A (6:47)

I'm thankfully not now. I think that's. That's the beauty of it.

B (6:52)

Right. So by by way of background, I think AAVE hate, or Mark Zeller in particular, hates Gauntlet and has gotten to very public fights with, with you guys before.

A (7:01)

Yeah, over. I, I would say, I would say I do think this is sort of why a lot of the newer DEFI protocols have gone different directions. But I guess this was like kind of always an undercurrent. For a while, to be honest. Like Even back in 2022, 2023, I think like the friction between and BGD who sort of view themselves as the main steward of the stewards of the DAO and Avara were like sort of latent. They weren't like, you know, I, you know, you gave this description just now where you're like, everything was great and all of a sudden it was bad. But like any long standing fight in a complicated relationship where people are friends and enemies and back and forth, it, it's, it's, it was brewing for a while, I would say. And I think there was kind of this feeling and you can see it in some of the comments. So like this is not me saying, I'm not saying any opinions because I having been in enough DAO fights, I'm kind of, I prefer being on the sidelines and the bleachers. But you can see a lot of people say, hey, there was this appearance that AAVE Labs kind of stepped away from aave, the protocol for a while, especially when they kind of changed their name. They were running Lens Protocol, they were doing all this other stuff and then kind of came back later to do v4, whereas v3. And the stewarding was kind of done by the DAO providers. And so there's, I think this, this animus goes back a lot longer than just like, hey, we want the IP now. I think the Cal swap thing is kind of weird to me because it's sort of. I remember when the Paradex integration, so like before basically AAVE had the swapping feature which was using Paradex, which is the small Dex aggregator that realistically has, was like kind of probably would not exist at all if AAVE wasn't routing order flow to them. They're really tiny. So eventually obviously the prices just got bad so they had to pick a new one. And so I don't really know how these front end wars end. I do think an interesting parallel is of course the Uniswap one where they just had the unification vote and now the DAO and company are sort of the same. But for many years Uniswap Labs, the company would constantly get the same type of criticism, right? Like, oh, Uniswap X, like the fees go to the company, not to the protocol. So the LPs are getting rugged. And I think the funny thing is like this entire set of like Uniswap and AAVE sort of switching sides on this has made a lot of the anons who love commenting and being kind of assholes on the Internet about this stuff. Very confused because, like, a lot of them are like, I've hated Uniswap for so many years. They've been robbing the LPs and like, now they're like. And a lot of them were like, AAVE is the best run dao in history. And I've just observed their Twitter presences become completely confused as to what side they support anymore. And so I think these things are kind of complicated. I don't know what it means for a DAO to own IP off chain fully, to be honest. I don't really understand how you would reconcile.

B (10:26)

Don't think the daos usually own the ip. Like, they usually own the trademark and the like. For the foundations, usually. That's what happens, right?

A (10:34)

No, no, no. Foundation. Yes. Foundation. Yes, but.

B (10:38)

Right, but the foundation is supported to the dao. Isn't that usually how foundation charters are set up?

A (10:44)

Yeah, but it's like, what jurisdiction are you going to make the IP claim in? Like, do you want to make in bvi? Do you not want to make. Yeah, there's no foundation.

B (10:59)

There's no foundation. I see. Oh, I see.

A (11:01)

So remember, they're kind of. And I mean this in a good way. Right? They're a cockroach. Right. Like, they ICO'd in 2017. So they kind of have a different story than all of these people who are foundation labs. It's like, more structured because, like, at that. And so, like, there's a lot of idiosyncrasies that come from that that are not so obvious. But I do think there's sort of this weird thing where, like, no one has really tested a lot of this stuff legally. Like, I don't know why I'm blanking on his real name, but his Twitter name, lexnode. The lawyer, Gabriel.

C (11:38)

Gabe Shapiro.

A (11:39)

Gabriel Gabe, yeah, yeah, sorry. We had him on the show, so I feel bad. Brain fart. But I think he had some. He has some interesting points about the idea of, like, no one has really challenged a lot of this stuff, and it's not totally clear what happens. You can make different suppositions, but I don't know what it means for the IP to be used in an aggressive lawsuit by someone who has valuable ip, because I kind of think a lot of the foundations don't have IP and a brand that's anywhere near as valuable as aave. So we haven't tested something as big, in my opinion. I mean, maybe the L1s kind of do. The L1 foundation, but honestly, I think AAVE just has a better brand than them and probably more people know.

B (12:25)

I mean, Ethereum IP is owned by the Ethereum Foundation. Right. And isn't the bitcoin? Yeah, wasn't that true for Bitcoin at some point?

C (12:33)

I don't know about Bitcoin, but I think Maker, if I remember also had like a trust that owned the IP that then was the trustee basically had to obey the votes of the DAO holders. So it's like sort of another roundabout way to have the DAO owned ip. But I actually have kind of a different take on this. I think this is actually different from the Uniswap drama and that the Uniswap drama I think was very clearly a sort of bright line of where is value going to accrue? Is it going to go into the LABS entity or into the foundation or into the dao? And I think it stung especially because there was this whole multi year debate over, you know, when is there going to be a fee switch for uni, when do uni holders get paid? And then it was like, oh, actually in the interim the Labs team is actually going to eat first and then maybe at some point uni holders get paid. And it's clearly cannibalistic with LPs and token holders. Right? Like charging an incremental fee on top of your existing swap. Clearly that hurts the price and execution and uni competitive. So it's like clearly there's a fixed pie and you're trying to divvy it up and that's know, painful. This is like a actually totally different use case and work stream than like core AAVE lending. Like I think if AAVE Labs were skimming bips from yield that should be going to lenders or borrowers or to the dao. I would totally empathize. But this is like why does the DAO have a right to what this website is? You know, earning from swap fees? Like the DAO is not the protocol has nothing to do with swap fees. It's not a dex.

B (14:06)

The argument is that like the aave.com brand should be owned by the DAO and it's by virtue of being the aave.com brand that they're getting this flow. If they Instead were like Avara.com, then I don't think anybody would complain that like, okay, they're making money on swap fees.

C (14:23)

I mean that feels a bit pained I guess. Like, sure, you could, you could, you know, maybe make that argument, but it's not like, oh, these are Fees that are not going to the dao. Like, the alternative is they just shut down the fees and then no one gets the fees and. Or they shut down the feature and then no one gets those fees. So in my mind, it's like a totally different work stream than the actual core protocol. So I mean, I hear you on the IP monetization, but that doesn't even seem like what they're talking about. They're talking about the cow swap fees. Like, I don't think nave IP in.

B (14:51)

Some very good thought experiment. It's a very good thought experiment because I think if it was avara.com, nobody would complain. Right? And I think it's probably even true that if Avara.com were the main way that people went to AAVE, I think people would be less inclined to complain. They'd have a much stronger case to stand on. Right. It's uniquely because it is aave.com and that is where everybody goes. And in most cases, what most people expect from a DAO is that these assets are owned by a foundation that is basically a not for profit, that's purely subordinate to the DAO or the token holders. Right. And AAVE has this weird quirk. It was built a long time ago. This is pre foundation era. The legal structuring that everyone kind of imagines is the way that this is supposed to work. It's just not the way that it works in aave. In aave, there is no legal entity, I guess, or maybe there's some small legal entity that's kind of a backbone for the dao. But for the most part, the Devco owns a huge amount of the assets that normally would be owned by a foundation. Right. And that creates a subversion of expectations from what most people would expect to be the way this works is that maybe the Devco is licensing this from the dao. But no, that's not the case. The DAO has no claim over the ip. The DAO does not own the name aave. AAVE Labs owns the name aave. AAVE Labs has all the rights to all the cash flows from the copyright and so on. And if they choose to give some of that money to the AAVE dao, they're doing it out of the goodness of their hearts and in violation potentially of their fiduciary responsibility. Right. If they have their own shareholders. So I can see why this is a weird setup. Now, I think that's a very good point that you made, tarun, which is that this is not the way the DAOS look, today almost any modern dao is structured totally differently than this where the IP actually is owned by a foundation that is a not for profit. And if there is an attempt to build a profitable, like a for profit company, like I'm going to build a mobile wallet, I'm going to build a whatever, some other thing like an all in one defi neobank that has a swap function as well as, you know, routes you to AAVE and blah, blah, blah. I think everybody would be like, yeah, cool, great, try to build a profitable business on top of this protocol. But the protocol itself owns the back end as well as the front door. Right? The weird thing about it is the fact that it owns aave.com and that they're monetizing people's access to aave.com and that was the same constraint I had, the same issue that I had with Uniswap because so much of the volume into Uniswap was going into the front end. If they just created Uniswap X, I'm actually okay with Uniswap X not going to Uni Token and I'm also okay with the Uniswap Wallet not going to Unitoken. Like if they were making money off the Uniswap wallet, fine, they built a mobile app. That's hard. It's not obvious to me why token holders should have a claim on the revenue that's made by a mobile app. But uniswap.com is unique because it is the front door and it is what everybody associates with the brand equity of Uni Token and Uniswap, whatever. To the extent that people expected that's what they were buying, that's what they should get. That seems like the right answer to me. And so I think Avara should be free. Look, it's weird because of the fact that everybody knowingly came into this situation, right? That's what makes this situation unique, is that if you've been in AAVE Dao for a while, obviously I don't spend a lot of time looking at AAVE politics. If you've been in AAVE politics for a while, you know this, you know that AAVE Labs owns the ip, they own the code, they have the copyright, they have the domain. Um, so you, if you bought aave, you bought it knowing this, right? Hopefully, presumably. And so maybe the best argument here among all of this is not that like, hey, you know, AAVE Lab should get punished or AAVE Dao should get punished or whatever. The best argument here is that like we need better disclosures because at the end of the day, it's okay if you buy a token and the front end is owned by some other company. Right. As long as you know that you can price that in. If you don't know that and your. Your expectations are subverted, that's bad. But information is the solve to that problem. You know what I mean? Because for most daos today, this is just not a problem.

C (18:52)

Yeah. Was this not disclosed before or like, I guess where is.

B (18:56)

I think it was disclosed. I think people knew this. If you were deep in AAVE world, but it's not standardized, where would you go to find this? You'd have to go digging to go learn all this. If you're just learning about aave, I think having. If you imagine the Blockworks disclosures regime, the Blockworks disclosures very clearly, this is one of those disclosures, which is who owns the ip, where's it owned, break down the org chart and what's owned by each entity. That would very easily be. If that gets standardized, everybody who goes to the Blockworks disclosure, they learn this. You know what I mean? And that feels to me like a solve.

C (19:30)

Yeah. I don't know. The IP thing feels like a little bit of a red herring. It's like, I think actually what it is, they see people making money on chain through something defi ish and they're like, we should be entitled to that. I think if they were making money through Amazon affiliate links on the website, I don't think they'd give a shit. Or alternatively, what if they just did a redirect from aave.com to avara.com, you go to ave. You type in aave.com in your browser, it goes to Avara. It's all Avara branded. I think it would still be throwing a fit. So I don't know. I think people want this to be isomorphic to the uniswap situation when I just don't think it is at all. They're not. They're not selling Abe merge.

A (20:04)

I look, I agree they're different, but I think the sentiments in daos are not necessarily like trying to analyze the payment and like the payoff function here as much as they're analyzing like fairness. Right. There's this feeling of fairness that seems to be what people care about, which is very different from who's, you know, the money comes in, how does it get split? Right. Like. And I think that's where the stuff is always like, messy and by the way, so when I was talking about how there's like a history of multiple things that have happened. I think the DAO and AVE Labs of our like have had a lot of fights and again, I have no opinion on which side. I'm not trying, I don't, I, I've had, I've already been enough of these fights. I don't, I don't want to be at all involved. I'm just trying to say facts that are in the forum and you can go read other people's deliberations on this. But there was. AAVE launched this rwa AAVE Labs launch. See, this is where it's already hard. You forget to say which entity. Right. AAVE Labs Avara launched this RWA platform called Horizon. And Horizon was sort of like had a way of connecting to AAVE and like had a bit of kind of. There was some version of shared liquidity there. And the initial post for Horizon said, hey, we're going to launch another token for horizon like a RWA, like kind of like a plume style RWA L2 token, although it's not an L2, but a token in that way. And we're going to give the AAVE DAO some fraction of it. And that caused a huge uproar, right? Because the AAVE DAO is like, well, like the only reason you can even build this product is because of us. And like it does. And that one, I'm, I'm lot more sympathetic to the Avara view because it's like it's hard to get. You have to deal with regular regulated entities off chain. You have to do all this other stuff. It's not like purely the, like there is a lot of excess value that's coming from the company. So I'm not sure the token, like the token part is that, that.

B (22:13)

But that feels, that feels like the right answer, right? Which is like, okay, yes, there's a huge amount of off chain component to build something like Horizon. It's not something that DAO can just say, well, clearly you made this. No, I made this. Give me the whole thing. There's a negotiation and part of that negotiation is people getting upset and governance posts and blah, blah, blah. And it's like, okay, you can't avoid that as part of the negotiation. But yeah, there's some splitting of value. Maybe the initial bid wasn't enough, but eventually they find some agreement of like, okay, you built it, you should get most of it, but we get some of it. That feels like the right answer. How else should it work?

A (22:48)

Yeah, I think my Point though is like the DAO views a lot of these things antagonistically and in some cases I think like the DAO is probably correct. Some cases Labs is probably correct. I don't know what the, where the end point will be.

B (23:03)

I mean, maybe it's not pleasant, but that sounds like the right answer, which is that people get mad, then they find an agreement and then they're all happy and like that at the end.

A (23:13)

Is there like an agreement here? That's what. So sorry, I, like Haseeb, have tried to take.

B (23:20)

No, my understanding, so I might be speaking with very low context, but my understanding is that they are delaying because of this vote that did not pass. The large amount of abstained votes are signaling there's going to be another vote with a more concrete proposal that maybe squares the circle a little bit and is something that Avara AAVE Labs might be willing to agree to. I found this whole thing a little bit odd because I didn't really understand for the DAO demanding these assets, it's like give us the IP and all this other stuff in exchange for nothing.

C (23:55)

I think the alternative is that the DAO said they're going to sue Avi Labs and so they're opening themselves up to a. Yeah, I mean, is that a valid lawsuit?

B (24:02)

How is the law. What is that?

C (24:04)

I don't know.

B (24:04)

What is that lawsuit?

C (24:06)

It's probably not America.

A (24:07)

Well, actually, do you remember, do you remember what happened in 2021? There was actually, there's a, there's an example of this. It's like all the daos of the same era all have this like problem of like they were a little too early. So like they didn't get to learn any lessons. But like the Curve DAO tried to sue someone for copying Curve because Curve had a non permissive license. Do you remember this? Then it turned out to be too complicated. That's like, what, I don't know what the status of that. Not, not the last day.

B (24:35)

How to get even more absurd. This is even more absurd because it's been so many years that AAVE Labs has owned the IP that they're now going to sue them like seven years later and claim that actually that IP belongs to a dao.

A (24:50)

Yeah, no, no, no. The only reason I'm bringing this up is a DAO trying to sue was actually logistically very complicated. And if you read that, I don't post. You'll see I don't doubt it.

B (24:59)

Yeah, yeah. That's crazy. Okay, well, I don't think that's where this is going to end up. But like it is, it is.

A (25:05)

Predictions. What are your predictions? Since it's like the end of the year, what's your prediction for this scenario, this situation?

B (25:11)

Look, I. I think like the leverage the DAO has is not obviously legal recourse. I think the DAO probably has no legal recourse because they don't own the ip, so no possible way they could have a real claim there. The answer is that like the, the recourse is headaches and yelling and fighting and the doubt and like aave token going down. Like it's sort of like rage quitting. People.

C (25:33)

People vote with their wallets.

B (25:34)

Yeah, they vote with their wallets. So I think like the fact that people are so animated by this means that they are holding the token hostage, basically. And you have to negotiate with us or we're just going to keep forcing this token to dump.

A (25:46)

By the way, one thing I do.

B (25:47)

Remember, like actually the right answer.

A (25:49)

One thing I do remember observing before I went on my little Twitter, Vipassana, I don't know what you want to call it, is there. I was comparing a lot of the Chinese language translated of course, so tweets to the English tweets. And I feel like people in Asia were more angry about this issue than people in the west, which I was a little surprised. They were. They were like these long. I was getting. I was all these like kind of early ethereum people who I'd never see tweet, I haven't seen tweet in years, suddenly were like tweeting people who I probably followed in 2017 or 2016 or 2015 or something like long time ago. And then they kind of tweeted defi Summer, didn't tweet, maybe tweet around ftx, didn't tweet. And then kind of. And a lot of them were writing these long diatribes about how like the Dao should really own the IP and stuff. And I thought that was an interesting. Obviously it's an unscientific thing and it was like maybe five or six sort of OG Chinese community people. But I think there's something that strikes a nerve in like people who have been in crypto a while versus people who are newer. And there's like some disconnect that that is also hidden.

B (27:03)

That is. That is a good point. This is definitely like an OG's.

C (27:07)

No, no, I think it's like a Confucian society kind of thing. You know, there's parental fealty and you know, the child should Be supporting.

B (27:15)

Yeah, maybe.

A (27:16)

Yeah. I'm not sure. But the, the, the, the. They're also, if the translations are good, they're also much more eloquent than I think, the Western. Right. The Western writing is, like, very aggressive and short and like, and these are, like, long.

B (27:30)

Good.

A (27:30)

Yeah, yeah, but they're, they're, they're, they're. They're actually quite, quite a bit more eloquent. I, I, I, I enjoyed reading the Asian. I wish I had a more scientific version of this, but I would love to know this.

B (27:39)

Well, like, yeah, but what's the other side? Right? Like, the other side is like, no, no, no. Ivara has property rights. We should protect the property rights of Avara, which is kind of Tom's point, which is very. Not Chinese. Like, it's not, it's like, not. That's not the vibe.

A (27:52)

Maybe, Maybe I'm, Maybe I'm reading too much into it, but I just, I.

B (27:56)

Just had common prosperity.

A (27:57)

These are people who don't.

B (27:57)

Prosperity.

C (27:58)

Yeah.

A (27:59)

It's just interesting. These are people who don't, but, like, have been around for a while, you know. That's sort of, that's sort of why I thought it was interesting.

B (28:07)

Well, I'm sure we will check back in with the, the next saga in this Ave Dao civil war, but you can't, you can't do a chopping block episode without covering Dow drama. I feel like that's what we're here for. What do people want, Evergreen? Yeah, that's right. So speaking of 2021 type problems, for those of you who remember, Flow blockchain built by Dapper labs, this was OG O O O O G, like GameFi Blockchain back when that was still a thing that people were excited about. And Flow was hacked for 3.9 million. It was some kind of exploit where they exploited the execution layer of Flow, allowing them to mint flow tokens. The attacker then took those flow tokens, took them off chain, bridge them, and then went to sell them, ran off and, you know, made a bunch of money bridged into Bitcoin or something. So in response to this, apparently Flow was planning to. They paused the blockchain as you do, and they decided that they were going to roll back the blockchain to the point before the attack took place. Now, this is a crazy thing to do because the attacker already got away. So, like, they already have the money, right? Like, there's a they. Like, you're not actually solving the problem. If the hackers stole the money and sold it and took it off chain. The second thing is apparently they did not talk to any of the bridges or exchanges about this rollback. And so for the bridges, the interesting thing is that so they were, they were like, you know, talking in discord that they were going to do this. And it created this big kerfuffle on Twitter of people pointing out like, hey, you realize that if you do this, anybody who bridged money into flow in the time since this attack, their money will get stolen, they will get wiped out. And basically they're transferring their money to the hacker implicitly for bridging in money to try to go in and arb these pools that are almost priced and all this other stuff. So thankfully they decided not to do this after the huge outcry that took place on Twitter. They're doing something a little bit more reasonable if they're going to restart the chain in some kind of read only mode and then gradually remediate some of the individual bugs that led to this attack. But it created all this excitement around this idea that like, hey, this is the craziest proposal for a remediation to a hack that I think we've seen in a long time. Didn't happen. So we're thankfully talking about kind of counterfactuals. But Tarun, you mentioned before the show that you were very intrigued by this story. What was your reaction to the flow, kind of head fake rollback.

A (30:39)

So I think an interesting aspect of all of this stuff is the fact that the promise that L2s have made, right, I get forced inclusion, like the sequencer censors me, I can go to mainnet, reset my transaction, get re entered. There's always this kind of Faustian bargain in this type of forced inclusion thing in that I'm not really guaranteed that I get the same economic value for my transaction when I reforce it, right? It might get reordered, it might get added later, an Oracle update might have come in before I'm liquidated. There's lots of things that can happen, but we sort of kind of in Ethereum people kind of were like, forced inclusion is good enough, right? That's sort of the. I'm sure there will be people who want to fight about that, but I think that's like, that's what roll ups claim. On the other hand, in L1s, you're always like, hey, I have forkability, the validators can fork and it's fine. But you also have the same problem when you have a lot of interconnectedness between blockchains, right? You have bridges where the bridges on one chain expect X units of asset and on the other chain after the replay you might have less or more than X units of asset based on how the replay or fork goes. And I think the interesting thing, and an interesting thing that I observed from Alex at dbridge, which is intent based bridge that exists, is that in some sense bridges become custodians during forks because they kind of own this liability of the mismatch between these chains and they in some ways go from kind of low risk to their validators. It's only the duration of the bridging that the validators hold most of the risk. Sometimes they hold some tail risk to they're completely holding the risk, almost like a custodian. Now they have to reconcile everything. And so I think the interesting thing is all of these security models we had in 2016, 2017, which are like forkability and forced inclusion and to some extent this is Haseeb, your post from 2019 about the USDC forking kind of rule. All of this stuff goes out the window when you're much more interconnected, when blockchains are interconnected, it suddenly completely changes the security models for these things because you have to make sure that all the other chains you're connected to are able to stay synchronized. And in Flow's case they're kind of a small chain, they don't have much volume. And so it's like no one wants to take the risk for it in the same way that hey, the USDC on Ethereum, everyone is just going to follow the circle fork type of. Right. And so this is almost like the inverse of that your post From I think 2019 and I think there's something kind of curious about that. I wonder if that's almost like a, an evolutionary thing for chains. Like chains will die because like they can't convince the bridges to hold the custodial risk because they're like not important enough or something. But I mean. Random thoughts.

B (33:50)

Yeah, I mean this is obviously like actually going through a fork of this kind, especially like a chain paws of this duration is a pretty extraordinary event. And like, and the fact that Flow paused the chain because of like a 4 million dollar exploit also tells you like, look, this is a, like this, this, this is a chain that's on its last legs unsurprisingly. I mean I haven't heard anything about Flow other than this attack in a long time. And what the attacker minted was the native token. And I think the token crashed like 50% upon this attack. I guess because the, you know, an attacker tried to sell $4 million of it and it just crashes the price by 50%, which tells you, yeah, this is kind of a dead chain. I think that's. I think what you describe is true. And in a way it like, kind of. It sort of speaks to, like, this is one of the things that I talked about in my end of year predictions, which is that in 2024, I thought that 2025 was going to see this proliferation of app chains, right? We were going to see more things like Hyper Liquid. You know, we've seen things like Lightr and Ajax that have their own chains, but we haven't actually seen that big of an explosion of new chains. And I suspect that we're actually going to start seeing the reverse is that this actually becomes less and less frequent because of the fact that there's just so much surface area that you have to deal with. Right? Like if you're an application, like, you know, NBA Top Shots used to be the flagship game on Flow, and if you're NBA Top Shots and like, you know, NBA Top Shots now is like, kind of in the toilet. But let's say back when it was working, you don't want to have to deal with this. You're gonna be like, oh, we need to like, pause all state transitions for some number at some time and coordinate with bridges and like, figure out all this stuff. Like, you don't want to deal with any of that shit. You're just like, look, just put me on Solana, put me on Ethereum, put me on Mega Eth, whatever. I just want, like, you know, good throughput and like, high usability and access to customers. And that's all I care about. And I never want to be asked anything about infrastructure ever again. I think that's likely where we're going, especially as the. We've seen gas fees be very low on the year. We've seen a lot of scalability improvements to almost everything. That should imply that actually on a relative basis, it becomes more attractive to just launch on some other chain as opposed to own your own infra. And the fact that a lot of the premium of being your own chain is going away, right? Like this whole idea that there's the L1 Premium, the L2 Premium, now that all that stuff feels like it's really faded, then the right answer for most applications is just pick a stable chain that you don't have to worry about. If you built on Flow, my condolences. But it's just like, why do I have to deal with this. I don't want to have to be stuck because my chain got hacked for 2 million and now they're going to be closed for the week.

A (36:32)

I mean, another kind of. More, this is more like a theoretical interest question that I've had and like I started writing a paper on this a long time ago and then I kind of moved on to other things. Was like, is there a sense in which there's like a carrying capacity for chains? Like given some liquidity constraints, given some usage constraints, how much maximum inflation the market tolerates. Can you get something that's a little bit like Coase theorem, where it's like, hey, there's like a size for the theory of the firm which is like, hey, firms generally are this size based on like how much they get in revenue versus how much they have in costs and how much they can share those costs across employees. There's a question, if chains have the same thing, is there a carrying capacity? And I think in this world where arguably Solana hyperliquid and to some extent specialized roll ups like LIDAR have shown that maybe you don't really need this, this amalgamation of 500 chains, we're actually seeing like the, the, the, the kind of coast theorem acting on these chains. And we're going to like see the space of chains called, you know, we haven't ever had like M and A or vulture investing or debt restructuring. But in some sense this is kind of what's happening to like L1s that are not generating enough revenue or usage. Like that's at least like my gut feeling is like that's kind of what this stuff is indicating is like we're moving to a world where we're going to be culling chains.

B (38:06)

Yeah. It's funny because like the theoretical construct of layer ones is that they have de minimis cost to run. Right. And that's, and that's part of their argument why L ones never die is you go back, you look up some like 2016 L1 and it's still there, it's still trading, it's probably still live. There's probably still nodes that are processing transactions on it, although no one's doing anything. There's maybe, you know, there's like some weather bot that's posting weather into, you know, the call data. You know, there's always like something happening with these ghost chains that nobody's using. And the theory of that was always that, well, because there's no cost, right? Like it's just you've got some Box somewhere in AWS that's running a node and you know, as long as proof of stake the end. I think it's funny because like this, that used to be true for proof of work as well. Is that like, you know, if you remember like Ravencoin and Feather Coin and all these like proof of work chains that just like existed because they existed and like it's hard to really understand why like who's paying money to mine this? Like where is the demand coming from? Those are all gone. I feel like you can make an.

A (39:08)

Argument for the GRIN SPVs, pour one out for the GRID SPVs. Real ones.

B (39:14)

No, you can make an argument that those actually will go away. There is an economic argument why those should go to zero for proof of stake where it's all just accounting on a ledger and network packets going through the Internet. There's no reason why you can't just run it for a few bucks a month. And like you have a, you have.

A (39:34)

A network but there is a oracle's bridges, etc.

B (39:37)

Exactly. Yeah, exactly, exactly. Like all the infra of a modern chain with like indexers and block explorers and bridges and like all you know, all this other stuff and like they have to upgrade and like somebody has to have custodian integrations and like all the stuff that actually like the reason why people always complain like why do L1s raise so much money? And you know, to be clear, L ones probably raised too much money, but why do they need to raise like at least 20 million? Like that's probably how much it costs to just do all that shit. Everything I just described, all that stuff probably costs at least 20 million. And then on top of that you got to actually do marketing and DBD and hire a team and like all this other stuff. But just the fixed costs of all the info you need is probably on the order of about $20 million. So actually layer 1s have become more expensive over time and that probably argues to room for. I mean there's the ghost cell ones that don't have any of these things. I don't know how many bridges flow has or how many custodian integrations. My guess is probably nothing.

C (40:38)

Two.

A (40:39)

I mean dbridge and Layer zero. I know at least those two.

B (40:43)

Yeah, yeah, yeah. So probably those are the two. Right? But increasingly there will just be decommissioning of bridges to these chains that nobody's using. And that. That's probably the world we're going to within the next call it two to three years. I don't think it happens immediately. Because if you're layer zero, it sounds good to say that we have 500 chains that we connect to. And so on some level there's probably just like, oh, we speak every protocol. It's great. You can bridge to anything.

A (41:12)

So you're saying when the bridges and oracles leave you, it's like you're one of those mining towns in the west, in California that are abandoned?

B (41:24)

Exactly. Well, it's like you die two deaths. One death is when coimbus you and the last death is when the last bridge disconnects from you. They really are just floating in the ether.

C (41:38)

Yeah, they built the new highway. No one's come into flow anymore. I'm like, what kind of psycho person is looking for exploits in flow, by the way, over a holiday of all times?

B (41:49)

You know, there's over Christmas on Christmas.

A (41:54)

I think I. I think the exploit searching stuff is just like 5 million times easier right now than it was like a year ago. I, I think you people are literally like, point me to an RPC, send me the repo and then send Claude or ChatGPT on it. I think you're underestimating how I feel.

C (42:13)

Like this was like a AI discovered exploit. Like that feels pretty bad.

A (42:17)

I mean, no, but I think it was AI translated take a known exploit, translate it to that. Yeah, like that stuff is, is much more valuable, I think, than people are giving it credit for. And for these like lower liquidity networks, I think that those can be much more effective than on like places that are expensive to attack.

B (42:36)

Yeah, no, but it is true. Attacking on Christmas is pretty dastardly. That's Grinch level behavior.

A (42:41)

But it is a historical thing. I mean, I don't know, Tom, if you remember the Christmas oracle manipulation in 2019, there was like this. Was it on maker? There was like this crazy Oracle manipulation and then you saw all these liquidations on Christmas. This was like before Defi was very big. I remember there's a group chat that you started where everyone was on Christmas the most active because of this.

C (43:13)

I totally don't remember this. I believe you. But you know, six years is a lifetime in Christmas.

A (43:18)

I know, I know. Trump dropped the referencing things of the last decade.

B (43:23)

Yeah, yeah, yeah. No, it's a thing. It's a thing for. For statecraft as well as for blockchain craft. Okay, so last story we're going to run through is Coinbase announced this broad set of updates that they called System Update, which is a big event they threw in San Francisco, invited a bunch of people they had a huge live stream and they announced that they were becoming the Everything exchange. So just to give you a quick run through of everything they announced first stocks and tokenization. They're adding stocks and ETFs to the main app. 0 Commission trading 24 by 5 laying the groundwork for tokenized stocks which they're also going be offering through a platform called Coinbase Tokenize which I guess is going to be a competitor to securitize both for tokenizing stocks as well as for white label stablecoins. They're launching prediction markets. You can trade real world events via Kalshi alongside cryptos and stocks. You can trade a minimum of $1. They're adding futures and perps into the main Coinbase app. Solana Dex Trading via the Jupiter integration. They've got a new Coinbase business all in one offering for payments for SMBs. Kind of a, you know, stripe slash bridge competitor as well. Coinbase Advisor, some kind of AI advisor thingy that they're building into the app as well as a global launch of the base app which was previously geo gated and some payments stablecoin related stuff. So they've got whole suite of new announcements. Curious get you guys take is Coinbase now the everything applies. What do you guys think this new set of features is likely to get received?

C (44:49)

I mean I think they're probably receiving a lot of pressure from Robinhood and these other sort of more traditional financial players that are trying to get pretty aggressively into crypto and doing pretty well. And people obviously love to meme the like you know, Coinhood ratio which has been kind of, you know, looking pretty painful as of late. I thought the interesting thing was that I think that they announced equities perps which is like I feel like pretty big for a. You know it's obviously offshore but like I, I think I'm just amazed by how quickly this has become like a mainstream topic really in like the past year you've seen all the perp dexs and now centralized exchanges launching perps on like single name US equities which was you know, not really a thing even like two, three years ago.

B (45:30)

So the, the, the perps are only international.

A (45:33)

Yeah, correct.

B (45:34)

Okay. Yeah. And yeah, traders outside the US can get 24,7 capital efficient exposure to US stocks through the Coinbase interface. But truly the stocks and ETFs that's within the United. Yeah, that's within the United States.

C (45:46)

The tokenized ones. Yeah, the spot.

B (45:48)

Yeah, the tokenized stocks. Yeah, they've already rolled that out. Does Anyone know how the volumes are doing?

C (45:53)

Not. Not looked, I'm assuming.

B (45:55)

Not big. Yeah. So, okay, what is your prognosis then? What is your prognosis for Coinhood ratio going forward?

C (46:02)

I think it's going to be tough, honestly. I think just like the overall TAM for people who want to trade stocks is much, much larger and it's much more convenient to then just go into your traditional brokerage and trade crypto. The question I think is actually more what are the actual compelling features that are crypto native that only Coinbase can do that then people are then going to stick around and also, yeah, I'll trade some stocks as long as on Coinbase. And I felt like that was actually the interesting thing they were doing around. Like, hey, you can do on chain lending and on chain borrowing and access defi and do all this other kind of cool stuff. I mean, I think even the equities perps is like a good example of that, at least for international people. But the other stuff, it's like it doesn't really strike me as you're going to get net new users. Maybe some crypto people will stick around and trade stocks, but I just think that's like you're starting with a smaller funnel.

B (46:53)

Okay, but do you believe the story? Right? So like Robinhood went from stock trading adjacent to crypto trading and they've been fairly successful at that. Do you believe the story for Coinbase that they can go at it from the other direction and arrive at the same end state?

C (47:07)

I think it's just tough. It's like you think of all the people who are in Robinhood want to trade stocks and then some of them will go off and trade crypto and that's. I mean, obviously it's big for Robinhood, right? It's like 30, 40% of their revenue. For Coinbase, you're starting with a smaller funnel, which is everyone who wants to trade crypto on Coinbase and then maybe a smaller percentage of those also want to go trade stocks. I just think you end up with a smaller outcome because the initial factor is smaller. So maybe they'll be able to. I think if anything it's like maybe they should position it differently and then try to go after it as a more traditional brokerage then has this interesting crypto component to it. But I don't know why someone who wants to trade stocks is going to get today and open Coinbase versus Yeah, maybe people who are already Coinbase users or crypto people will open Coinbase to go, go trade some stocks as Long as they're there.

A (47:57)

Yeah. I mean, look, I, I do. I think Tom's probably largely described the market driven version of this, which seems reasonable. I think there's a sense in which I'm not sure what this concept of everything app looks like in the long run because there's one version that you could play out which is if, if like we had fully full kind of imagine like the Clarity act was like gave crypto people everything they wanted. The craziest version of this is that your, your local bank app will let you trade tokenized stocks directly from your bank app. Like, it'll be like, here's your balance, here's some tokenized stocks, right? Like revolut style. Like, imagine like everything is in, in one app. NeoBank plus brokerage plus whatever, right?

B (48:49)

Like, I don't understand why would your bank need to tokenize stocks for you to trade them? Can't you just.

A (48:53)

No, no, no, no. Your bank offers you to trade. You know, like your bank offers you brokerage services already, but like very limited, right? But the point is in a tokenized stock world, anyone can offer all these products from any front end. It's like very different. It feels like a lot different than like I need to be like, is that true?

B (49:14)

Why is that true? That doesn't sound true at all.

A (49:17)

I mean, that's the way I feel like you see the non US Neobank stuff going where they're just offering everything, right? And you look to see that with Robinhood too, right? They're trying to add all these banking features. Robin is trying to almost go the other way of start with the brokerage, add the day. So yeah, I don't know exactly how to think about the strategy because I don't really know the net new marginal buyer of tokenized stocks. Like, I don't know how to classify them. Like, are they people who've never used a kind of free stock app? And the other thing that's interesting to me is it's so much more competitive, competitive and the fees are basically zero, which is like very different than a crypto exchange economics, especially for Coinbase. I don't unders. You know, it's like a very different market and like I don't know how to think about the marginal tokenized equity buyer. Now tokenized per buyer I think is willing to pay higher fees, right? Like there is extra risk premium that they need to be paying for. But the tokenized stocks, I don't know.

B (50:20)

And like, well, so okay, here, so here's the counterpoint. Here's the counterpoint is that, like, that, like, whoever's trading stocks on Coinbase has got to be the juiciest flow in all of mankind, right? Because, like, why are you. Why, like, like, who is like, you know what, I trade crypto here, so I'm going to trade stocks here too.

A (50:39)

But, but that is. Are there more people in the world than the set of current Coinbase users who. That. Who fought, who fall?

B (50:47)

That's the thing. You're ultimately, you're cross selling stock trading to a set of users who have negative alpha in trading stocks, right? That. That is valuable in and of itself. It's just, you know, it's like, you know, if Airbnb starts offering, like, okay, we know you're going on vacation, will also sell you, you know, a car and you can do a car rental through Airbnb, right? Something like that. It's not that, like, people are going to go to Airbnb for car rentals. It just, you know, basically takes another piece of somebody who has a very high willingness to pay and is right at the point of. Point of a transaction, right? So they're like, look, I'm a crypto person. I love crypto. Cryptos going sideways, low volatility, I'm missing on the AI. Boom. I'll go trade here. This person is very juicy flow. You know, this, like, you will be.

C (51:28)

Able to monitor, I think, I think.

A (51:31)

This is not TAM expansion.

B (51:32)

And you're an average. Correct flip.

C (51:35)

Like, flip that. And it sounds absurd, right? Like, you go to your car rental place and they're like, do you also want to, like, hotel? Like, obviously not like, if I'm renting for. And so they literally do.

B (51:43)

They literally do offer you hotels do that.

A (51:45)

They do all.

C (51:47)

I know they do. I know they do. My. My point is that's not.

B (51:49)

That's not absurd.

C (51:50)

That is a much like, it is absurd to think that you would do that. Like, it sounds much more reasonable to think, yeah, I'm on Airbnb, sure, I'll go like, rent a car versus, yeah, I'm on Hertz. I'm going to go book a hotel. And that, that was my point around Robinhood, it's sort of like, yeah, that's a much bigger, you know, more normal people.

B (52:07)

It's a bigger aperture.

C (52:08)

Yes, yeah, exactly. And so that's why I think the upside for like this tokenized stocks, products is actually people where a crypto exchange is their first form of financial services. So maybe people who are international or people who are getting paid in stablecoins and then functionally this exchange is sort of becoming my, you know, bank or financial service provider. And then, and then I'm sure I'll go buy some, some stocks then as. As well.

A (52:29)

Yeah, yeah. That's why I think that the, the Neo bank to tokenize stocks thing is kind of a more attractive funnel.

B (52:35)

Right.

A (52:36)

It's like net new user that's.

B (52:37)

I had not considered that. I was imagining more like, okay, the Gen Z user who they're fir. They're like, look, I don't trust stocks. I don't believe in stock or whatever, but I believe in crypto. Like somebody who's very, very young and they think of crypto as the primary financial gateway for them that this is the way that they migrate into the world of stocks and they sort of like, you know, keep it all, keep it all in one app. Right? That sounds like what I'm describing of like, okay, you're at checkout and like, okay, you know, why don't you also rent a car? What you're describing I think is interesting and sounds more like TAM expansion, which is the set of people who are using stablecoins. They want to off ramp. They're going to use Coinbase to off ramp, keep the money there. Why not just, you know, this is now your brokerage account. That is actually interesting and I think that tells a story about TAM expansion that maybe is less what I was imagining in terms of a domestic Gen Z crypto pilled market. I do think that in general, a phenomenon that I increasingly have noticed, and I also think this about prediction markets, is that people mostly like to keep the food separate on their plate. They actually don't like to mix them up together. So it's sort of like, you know, people like to have the app for this and the app for that and they actually don't really want to mix them together. So it's like I like having my crypto. It's the same reason why, you know, PayPal and Schwab and all of these financial like Fidelity that have huge reach, probably more users than Coinbase, they all added a button to buy crypto. But people don't click the button there when they, when they want to buy crypto. They're like, oh, I know I go to the crypto. I don't want to like put my crypto in like my bank app. I kind of want to put my crypto in like my separate crypto app. And they don't really care about the fees, they just like to keep all the food separate on their plate. And so crypto goes here. You know, more responsible investments go here. Even if you have the button in one app, I don't want it all in the same app. I think that's like a general phenomenon.

C (54:28)

I think this is more of like a, like product and incentives issue. Like, I think Robinhood being the counterexample to that, where it's like Robinhood is, you know, a significant percentage crypto and they're also of the crypto market or like even looking at ETFs, right? Like, you know, that. That is people going into their Schwab account and buying crypto. I think the problem is like actually buying crypto inside of like Venmo or Cash or Cash actually does decently well. But, you know, PayPal, it's always like, okay, it's slowly being rolled out over many years and it's kind of crap and you can't actually buy like a lot of the things that you want. And it's kind of tucked away in some shit menu. And so it's like, I don't know. I. I think you're. You're right that like, hey, maybe people who are using PayPal aren't the most excited crypto buyers. But I also think it is like, there are examples of apps that aren't crypto apps doing a good job of sort of cross selling to crypto to their users.

B (55:23)

I think there's really just one example which is Robinhood and maybe to some extent Cash app. But Robinhood is kind of the exception that proves the rule.

A (55:33)

You know what's funny is I was in Australia somewhere and I saw a bus where there's an ad which was an app for investing for children, like ages 5 plus. And I feel like there's this weird thing where like, Robinhood Success has bred this, like, insane number, especially outside the US of like, investing apps for younger people. And that's why I'm not sure where that. Yeah, it says five plus. It's like it has an ad on a bus. It was cool.

B (56:07)

I cannot imagine, like, you know, children's TV advertising investments to kids. What is five plus?

A (56:15)

It was great.

B (56:16)

That's insane. Yeah. Wow.

A (56:19)

And so I. I think there's actually this.

B (56:21)

I would have. If I had. If I had an investing app, I would have full ported into Cartoon Network when I was six years old. I don't understand. I would have. I would have.

A (56:29)

I have no clue if that's a good investment or not. Actually.

B (56:32)

No, it's not.

A (56:33)

Probably not that great.

B (56:34)

Television did not do well. Over the last 20 years, I'll say that much. That's true, yeah. Anyway.

A (56:41)

But yeah, I like, I, I think there's something sort of weird about the, the that market. So like I totally get the. Improve your margins, like upsell everything possible. Right. That makes a ton of sense. I just am not sure if any of these things are like net new users like that. It's not so clear to me. There's like a lot of things and some of them in theory could be new users, but it's like not obviously.

B (57:09)

The stablecoin depositors I think is the strongest version of the story. Right. Like come for the tool which is stablecoin off ramping, stay for the whole portfolio. Like now we, now we have you locked in for your financial portfolio here. I think that's the most true that.

A (57:24)

They'Re, they are competing with everyone now.

C (57:27)

Right.

A (57:27)

It's like Moon Pay Securiti, like we go down the list.

B (57:33)

That's right, that's right. Well, good for them though. I feel like that's, that's, I mean it's, you know, sucks for our bags because these are a lot of the startups that we funded that are doing.

A (57:40)

No, no, I, I think, I think it's interesting that Coinbase have. Coinbase and obviously have very different philosophies. Right. I feel like Coin, my minus the robinhood buying my AX and like LedgerX where this sort of an exception. I feel like they try to operate as like a light company, like asset light. Like they don't build all their own infrastructure from scratch, they'll use partners, providers, etc, whereas Coinbase is like we are making everything from scratch. Like we're making our own cloud stable coins as a service thing. We're making our own. Right? And the question to me is you have these two opposite things. One that's virtualized, they use a lot of partners, outsource a lot of the technical stuff, really own the ux, really own the user acquisition. And the other one that's like we want to own the entire vertical stack, get institutions, whatever. But is there a point in the middle of those two kind of axes? And that's sort of what I don't know. And I kind of feel like all of these coins based products are trying to push it toward the middle but I don't know what that, if, that, if, if any of them do that, that's like what I have no conception of that's. And maybe I'm simplifying it a lot. I'm sure there's going to Be people who are listening, who work at either place, who will message me and be like, we do. We own a lot of our own stuff. Or we also. I'm not, I'm not trying to. This is a broad strokes generalization.

B (58:59)

Like literally, the prediction market is powered by Kalshi. And so, you know, there's like. I'm sure that. I'm sure they have other.

A (59:04)

Yeah, it is a broad structure, but there's a lot of infrastructure that.

B (59:08)

But I do think you're right. I do think you're right. I think, like, in Silicon Valley, there's often a characterization of big tech companies of, like, who, like, which segment is dominant. Right. So, like, famously at Facebook, like, product people were dominant. At Facebook, at Airbnb, design people were dominant. And at Google, engineers are dominant. And each, like, you know, everybody has designers, everybody has product managers, everybody has engineers, but somebody always has more power within each team, within the orgs and the decision making. And I think what you're pointing to is like a little bit of something like that where I suspect that Robinhood is probably more product driven and Coinbase is probably more engineering driven and like more tech driven. And that manifests into a lot of decisions that flow downstream of that because Brian was an engineer and that kind of flows downstream of. Same thing with Brian Chesky was a designer. And so Airbnb is very design driven. And I don't know about Facebook, but that's always been. Obviously the Google guys are very, very brainiac engineers.

A (60:17)

Yeah. I mean, that's why I sort of wonder if the next thing, especially if it's like AI powered investing type of stuff, where you're not really thinking is like, going to be a different modality than either of these two of like, it might be the design one. Like, in reality, there might just be like a. That's what I mean. There's like, it feels like there's something all of these people are getting at, but it's like slightly outside of the directions they're taking, or at least that's my gut feeling. I don't have any, like, concrete thoughts other than that.

B (60:47)

Okay, well, we are. We're up on time, so we got a wrap. But we'll be back next week with our proper end of year review as well as the best of for 2025. Until then, we will see you all next week. Thanks, everybody.