then basically own the world, right? So for many years, Amazon had like

• 22:17Ryan Sean Adams?

  zero profit or negative profit. But more recently, they've started to dial that up. And at any time, like, they could just dial that up and remain insanely profitable company. So P E can be a little deceiving on that level, too, right?

• 22:30David Hoffman?

  Right.

• 22:33Speaker 02

  Yeah, I mean, it's super interesting to think about that. Like, that can't really happen to the same level. I mean, I guess it could happen through like governance, right? Like, if you wanted to reinvest the earnings or the cash flows, like governance could, I guess, elect to do that. But it's definitely a much more like nuanced situation than something like Amazon or Bezos. It's just like, hey, we're going to reinvest all of our money. And we're going to post negative earnings.

• 22:57David Hoffman?

  I just want to appreciate the fact that we're actually having this conversation where like, and so, Lucas, like hats off of generating like a graph with P E ratios of all the DeFi protocols and now allowing us to make comparisons to the stock market, right? And like, being able to compare things to the stock market, which is like our foundation for evaluating stuff, is insanely just A, awesome, and B, I'm finally glad we're here. We're here now. Like, we can we can have these conversations. The fact that we're having this conversation, I think, is just insanely bullish.

• 23:31Speaker 02

  Yeah, I mean, big shout out to Token Terminal. They're really the ones, you know, behind this and the ones pioneering the P E ratio and aggregating all this data. So big shout out to them.

• 23:41Ryan Sean Adams?

  I'm going to pull this up, by the way. This is Token Terminal, guys. If you haven't seen it. So it will show you. Basic, more than just DeFi protocols, but a lot of crypto assets and their PE ratios and their earnings over time. They even put Ethereum, Ether and Bitcoin in this list.

• 23:58David Hoffman?

  Bitcoin has a super high PE ratio, 1100.

• 24:03Ryan Sean Adams?

  So this is what, dude, this is why Ether is just stupidly undervalued.

• 24:09David Hoffman?

  It's so undervalued.

• 24:10Ryan Sean Adams?

  It's stupid. Look, even if Ether is just a capital asset and you don't buy the Ethas money, economic bandwidth, everything we freaking talk about on Bankless, its PE ratio is 108. It's got a Netflix level PE ratio.

• 24:25David Hoffman?

  Yeah, and it's a global financial infrastructure.

• 24:27Ryan Sean Adams?

  A global financial system. Like, whatever. The market will figure that out. I'm just, I'm angry at this point because Ether is so stupidly undervalued.

• 24:37David Hoffman?

  The Tezos is valued at 41,000 PE ratio. Jesus.

• 24:44Ryan Sean Adams?

  Yeah, it's, well, so, so back to what we were talking about in the intro, David, right? So, I mean, do you think, like, good valuation of this stuff, Lucas and David, are going to, like, wash all of the, let's pick on Litecoin, because that's been a theme today, like, wash all of the Litecoin and XRP garbage down the toilet? And some of these assets will start to shine? Are we, like, starting to see, are we going to see a paradigm shift now that we've incorporated these valuation mechanisms? Lucas, go for it.

• 25:15Speaker 02

  Um, I think I would hope so. Over time, right? Like, we're still super early to this game. Like, Compound is like the only DeFi unicorn in existence today. It's valued at 1.5 billion. The rest of the DeFi protocols are valued at less than half a billion. So there's, there's a long road ahead. And I would assume that over time, the market would kind of realize that a lot of these assets are relatively undervalued and compared to like, the top 10, where there's billion dollar market caps and minimal earnings or revenues on the network.

• 25:49David Hoffman?

  Yeah, so I think that we are, it's possible that we are in a massive repricing event where all these DeFi protocols with real cash flows are just going to come into fashion into investors who are looking for something real to invest in. And it's like, why today in 2020 would you have a thesis on Litecoin or Cardano or XRP or Bitcoin SV?

• 26:18Ryan Sean Adams?

  And I say why?

• 26:19David Hoffman?

  Sure.

• 26:21Ryan Sean Adams?

  It's, I think it's because, and this triggers me, it's because they're operating under this like backward facing narrative of there's Bitcoin and altcoins, right? They're not operating under a narrative where there's three types of crypto assets, the asset superclasses, as we call them with Berninsky, right? So you've got crypto capital assets that are earnings and cash flow. You've got commodities which are based on supply and demand. And then you've got store of value of coins, right? They're, they're acting like Bitcoin SV and Litecoin, they're priced as if they're all store value coins competing for money.

• 26:59David Hoffman?

  Right.

• 26:59Ryan Sean Adams?

  Right? So it feels like that's why it's like the altcoin narrative. It's like this maximalist narrative that's not staying, keeping up with what's actually happening in the space.

• 27:10David Hoffman?

  Yeah, totally agree. And like I said, I think this is why I'm kind of cautiously optimistic about things that are already really highly priced in the DeFi world, things like Kyber, things like Synthetix, things like Maker and Compound, Ave, these things have gone on absolute massive runs, but they're still below a billion dollars. And like Bitcoin SV is three and a half billion dollars, Cardano is three billion dollars, Litecoin is 2.8 billion dollars. There's no reason why all the DeFi protocols can't be up there with them. If those are priced like that, the DeFi protocols can also be priced like that too. And I think this next cycle that we all believe that we're about to go through, we're going to see all of these, you know, theoretical store values that aren't real store values

• 27:54David Hoffman?

  like Bitcoin SV, Litecoin fall out of fashion because obviously they should. Or maybe I'm just biased. And then the DeFi protocols can step in because of the actual PE ratios and the actual fundamentals that we get to measure.

• 28:11David Hoffman?

  Or is that just too bullish?

• 28:14Speaker 02

  I mean, I think you're right on, right on the mark there. We shall see though, I think the famous saying is the market will stay irrational longer than you can stay solvent. So we can only hope that these DeFi protocols will realize the valuations that we have, you know, especially relative to some of the stuff that's in the top 10 valued over a billion dollars. We're getting there. It will probably take a while for that to happen, but we can only hope that it will.

• 28:41Ryan Sean Adams?

  Narratives still dominate, right, David? We should talk about ample forth, by the way. Narratives still dominate.

• 28:46David Hoffman?

  Yeah, narratives still dominate. Yeah.

• 28:48Ryan Sean Adams?

  So there's some, there's some other stuff in this report. Guys, you got to check out. Lucas does a breakdown by sector, so like Dex's just absolutely crushed it.

• 29:00Ryan Sean Adams?

  Both in Q1, but also in Q2. What, whereas, whereas lending sector was way down as far as earnings go. Compound kind of bolstered it up through yield farming. And then another sector to take a look at is derivatives, and that's basically synthetics right now. Although we've got some interesting new entrants like MC Dex, McDex.

• 29:25Ryan Sean Adams?

  Entering, entering the ring and I'm sure we'll see others. I think we'll see a lot of others. Lucas, anything else that you want to highlight from this report that we should be thinking about? What's, what's kind of the, the bottom line here for us?

• 29:41Speaker 02

  That's a good question. If I said anything that we're probably just getting started, this is a multi-year, multi ideally trillion dollar bull run that we're going through or that we think that we might be going through. And there's a long road ahead here. And equally as important, there's a lot of new tokens that have yet to launch. In the Dex sector, we have Curve. In the lending sector, BZR actually launched. Ave has an upgrade set for the next few weeks. We're seeing Uma Protocol in the derivative sector. So there's a lot of assets coming, you know, coming into fruition and that are going to launch in the next few months here. So just keep an eye out for them.

• 30:19David Hoffman?

  Sounds like what you're saying is there's plenty of room for growth.

• 30:23Speaker 02

  I did write an article called "The Trillion Dollar Case" for you, so plenty of growth ahead.

• 30:29Ryan Sean Adams?

  A world famous article at this point in time. And we've got right now, I love this chart. This is DeFi users over time. Richard Chen put this together. We're at about 260,000 DeFi users. That is the population of a mid-sized US city. So lots of growth ahead.

• 30:50David Hoffman?

  We're growing way faster than a mid-sized US city, that's for sure.

• 30:52Ryan Sean Adams?

  Yeah, the Bankless Nation is the size of the city of Richmond, Virginia, basically. So there's, yeah, there's a lot of, there's a lot of growth ahead.

• 31:05Ryan Sean Adams?

  All right, awesome. Lucas, thanks. It's been a pleasure, man.

• 31:08Speaker 02

  Awesome. Thank you guys for having me.

• 31:10David Hoffman?

  Cheers.

• 31:11Speaker 02

  Appreciate it.

• 31:12Ryan Sean Adams?

  Take care. All right. So Bankless Nation, go check out that report. It's fantastic. David, we should talk about our sponsors again before we get into the next few topics. Do you want to start?

• 31:26David Hoffman?

  Yeah, absolutely. So our next sponsor, your camera's off, Ron. Our next sponsor is Ample4th. We've talked a little bit about Ample4th so far in this episode. Ample4th is a base money experiment, and I really want to emphasize the experiment side of things. It is a very interesting token with this crazy mechanic called a rebasing mechanism, where it targets a dollar, but it targets a dollar slowly. And if the price is above a dollar, you will find that there will be more supply added to the total Ample4th supply to bring that price down, and then vice versa if it's below a dollar. And so it's some pretty crazy stuff happens around the rebasing.

• 32:08David Hoffman?

  But the point of Ample4th is that it's a non-dilutive M0 money experiment. And so it's like Bitcoin in the sense that it is non-dilutive. So when you purchase a share of the all outstanding Ample4th tokens, you are guaranteed to have that same share no matter what the supply is. So it's a, it's a supply elastic currency while it's also a price inelastic currency. So pretty interesting experience, experiment. Check them out at ample4th.org. Lots of cool little, there's a dashboard there to, so you can check out the state of the experiment and what's going on.

• 32:45Ryan Sean Adams?

  Also guys, if you are exchanging crypto, I want to tell you about our other sponsor, Diversify. So, gas fees are too high. It's very expensive to use DeFi exchanges on the base layer, but not with Diversify, because Diversify is built as a professional-grade, non-custodial DeFi exchange that operates in a layer two. So, it settles on the Ethereum chain, but all of the orders and transactions occur on a layer two that they've developed some incredible tech here. It really makes you wonder why use a centralized exchange

• 33:26Ryan Sean Adams?

  at all, when you can get a better experience on Diversify without giving up custody of your assets. So, we're talking 9K transactions per second, instant execution, and super-low fees. They also have the neck token, which is used for governance, and it will soon provide discounts to Diversify traders. So, that's something to check out as well. They were doing liquidity mining before with School, way back in 2018, and their exchanges is fantastic. So, check them out. Go to diversify.com. We will include a link in the show notes. All right, David, what do you want to talk about next, man?

• 34:07David Hoffman?

  I think we're talking about the morality of price go up, morality of pumping.

• 34:13Ryan Sean Adams?

  What? What? Morality of pumping? Didn't we just say, like, people shouldn't pump shitcoins? Like, what's going on? What do you say?

• 34:19David Hoffman?

  Yeah, there's nuance here, right? And so, and Bitcoiners figured this out very, very early, because there's an intrinsic relationship between the health and protective barrier of a blockchain crypto system and the price of its native asset, right? And I wrote about this in my most recent article, "The Protocol Syncing Global Public Goods", where I illustrated Ethereum is this platform for offering protection to applications, right? So, Uniswap, Maker, it needs to have self-sovereignty in order to be the things that they They are, right? Like a Uniswap or Maker Dow that is under state purview is not a Maker or Uniswap at all, right? So Ethereum offers protection to these applications, right?

• 35:04David Hoffman?

  It says you are allowed to be self-sovereign. You don't have to, you know, look to the nation state to to operate and have rules and regulations. You can use Ethereum for your rules and regulations and Ethereum itself is also self-sovereign. Ethereum gets its self-sovereignty from the price of Ether, right? And so Ethereum protects applications, but Ether protects Ethereum, right? And so when it comes to pumping ETH, quote unquote pumping ETH, there is some amount of like service that you are providing all applications on Ethereum by trying to make sure that Ethereum is as safe and strong as possible. And that that strength, the strength of the walls that protect Ethereum is reflected in the Ether market cap.

• 35:46Ryan Sean Adams?

  David, are you saying it's our patriotic duty as Ethereumians to pump the price of ETH? Is that really what you're saying?

• 35:54David Hoffman?

  I'm not not saying that, that's.

• 35:57Ryan Sean Adams?

  Wait, so so like I've I've gotten into debates on this and to be clear, like, so I think what you're talking about when you use the term pump, like you're using the term pump to be a little bit provocative.

• 36:08David Hoffman?

  It's a little facetious, yeah.

• 36:09Ryan Sean Adams?

  It's a little facetious. What you're actually talking about is

• 36:15Ryan Sean Adams?

  valuing the the token economics and value accrual mechanisms of Ether, the asset, highly and prioritizing Ether, the asset, not just Ethereum, the network, because the price of Ether, the asset, is what gives security to the entirety of the Ethereum network. So you're saying all good Ethereum patriots should want ETH price to go up, right? And you're not talking about like speculative pump so you could go dump on somebody.

• 36:45David Hoffman?

  Right.

• 36:46Ryan Sean Adams?

  Right? Like, like, I know you, you're holding this, you're holding shit for like 20 years, aren't you? So you gotta.

• 36:52David Hoffman?

  Until I die.

• 36:53Ryan Sean Adams?

  Graveyard, right? You're gonna stake, you're gonna like, that's your vision. So you're not short-term pumping. You're talking about long-term value accrual mechanisms. Did I get that right? Is that what you're doing?

• 37:06David Hoffman?

  Yeah, absolutely. Also, do you want to stop sharing your screen?

• 37:09Ryan Sean Adams?

  Yeah.

• 37:09David Hoffman?

  And so like, and I think there's an important nuance here where like, it, I think there's a relationship between the centralization of an asset or of a project and like how immoral pumping is, right? And so like, and again, Bitcoiners figured this out where if you replace like the Bitcoin army with the XRP army or insert X army here, like they're almost indistinguishable. The difference though, is that Bitcoin is fully decentralized. So there's no central orchestrator of the pump in the same way that like there definitely is for the XRP army, right? And so like Bitcoiners, if Bitcoiners are quote unquote pumping Bitcoin just as hard

• 37:49David Hoffman?

  as XRP people are pumping XRP, but the difference is it actually serves a purpose with Bitcoin, right? It serves a means to an end because Bitcoin actually needs to go up in order to survive. Whereas like if you are, if you're a centralized team and you have a large amount of the supply of a token, pumping that is nefarious, pumping that is malicious because they're probably, there's too many people that are just going to be enticed to dump, right? And the part about Bitcoin and like Ether is also very sufficiently decentralized. When these things go up in price, there isn't large bag holders, at least not in comparison to how there are for centralized assets like XRP, there aren't large centralized bag holders that are going to dump on people.

• 38:33David Hoffman?

  When it pumps, when Ether pumps, when Bitcoin pumps, it pumps for all of us, right? Not just for a select few. And that's, so the decentralization of a project relates to how moral it is to pump something. And I think Ether and Bitcoin are sufficiently decentralized where like it's not just pumping, it's like protecting the network.

• 38:50Ryan Sean Adams?

  Okay, so but from a community perspective, the Bitcoin community right now, they are very, very comfortable with price go up. Like, in fact, that's their main thing, right?

• 39:01David Hoffman?

  That's the whole thing.

• 39:02Ryan Sean Adams?

  The Ether community, Ethereum community. Is historically less comfortable with that, right?

• 39:09David Hoffman?

  Right.

• 39:10Ryan Sean Adams?

  So I think there are, there are many among us who are,

• 39:14Ryan Sean Adams?

  you know, saying things like, hey, the entire security of this thing. There's a economic report that came out last week for ETH2 staking, which basically said, this thing works if ETH price is high. It doesn't work if it's not, right? The entire security of the network, basically. There are some that are comfortable with that. But there's also, I think, a hmm taboo, I want to say.

• 39:36David Hoffman?

  Right.

• 39:37Ryan Sean Adams?

  Against talking about ETH price.

• 39:39David Hoffman?

  Right.

• 39:39Ryan Sean Adams?

  In the historically, in the Ethereum community. We had Vitalik on the podcast and he talked a little bit about potentially talking too much about price being a moral hazard. And it being a, an impediment to the progress of Bitcoin. So the criticism of Bitcoin is they've become so obsessed about price go up that they're willing to sell their soul to crypto banks. And, and not to, to not scale the network and not extend the vision. Cause all they care about is price go up. They're not building a network for the world. Right? I'm not saying I share that view. I'm just saying that's, that's a potential criticism that they've lost sight of the goal. What do you think? Do you, like, what do you think about this dynamic?

• 40:24Ryan Sean Adams?

  Do you, do you somewhat agree with it too? Or like, are you more Bitcoiner in that way?

• 40:29David Hoffman?

  Yeah, it's, it's a good question. And, and it is relevant to say that like Ethereum does have its centralized components. Right? Like Ethereum two is a, is a centrally coordinated endeavor. Like there's many different client teams. And so that kind of decentralizes, decentralizes the effort. But like we can, we have a list of people who are working on ETH two. Right? So that itself is inherently centralizing. We also have the EF, right? So I'm caught in between like a lot of these client teams that are building out ETH two. And a lot of the efforts for building out ETH1.x depend on ETH price. Because that's what's funding these things. At the same time, if Ether price goes too high, too fast, there might be like, you know,

• 41:10David Hoffman?

  There might be some jostling, there might be some like positioning, there might be, there's a lot more value to capture. And any centralized entity like the EF, like the people that are handing out money to client teams. There's now like a political component as like who's going to get that money. And so like having a little bit of money is like a nice balance because there's not a lot of, there's not much at stake. But at the same time, it would be nice if the EF had more money to pay for more salaries for more client teams. But then there's also the political risk of like who's going to, who's, how do we decide where that money goes? So it's all a balance. So I understand that like for, for one person that is trying to pump ETH, there's another person saying like, hey, maybe we're not ready for that yet, like maybe later.

• 41:55David Hoffman?

  Maybe when there's no one to like stop you, but, but right now I, I think there's a delicate balance between like, trying to, trying to pump ETH and trying to have like a smooth equitable network. Yeah.

• 42:07Ryan Sean Adams?

  Yeah. And the, the thing about Ethereum's token economics, it's scarcity economics is that its price appreciation, its scarcity is actually linked to network usage. In I think what could be a very, like a very nice virtuous cycle, right? So if your blocks are providing value to the world, that means your transactions on the Ethereum network. People will pay more for them, right? And you're creating more blocks as well. So you're going to have shards, so you're going to have more capacity, but people will pay more for them. And a portion of those fees goes into burning the actual Ether token itself. So usage of the network feeds back to scarcity of the ETH asset.

• 42:52Ryan Sean Adams?

  That seems to me, and I've heard people argue, argue this, to be a very,

• 42:59Ryan Sean Adams?

  not non-pumpy thing to do, right? It, it seems like, it's like, wow, this is an economic network that is actually increasing the utility of its blocks. The value of its blocks and the real world usage of its blocks to scarcity of its asset and pumping the price that way. I mean, to me, that's like a, like when you view it like that, and by the way, we're talking about EIP 1559. It's coming to what could be coming to ETH 1. But when you view it like that, I mean, That's a very low pump thing to do. Compare that to like XRP Army or like, you know, Link Marines.

• 43:36David Hoffman?

  Yeah, but like the pumpiness is a solution for having no fundamentals, right? Like, that's, that's what that is. And so the more we bake in fundamentals, the less we have to have this conversation, right? And so we integrate EIP 1559. And now there's nothing left to like for, for people like you and me to rally around to like, "Hey, let's pump ETH. Let's find a new way to pump ETH." Like, no, like it was 1559. Now that's live. And then there's also staking live. And now the only way to pump ETH more is by supporting DeFi protocols that add more economic activity to Ethereum, which the only way that that's going to happen is by providing a real world use case,

• 44:16David Hoffman?

  a real world utility to people that want to use that DeFi protocol. So like, we get to shut up and move on. Be like, we don't have to talk about EIP 1559 anymore. We don't have to talk about ETH price. We can just talk about like how these DeFi protocols are helping change the world. Because in the background Ethereum gets the protection it needs because of the fundamentals of EIP 1559. And this just fits right into the conversation we were having with Lucas earlier, where like, and this is just the whole narrative of I think 2020 is like, there are now real ways to evaluate and value these things. And like, that's, and that's what pumping is for if you don't have that. And so like pumping is for trying to replace some sort of real world valuations, real world meaning.

• 45:02David Hoffman?

  If we have real world metrics and valuations and cash flows, et cetera, which is what EIP 1559 is and staking, then we don't have to have this nebulous, "Let's pump ETH" conversation. We can just talk about like, this is how much is worth.

• 45:17Ryan Sean Adams?

  Yeah, absolutely. I agree. I think that what, what we're probably agreeing on and saying is ETH price go up is fundamentally good. We need that in order to secure the open financial network of the world. Low ETH price is bad net from a utility to the, to the world perspective.

• 45:37David Hoffman?

  The world is a worse place with low ETH price.

• 45:39Ryan Sean Adams?

  It is. So if you if you are supporting kind of the entire movement of bankless and DeFi, this is what I can never get around. It's like if you're supporting that movement, we need a trustless store of value. We need trustless economic bandwidth. We need a non-sovereign source of money at the M zero, at the base layer, or this whole thing doesn't work. A government can just push the button and like deactivate the entire thing. That's the same as the traditional system.

• 46:08David Hoffman?

  That's why everyone's getting scared about USDC and DeFi.

• 46:11Ryan Sean Adams?

  Right, exactly. So anyway, there is some morality to price go up, certainly. Maybe not to short-term pumping because you're going to dump on someone based on the knowledge you have. Certainly not that, but long-term value accrual, the morality of that, I it checks out for me, man. So I'll keep doing it. All right. What else do you want to talk about, David?

• 46:35David Hoffman?

  I think we should talk about the relationship between tokens and ETH, Ryan.

• 46:38Ryan Sean Adams?

  Oh, okay.

• 46:40David Hoffman?

  You want to, you want to, yeah, take us.

• 46:43Ryan Sean Adams?

  Well, so one interesting thing that happened last week, which is not surprising at all to me, is that the asset value on Ethereum, the asset value of tokens on Ethereum, that is.

• 46:55David Hoffman?

  Aggregate, yeah, the aggregate.

• 46:56Ryan Sean Adams?

  Aggregate ERC20s actually passed the value of ETH, right? So I've got a graph somewhere I could show, but it's something like, something like, I don't know, 25 25 billion each was was the number at the time, something like that. And so what does that mean from your perspective, David? So now we have ERC20 tokens that are worth more than the value of ETH. So Camilla put this out, this tweet out. By the way, Camilla's book back there, Infinite Machine, pick it up.

• 47:35David Hoffman?

  Read it.

• 47:35Ryan Sean Adams?

  Read it. It's great. I just finished it. It's history of Ethereum. She said that this disproves, or it could disprove, the fat protocol thesis. It's a challenge to the fat protocol thesis because tokens are capturing more value than apps. What's your take on this?

• 47:57David Hoffman?

  Yeah, and this just fits in so well to the previous conversation where like, I bet this wouldn't have happened if EIP 1559 and staking was a thing. However, I will continue to be of the opinion that like, the more valuations of tokens that are on Ethereum. And like, I don't even think that the fat protocol thesis means that the native asset of a chain, Ether, actually has to be greater than the aggregate of total tokens on Ethereum. It just means that like, the more value of tokens on Ethereum, the more Ether price is going to be. And the frustrating thing I think about Ether, you know, people like you and me that have Ether.

• 48:39David Hoffman?

  We want the valuation of DeFi to be like one-to-one tracking with the valuation of Ether, but it just doesn't do that, right? I think Ether is a huge lagging indicator for DeFi, right? And so while the current volume or current aggregate market cap of all tokens on Ethereum is surpassing the Ether price. Like, that narrative just gets flipped the moment Ether goes from like $230 to like $300 or more, right?

• 49:04Ryan Sean Adams?

  When's that happening, David?

• 49:06David Hoffman?

  Tomorrow, so.

• 49:10Ryan Sean Adams?

  But it is happening?

• 49:11David Hoffman?

  Well, okay, I mean, it could, right? And so like, the larger market cap on Ethereum, like, Ether is just proximate to it. And at the very least, like, that proximity is going to benefit it to some degree, right? I think EIP 1559 and staking closes that loop and makes that relationship happen faster. But I do think that relationship is present no matter what. It's just a lagging indicator right now.

• 49:38Ryan Sean Adams?

  You know, another thing, so part of the concern, there's been a concern for a while, I think. That, well, if ERC 20 tokens, if they exceed the price of Ether, the aggregate price of Ether too much, that means they're no longer secure, right? Like, the value of Ether is not enough to secure the tokens on top. But on this, I've got to disagree because I don't think that most people are making the differentiation that we like to make when we talk about settlement guarantees, for instance, and this is so crucial for people to understand. So Messari put out this, uh, am I sharing my screen, David?

• 50:19David Hoffman?

  Yes, you are.

• 50:20Ryan Sean Adams?

  Okay, Messari put out this, this is Ethereum versus Bitcoin daily settlement value, okay? And Ethereum is now higher because it settles more on a daily basis of both ETH and ERC20 tokens in aggregate. So it's settling more than Bitcoin. But I actually disagree with this, okay? Because what's counted in this number, in the Ethereum number, is all of the, the 10 billion or so ERC20 bank issued stable coins.

• 50:51David Hoffman?

  Right.

• 50:52Ryan Sean Adams?

  Okay? It's super important to remember that, uh, bank issued stable coins are not actually settling on Ethereum. They're not. They're settling in the traditional financial system. These are IOUs for money in a bank account somewhere.

• 51:07David Hoffman?

  Right. The IOUs do settle on Ethereum, but that's not the final settlement.

• 51:12Ryan Sean Adams?

  It's not the final settlement.

• 51:14David Hoffman?

  Settlement layer, like it's still the legal system.

• 51:16Ryan Sean Adams?

  So it doesn't, so it's using the security of the legal system. Now, it's using the, um, the transport layer of DeFi and crypto, which is super useful, but it's not actually being settled on Ethereum, just the IOUs are being settled on Ethereum. This is different, like Bitcoin is completely settled on the Bitcoin network when there's a transaction on Bitcoin. Ether is completely 100% settled on the Ethereum network when there's a transaction on Ethereum, right? So, um, I think people don't make this distinction. What, what's really important, what's more important is that the, the trustless assets, like, like Ether, for instance, or but like ERC20s

• 52:00Ryan Sean Adams?

  that aren't, um, issued by a bank somewhere and settled in, in meat space and legal space. It's really important that that value, those ERC20s, maintain some ratio with the value of ETH, or else you could get into a situation where, you know, you lose the, the security of Ethereum is not enough to keep pace with all of these digital bearer assets. Does that make sense? I, I just feel like, um, a lot of people maybe don't understand that subtlety.

• 52:28Ryan Sean Adams?

  But I think they should.

• 52:29David Hoffman?

  There's nuances that go even further than that, right? Like, I do agree with you. I do want this broken out in between like native Ethereum assets like MKR, you know, Kyber, AVE, all the things that are native to Ethereum.

• 52:41Ryan Sean Adams?

  Yeah.

• 52:41David Hoffman?

  And then also the non-native assets, largely USDC and Tether. However, there is some, these things do settle on Ethereum to some degree, right? Like, so I think if Balancer was hacked, or Uniswap was hacked, or somebody got hacked, and somebody stole a bunch of USDC, I think it's pretty reasonable to think that that hacker made off with that USDC.

• 53:06Ryan Sean Adams?

  Do you think so?

• 53:07David Hoffman?

  Yeah.

• 53:07Ryan Sean Adams?

  So, here's what I think would happen. I think Coinbase would just freeze the account.

• 53:11David Hoffman?

  You think so?

• 53:11Ryan Sean Adams?

  Oh, yeah, dude. You know, like, so, you know the Twitter hacks last week? They sent out a, or they had to log into Coinbase mobile, and they basically said, the Bitcoin address that the Twitter hackers used has been, you can't send anything to it.

• 53:27David Hoffman?

  Yeah, it's gonna happen too fast, though, right? So like, say, say somebody drained some account, I don't want to pick on any particular DeFi protocol, but somebody drains some DeFi Protocol's account of USDC, they immediately go to Uniswap and sell for Ether.

• 53:39Ryan Sean Adams?

  I think that's possible. Well, so, but what are they doing? That's interesting, right?

• 53:43David Hoffman?

  That's a good point. Yeah, that's a good point.

• 53:45Ryan Sean Adams?

  They're swapping for Ether right away. Because Ether is the cash you can get away with, because it's the base settlement layer.

• 53:51David Hoffman?

  Right.

• 53:52Ryan Sean Adams?

  You don't want USDC.

• 53:53David Hoffman?

  Yeah.

• 53:53Ryan Sean Adams?

  You want Ether. You want DAI, something with stronger settlement guarantees.

• 53:57David Hoffman?

  Yeah. Closing that turnaround time for hacked protocols with centralized assets. I mean, it's also at some point, like, does Circle or Tether really actually care that much? Like, they don't really lose money. Like, they may, and like, they don't really have too much responsibility to...

• 54:15Ryan Sean Adams?

  It's true. It's true. Yeah, it's true.

• 54:17David Hoffman?

  That's gonna, like, that's going to happen, and that's gonna be interesting.

• 54:20Ryan Sean Adams?

  Oh, I think so. Like, let's say, let's say Compound was hacked right now, and you knew who the hacker was, right? And they made off with a whole bunch of USDC, and Coinbase had time. What'd they do? Bam, Blacklist's account, assets frozen.

• 54:34David Hoffman?

  Right.

• 54:35Ryan Sean Adams?

  Refund to sender. They'd almost be, as a company, it would almost be their fiduciary responsibility to do that. If you didn't do that, you'd get sued in legal space. Right?

• 54:45David Hoffman?

  Like that would be a very interesting court case.

• 54:48Ryan Sean Adams?

  If I lost my money and Coinbase had the ability to give it back to me, but didn't. That feels definitely like a lawsuit.

• 54:55David Hoffman?

  Sure.

• 54:56Ryan Sean Adams?

  For somebody.

• 54:57David Hoffman?

  Yeah, then then we get into the whole code is law debate like was it a hack or was it an exploit? Or, you know, did it actually use the code as intended? There's, there's a lot of dirty, dirty hairiness there.

• 55:09Ryan Sean Adams?

  I agree. I just think that if you're not settling on Ethereum, you know, fully, for instance, or on Bitcoin fully, that there's, it's not, it's not truly settled, right? There's all this room for ambiguity. And yeah, we're not like, we're not considering that as much when people look at, you know, ETH security. Anyway, I do think that fat protocol is right personally, at least for like money protocols.

• 55:38Ryan Sean Adams?

  You know, not, not necessarily for any protocols like, but I think directionally it was right. And I guess we'll, we'll see. I don't know what you think about that, but.

• 55:48David Hoffman?

  I, I think the fat protocol thesis is here to stay until, until some ERC 20 token passes the market cap of Ether. Like that's like a single ERC 20 token, not all of them, right? Like, I think the fat protocol thesis is pretty flexible.

• 56:04Ryan Sean Adams?

  Is that going to be ample for it, David?

• 56:06David Hoffman?

  No, it's not going to be ample for it. Although that would make me happy. No, no, no, no, no.

• 56:16Ryan Sean Adams?

  All right. So maybe, maybe lastly, just because, just to tease kind of meet the nation, right? So I have some questions about ample forth.

• 56:26Ryan Sean Adams?

  And full disclosure, they're a sponsor of the show.

• 56:28David Hoffman?

  The reason.

• 56:29Ryan Sean Adams?

  By the way. The reason, oh, shoot. Okay. The reason we took them on as a sponsor is because,

• 56:37Ryan Sean Adams?

  is because essentially we could talk about.

• 56:42Ryan Sean Adams?

  We can talk about them the way we want to talk about them, which is as a monetary experiment. And I do think it's a fascinating monetary experiment.

• 56:52Ryan Sean Adams?

  But it doesn't, it doesn't have, like, the whole rebasing idea kind of

• 57:01Ryan Sean Adams?

  throws me for a loop because the supply can change on a daily basis, right?

• 57:05David Hoffman?

  Yeah.

• 57:06Ryan Sean Adams?

  But this is just-

• 57:07David Hoffman?

  Supply is volatile.

• 57:09Ryan Sean Adams?

  Yeah.

• 57:09David Hoffman?

  Price is less volatile.

• 57:11Ryan Sean Adams?

  But if you buy like whatever units, X units of ample forth, right? Let's say you bought your whale, you bought 1% of all ample forth in existence. You always own 1%, even though the units will actually change on you. Is that, is that right?

• 57:26David Hoffman?

  Yeah, the, the units will go up and down, but you will always have the same percentage of the market cap that you bought at the time you bought it.

• 57:32Ryan Sean Adams?

  Okay, so it's similar almost to like Bitcoin's 21 million. Right? So Bitcoin has 21, like 21 million when it's fully diluted. And then, you know, sort of ample forth, but I don't know that everyone understands that because people are hitting my Twitter, you know, DMs and such and saying things like, um, yeah, the, like, this is a coin that just expands.

• 57:58Ryan Sean Adams?

  You know, it, it's, it's completely different than Bitcoin or Ether. It's a coin that just sort of expands based on demand of the coin and sort of, you know, tethers itself to a dollar. I don't, I don't know that they fully understand the supply dynamics.

• 58:11David Hoffman?

  I'm also skeptical of, of how much people actually understand, uh, understand it. And like, it's one of the things like, maybe, maybe I'm missing something, but I don't think I'm missing anything. I, I think it's a cycle, I, I think what's happening is a very interesting psychological trick based off of how we're not used to having stable price and volatile supply. Everybody in crypto is used to stable supply and volatile price. This is the inverse, but the fact that those things are inverse doesn't actually change much. Like, it's still pretty, it still follows the same laws of, of supply and demand. And like, and, you know, there's, there-

• 58:51David Hoffman?

  There's a case to be made where you can just mint it in normal ERC 20 token, have fixed supply, and it kind of fulfills the same M0 experiment as Ample4th, except it just doesn't have this rebasing mechanism to keep the supply volatile and the price relatively stable. And so it's really up to the Ample4th team to like, figure out how to extract utility and value out of the rebasing mechanism, because you don't get stability in your value from Ample4th, because the market cap is just as volatile as any other cryptocurrency. It's just that it's taken the volatility from the price and put it into the supply, but there's still volatility, it's still present, right?

• 59:33Ryan Sean Adams?

  Yeah, so if I own 1% of Ample4th, going back to my whale example, that could be worth $1,000 today and $20,000 tomorrow and $10 the next day.

• 59:43David Hoffman?

  Yes, and the Ample4th token will still roughly be around a dollar.

• 59:48Ryan Sean Adams?

  Right, because it adjusts daily. Yeah, so I think the way I understand it is the way you understand it. So I would be super interested to hear in your Meet the Nation, like more about that and you guys to dive into that, like, because maybe that's what it is, and if that's what it is, it's still an interesting money experiment, because no one's doing that as an ERC 20 today.

• 1:00:11David Hoffman?

  Yeah, absolutely. It's all about like, how does the rebasing mechanism actually like, how can we leverage that in ways that are useful, that you couldn't just leverage with a minted ERC 20 token? Like, what are the ways that users can actually use the rebasing mechanism to their advantage? And like, I think we, I think it's pretty fair to claim that like, we know that the market doesn't understand this, because I've been watching the rebasing mechanism on Uniswap, and people, when the price rebases, and what this means is that new supply is added to everyone's wallets equally, right? So you can watch the supply in your wallet change, right? After the rebase, every 24 hours. And when this happens, people rush to Uniswap to buy the cheap coins, but that's a total psychological fallacy,

• 1:00:55David Hoffman?

  because they're still buying the same percentage of the market as they were right before the rebase. And so like, we know the market doesn't understand this, because they're falling to the psychological trick, right? And so like, I don't think Ample4th is really going to stabilize in its market cap until the market understands this and stops succumbing to the psychological trick.

• 1:01:18Ryan Sean Adams?

  And you use the term psychological, you know, trick, right?

• 1:01:24Ryan Sean Adams?

  But at some level, it goes back to like, isn't 21 million in the scarcity meme a psychological trick?

• 1:01:30David Hoffman?

  Totally, totally. That's why this is such a fun experiment.

• 1:01:33Ryan Sean Adams?

  A psychological trip to boot, a trick to bootstrap money, basically, right? So because money is inherently social.

• 1:01:41David Hoffman?

  Right.

• 1:01:42Ryan Sean Adams?

  In order to create money, you have to have a good meme, do you not?

• 1:01:47David Hoffman?

  100%, 100%. And this is why I'm happy with Ampleforth being a sponsor of Bankless. Because the difference between a monetary experiment like Ampleforth working and not working is how well can they distribute their token? How well can they get awareness? Because money, if money is a meme, awareness is everything, right? Understanding it is everything, right? And so, you know, while like, I've personally gotten some flack about like saying that Ampleforth is legitimate from some people who are hyper skeptical, I'm happy to do what I can to help them do what they need to do to spin out what could be more than an experiment one day.

• 1:02:26Ryan Sean Adams?

  Well, I think a lot of Ethereum's are uncomfortable with the idea of money as a meme, to be honest. And they want even the value of Ether to be bootstrapped, not just because of a meme, but because of its raw utility. Back to our conversation about 1559.

• 1:02:44David Hoffman?

  We've been talking about this all episode, right? Like, it's great because we're getting the fundamentals. However, there's always going to be the meme layer. There's always going to be the meme layer.

• 1:02:52Ryan Sean Adams?

  It can't not be. And I've always thought that the meme layer is where you derive

• 1:03:00Ryan Sean Adams?

  the highest level of security, right? So if you are a meme coin, like...

• 1:03:09Ryan Sean Adams?

  You have to compete as a meme coin in order to be one of the highest value crypto assets in the world.

• 1:03:17David Hoffman?

  To me, the meme coin or the meme side of things is just another word for monetary premium.

• 1:03:23Ryan Sean Adams?

  Exactly.

• 1:03:24David Hoffman?

  And so Bitcoin is like almost completely 100% monetary premium because there's not much utility there. Except for like, you know, the proof of work is its utility, the seizure resistance is the utility. But memes are based on fundamentals, right? So there's a relationship between the fundamentals and the meme.

• 1:03:43Ryan Sean Adams?

  Well, so the meme creates the fundamentals, right? Because I would argue also.

• 1:03:46David Hoffman?

  No, I would say it's the other way around.

• 1:03:48Ryan Sean Adams?

  Okay, well, so maybe they're both related, right? So, because so I would argue right now, anyway.

• 1:03:54Ryan Sean Adams?

  Bitcoin is also useful because it's so liquid, right?

• 1:03:57David Hoffman?

  Right, yes.

• 1:03:58Ryan Sean Adams?

  So it means itself, it means itself into liquidity.

• 1:04:01David Hoffman?

  Into reality, right, totally.

• 1:04:02Ryan Sean Adams?

  Right. And because of that liquidity, it's now actually useful. Because I can use it as a trading pair almost anywhere, because I can, you know, hold it. And a reasonable amount of crypto banks or individuals will accept it as real value. So like, it's like a cycle where it creates its own value.

• 1:04:19David Hoffman?

  Sure, yeah, yeah, you can't have one without the other. So maybe it's a chicken and egg thing where the order doesn't really matter, but you do need both, right?

• 1:04:26Ryan Sean Adams?

  You do need both, absolutely.

• 1:04:27David Hoffman?

  And so like the utility of Ample4th is this rebasing, stable-ish mechanism. And it's really up to the Ample4th team to find ways to leverage that. Because like, that's great that that's that utility, but they have to derive value from that. And that's really the innovation behind Ample4th that needs to happen.

• 1:04:45Ryan Sean Adams?

  All right, so I create an ERC20, David, it's got fixed supply. And it's money, damn it. It's base, it's base money. It's M0, right? The bankless dollar. Are you in? Can we mean this thing to money? Is that, is that how it works? I guess the question is like, if, if Ample4th is doing this, right? What's to prevent, this is the old question with, in the Bitcoin community with people who are you questioning the value of Bitcoin, what's to prevent everyone to do it? Everyone to create their own money and kind of outcompete it or dilute its, its meme? Because I'm just competing with, you know, the bankless dollar or whatever.

• 1:05:23David Hoffman?

  Yeah, I mean, we saw that happen. That was what 2017 was. 2017 was like make your own money. And that's why Ethereum blew up in 2017 because it was a platform for making your own money. Right? Obviously, it didn't work out too much, but many things did survive. I wouldn't say that very many monies survived, but I guess Litecoin counts. I guess it's like two and a half billion dollars. So I guess that kind of counted. But I guess also didn't come from 2017. I mean, it's partly one of the reasons why we are so optimistic about the future of DeFi is because anyone can spin up their own token and ascribe some amount of value to it. Whether that token turns into global money is a different conversation. But like, I'm sure if we spun up bankless coin, bankless token,

• 1:06:08David Hoffman?

  there's some ways that we could describe value to that that would generate a market cap and then generate some meme layer on top of that as well. Like, there are things that we would, there's tools at our disposal that we could use.

• 1:06:21Ryan Sean Adams?

  My question, as you do the Meet the Nation is regulatory. So Ben Hunt says, don't come at the state with, you're saying your thing is money because the state will dominate you.

• 1:06:36David Hoffman?

  That's a big threat.

• 1:06:37Ryan Sean Adams?

  That's why Satoshi was anonymous, right? Anyway, super interesting discussion, David. Yeah, I think we should wrap it up here. If there's one thing I hope the bankless nation got out of the state of the nation, it is this. Do not buy Litecoin.

• 1:06:58Ryan Sean Adams?

  Just kidding. I mean,

• 1:07:00David Hoffman?

  It's going to zero.

• 1:07:02Ryan Sean Adams?

  No, I mean, don't bet against narratives, I guess. I mean, we have no comment about Litecoin. But what you should do as far as actions is check out the report by Lucas. It's absolutely fantastic. Take a look at Token Terminal. We will include those things in the action list. And then also check out State of the Nation. New episode releases today. So it should be available by the time or close to the time that you watch this. David, anything else I'm missing on the action items?

• 1:07:31David Hoffman?

  Nothing from me, except for stay tuned for the future Meet the Nations that are coming. One will be coming this week.

• 1:07:37Ryan Sean Adams?

  Awesome. All right. State of the Nation, Episode 6, The State of the Nation is Exponential. Thanks a lot for joining us.