Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, you know,
Speaker 1: we recently had the coin Base ip Yes, we did
Speaker 1: a big moment for crypto. That was I think the
Speaker 1: analogy I must saw used was that it was like
Speaker 1: crypto's coming out party. Yeah. I think that's uh, that's fair.
Speaker 1: I saw it compared to the Netflix I p O,
Speaker 1: maybe some comparisons to the launch of the CME Bitcoin
Speaker 1: futures in late twenties seventeen, but certainly, uh, certainly quite
Speaker 1: a big moment for the crypto world. Yeah. Um, it's
Speaker 1: sort of. I guess it capped a really big year
Speaker 1: for crypto in the sense that we've seen this massive
Speaker 1: institutional adoption, or at least a lot more than a
Speaker 1: lot of people had expected. We saw PayPal thing that
Speaker 1: it would allow its users to buy and sell crypto.
Speaker 1: We've seen parts of Wall Street start to get more interested.
Speaker 1: We seem to be very very close to getting that
Speaker 1: long awaited Bitcoin e t F and so it really
Speaker 1: feels like all of that momentum sort of built up
Speaker 1: and then exploded in the coin Base IPO. Yeah, that's
Speaker 1: exactly right. But there is an irony with coin base,
Speaker 1: and you mentioned crypto E t F, but there is
Speaker 1: an irony with a coin base, which is that, you know,
Speaker 1: with crypto, it's supposed to be cutting out legacy financial institutions,
Speaker 1: like that's a big part of the sales page, but
Speaker 1: a coin base just went public on legacy exchanges. But
Speaker 1: beyond that, coin base itself is kind of, in a
Speaker 1: weird way, a legacy financial institution itself. It handles fiat currency.
Speaker 1: People send in their dollars or euro or whatever, and
Speaker 1: from there they could trade various digital currencies, but they're
Speaker 1: holding dollars and all kinds of their gatekeeper and they
Speaker 1: have to do uh, you know, anti money laundering regulations
Speaker 1: and knowing your customer, and they have all kinds of
Speaker 1: personal information on their customers and you have to tell
Speaker 1: him your name and uploading idea and everything. So although
Speaker 1: it's like kind of like a crypto exchange, it's very
Speaker 1: much like it is a legacy financial financial institution into
Speaker 1: a very real way. Well, it's also a centralized order book,
Speaker 1: which kind of flies in the face of um a
Speaker 1: lot of crypto ethos about decentralization, and you know, trading
Speaker 1: between parties without a third party in between them. Yeah,
Speaker 1: exactly right, Like it bears many resemblances to a traditional
Speaker 1: exchange or traditional prime brokerage for its institutional customer, or
Speaker 1: traditional online brokerage like maybe a Schwab for retail traders.
Speaker 1: So it's only like partially new. But that being said,
Speaker 1: there is a phenomenon that's growing in the crypto world
Speaker 1: and I don't think we've talked about it yet, but
Speaker 1: it's been growing for the last couple of years, and
Speaker 1: that is attempts at creating markets that are truly truly decentralized,
Speaker 1: so no no company handling the trade, right. And so
Speaker 1: this is a really interesting project from a market structure
Speaker 1: perspective because normally you would have a third party who's
Speaker 1: stepping in to provide liquidity as needed. But if you
Speaker 1: just have market participants who are trading with each other
Speaker 1: in a truly decentralized environment, then you have to figure
Speaker 1: out other ways to encourage liquidity. And I think that's
Speaker 1: where this aspect of crypto actually becomes very very creative.
Speaker 1: It's also where weird stuff tends to happen, and I
Speaker 1: think we're going to get into that it's super weird.
Speaker 1: It's super different. It's a very different structure. Obviously, if
Speaker 1: there's no company, there's no one to send your cash to.
Speaker 1: But that so that also is its own weird thing.
Speaker 1: How you solve that. But there's also no gatekeepers, there's
Speaker 1: no setting up accounts. It's just a very different thing.
Speaker 1: But there is an argument to be made that a
Speaker 1: sort of decentralized trading environment is much more true to
Speaker 1: the to the crypto ethos. All right, let's get into it. Yeah,
Speaker 1: I'm super excited to talk about this, to talk about
Speaker 1: defy how decentralized trading works. We are going to be
Speaker 1: speaking with um Hayden Adams. He is the founder and
Speaker 1: CEO of unice Swap Labs. Here's the inventor of the
Speaker 1: unit swap protocol and uh this is basically a trading
Speaker 1: system that runs on top of the the Ethereum blockchain,
Speaker 1: and it is a very big deal. As of right
Speaker 1: now we are recording this April. Over the last twenty
Speaker 1: four hours, one and a half billion dollars of trading
Speaker 1: volume has been done over unite swap. That's about half
Speaker 1: of coin based. So here's this decentralized exchange that's half
Speaker 1: as big already as the pre eminent crypto exchange. It's
Speaker 1: a very big deal, growing extremely fast. But I don't
Speaker 1: think most people have any understanding about how this all works.
Speaker 1: And I would include myself and that. And so we're
Speaker 1: going to learn about you just swap and decentralized trading
Speaker 1: and what decentralized finance is with Hayden. So, Hayden, thank
Speaker 1: you very much, thanks for joining coming on odd lot,
Speaker 1: Thank you for having me on. I'm really excited to
Speaker 1: be here. How did we do in that introduction? Fantastic? Actually,
Speaker 1: I'm extremely impressive. Okay, okay that I it's all downhill
Speaker 1: from here, I promised. But if you're impressed with the introduction,
Speaker 1: then that I'm happy. But you know, let's just start
Speaker 1: really big picture. It's like defy. I see that all
Speaker 1: over the place. It's a super popular buzz word. I'm
Speaker 1: sure if I look to Google trends would be a
Speaker 1: straight lineup. How would you describe what is what is
Speaker 1: DeFi yeah, I think a good place for starting talking
Speaker 1: about defies. Bitcoin. You know, Bitcoin is this decentralized system
Speaker 1: for storing and transferring value right over the Internet. So
Speaker 1: it's you know, you can think about it as magic
Speaker 1: internet money um, and it has these properties that people
Speaker 1: care about and people like about it. You know, it's
Speaker 1: provably fair, it's secure. You know, there's no single centralized
Speaker 1: party that controls it, and it's this global system right
Speaker 1: that can be accessed from anywhere in the world. But
Speaker 1: you know, it's also still limited in being money, right,
Speaker 1: it's limited to storing and transferring value. And early on
Speaker 1: in the blockchain days, you know, people start to think
Speaker 1: about what are other applications of blockchain, and so ethereum
Speaker 1: was born, and Ethereum makes it easier to build various
Speaker 1: other applications that have some of these properties people care
Speaker 1: about about Bitcoin that you know, it's probably fair that
Speaker 1: anyone can you know, audit its entire history, that no
Speaker 1: one controls it and apply that to other to applications.
Speaker 1: And it does this with what are called smart contracts.
Speaker 1: And smart contracts is essentially code that is run on
Speaker 1: a blockchain. And so the same way that you know,
Speaker 1: every Bitcoin node verifies every transaction on Bitcoin, every Ethereum
Speaker 1: node verifies the execution of every program running on ethereum,
Speaker 1: and so defy is essentially the idea that finance goes
Speaker 1: far beyond just money and storing and transferring value. There's
Speaker 1: an entire other world of lending, borrowing, exchange, insurance, synthetics,
Speaker 1: and options and other types of derivatives. There's an entire
Speaker 1: financial system, and we can take some of what we've
Speaker 1: learned from bitcoin and apply, you know, and and build
Speaker 1: systems that have some of the properties that we care
Speaker 1: about in bitcoin to this broader class of financial use cases.
Speaker 1: That's essentially defy. Unit swap is an Apple defy application
Speaker 1: living on ethereum. It's the most popular application, and it
Speaker 1: applies basically this to decentralized exchange. So I'm going to
Speaker 1: jump right into something that you guys do that's different
Speaker 1: to some other exchanges. But you have basically every coin
Speaker 1: in existence able to trade through your platform, including like
Speaker 1: ones that I think are probably jokes or scams. I
Speaker 1: think that's fair to say, why did you decide to
Speaker 1: do that, and how does that differ from some other
Speaker 1: competing platforms. Yeah, so I think that what's really interesting
Speaker 1: about unit spop is it makes it incredibly easy to
Speaker 1: create new markets um and and trade on markets, and
Speaker 1: so it ends up being extremely good for the long
Speaker 1: tail of assets, and that gets into this kind of
Speaker 1: unique infrastructure that unit spop. So you know, UNI spop
Speaker 1: is not a traditional order book exchange. Unit spop is
Speaker 1: a what's called an automated market maker or it uses
Speaker 1: automated market making, and what that means is it essentially
Speaker 1: allows anyone to spin up their own market. And so
Speaker 1: in a traditional exchange essentially have two main types of participants.
Speaker 1: You have professional market makers who are constantly putting up
Speaker 1: buy and sell orders, and then you have you know,
Speaker 1: retail traders or takers who are executing against those orders,
Speaker 1: and it can be extremely hard to create liquidity and
Speaker 1: the long tail of assets because the professional market makers
Speaker 1: that are necessary to the function of order books, you know,
Speaker 1: they don't necessarily it's not worth it for them to
Speaker 1: maintain inventory or to yah bootstrap longer tail markets because
Speaker 1: one way that they think about it, right, it's, you know,
Speaker 1: it's only really worth it for them to kind of
Speaker 1: market make on the largest, most popular assets. And so
Speaker 1: with unit swap, it adds what's called automated market making,
Speaker 1: which allows basically anyone who wants to create these markets
Speaker 1: and deposit assets into a smart contract, and that smart
Speaker 1: contract will automate the process of market making for them
Speaker 1: such that for them it's basically a passive experience. And
Speaker 1: so in two minutes, someone can spin up a new market,
Speaker 1: create liquidity in it, and they don't need to be
Speaker 1: you know, they don't need to be extremely sophisticated, they
Speaker 1: don't need to have this uh, you know, market making background,
Speaker 1: they don't need to work with other professional market makers,
Speaker 1: and so it kind of removes this gatekeeper in the
Speaker 1: creation of liquidity. So let's talk about how automated market
Speaker 1: makers work. As you pointed out, in a traditional market,
Speaker 1: there's someone in the middle. They always are posting a
Speaker 1: bid and an ask, and there's a little gap between
Speaker 1: them and that anyone can come and take either side
Speaker 1: of it. It works very different in the sort of
Speaker 1: liquidity pools of an automated market maker. Explained the basic
Speaker 1: functioning of it. Essentially, you know, each market on units
Speaker 1: flow is a smart contract on ethereum. What that means
Speaker 1: is it's a it's a little program it runs on ethereum.
Speaker 1: And something that's really interesting about smart contracts is it's
Speaker 1: code that can hold funds and and it's code so
Speaker 1: you can you can basically create arbitrary logic, and then
Speaker 1: that logic dictates how the funds stored in that smart
Speaker 1: contract behave. And so an automated market maker is a
Speaker 1: way of coordinating market participants within unit swap. So you
Speaker 1: know there's two classes of users, right, we call them
Speaker 1: traders and then liquidity providers or takers and liquidity providers,
Speaker 1: and then there's also and And creating a new market
Speaker 1: on unit swap is incredibly easy, the same way that
Speaker 1: anyone can kind of create a new account on bitcoin
Speaker 1: or on ethereum, and anyone can deploy a new code
Speaker 1: to ethereum, and anyone can transfer value on ethereum. Anyone
Speaker 1: can create a new market on unit swap. So there's
Speaker 1: basically a smart contract that dictates, you know, the creation
Speaker 1: of new markets. Anyone can basically create new assets, right,
Speaker 1: you can also create new assets on ethereum very easily.
Speaker 1: So anyone can create a new asset on ethereum and
Speaker 1: then they can add that asset to unit swap. And
Speaker 1: in the same way that you know ethereum is decentralized
Speaker 1: and permission lists and and can be access anywhere in
Speaker 1: the world, the same exist for unit swap markets. And
Speaker 1: so anyone can create a new market by you know,
Speaker 1: calling what's called a factory smart contract, which deploys a
Speaker 1: new market for two tokens, and then they can create
Speaker 1: liquidity in those two tokens by basically depositing some of
Speaker 1: two assets into that smart contract. So you might deposit
Speaker 1: some U s d C, which is a stable coin,
Speaker 1: and some ETH and then that creates a marketplace between
Speaker 1: E and U s DC. And then what you know
Speaker 1: very different is that rather than having just market makers
Speaker 1: posting it and asks, essentially the smart contract manages the
Speaker 1: market making for you. So you just deposit capital into
Speaker 1: the contracts. The contracts automate the pricing, the price updating,
Speaker 1: the rebalancing, and then people can immediately start trading against it,
Speaker 1: and so you're not matching up buyers and sellers. You'll
Speaker 1: have this smart contract which will always buy and sell
Speaker 1: in either direction in either asset, and then people who
Speaker 1: trade against that, and so you're not coordinating between people,
Speaker 1: but you're actually coordinating people to a smart contract. So
Speaker 1: this is where the liquidity provision becomes quite important, right
Speaker 1: and different to other types of traditional exchanges. So you
Speaker 1: have to incentivise peep roll to contribute to the liquidity
Speaker 1: pool um in order to be able to provide liquidity
Speaker 1: for as you put it, the sort of long tail
Speaker 1: of crypto assets, things that people might not naturally make
Speaker 1: markets in. Yeah, So what's really interesting is in a
Speaker 1: traditional order buck structure, essentially all market makers are competing
Speaker 1: against each other. You know, Basically the first person to
Speaker 1: put up in order, you know, is executed in a
Speaker 1: a MM or an automated market maker you know, essentially
Speaker 1: pools liquidity across thousands of different liquidity providers and together
Speaker 1: they function as a single market maker in sort of
Speaker 1: sharing the same strategy in this automated market maker. And
Speaker 1: so you might put in a hundred dollars someone someone
Speaker 1: else might put in a thousand dollars. Someone else might
Speaker 1: put it in a hundred thousand dollars, and that's all
Speaker 1: pulled together and market makes us a single unit unit
Speaker 1: spot basically has built in fees, and so every time
Speaker 1: someone makes a trade, there's a fee taken on that trade,
Speaker 1: and that's paid out to liquidity providers as are called.
Speaker 1: And so liquidity providers are taking on some price risk
Speaker 1: because you know, the the automated market maker is managing
Speaker 1: their their liquidity before them and buying and selling tokens,
Speaker 1: and there is some price frisk being taken on, but
Speaker 1: that's compensated for in these being paid paid by people
Speaker 1: who want to trade against it, right, so explain that.
Speaker 1: So you mentioned, for example, a pair trade between E
Speaker 1: and U S d C. And if I look at
Speaker 1: the website coin and get go right now, that is
Speaker 1: actually the number one. It looks like that's the highest
Speaker 1: volume traded pair. So if I had some and I
Speaker 1: had some U S d C, I could put both
Speaker 1: into this pool. And then what I'm locking it up
Speaker 1: for a defined period of time or for period of time,
Speaker 1: and then how much am I getting paid? Like explained
Speaker 1: to me, like exact the mechanics of what my incentive
Speaker 1: is uh to lock them up. There you locked up
Speaker 1: for as long as you want, essentially, right, so you
Speaker 1: can lock it up for a second a day, well,
Speaker 1: I mean at the times the block, so fifteen seconds
Speaker 1: is the minimum, or you know, a day or a year,
Speaker 1: however long you want. And while you're so, let's say
Speaker 1: you put in a thousand dollars and the entire pool
Speaker 1: is a hundred thousand dollars, you are now one percent
Speaker 1: of that liquidity pool, and so you are earning one
Speaker 1: percent of the trading fees on that pair. And so
Speaker 1: in terms of like the profits right now, there's a
Speaker 1: point three percent fee taken on every trade, and you
Speaker 1: know there's about one point to So today's volume was
Speaker 1: one point two billion dollars and so you know, one
Speaker 1: point two billion times. I can just do the math
Speaker 1: right now, but so it's a point three percent fee.
Speaker 1: You know, you're getting about three point six million dollars
Speaker 1: and fees today on un swap distributed to liquidity providers.
Speaker 1: And so one way to think about is, you know,
Speaker 1: if a pair is earning a thousand dollars in fees
Speaker 1: per day and you're one percent of that pair, then
Speaker 1: you're earning about ten dollars in fees per day. If
Speaker 1: you're ten percent of you're earning a hundred dollars per day.
Speaker 1: And so you know, the returns are very kind of
Speaker 1: different across different pairs. There's tens of thousands of different
Speaker 1: trading pairs and they're all doing different volumes, and so
Speaker 1: you know, returns have been all over the place. So
Speaker 1: just to be clear, the trading fees for end users,
Speaker 1: so you don't. Not everyone has to lock up. Some
Speaker 1: people might just want to go from one coin to another.
Speaker 1: Those are constant. But what determines how much UM the
Speaker 1: liquidity providers get ultimately is based on their share of
Speaker 1: the pool. So in theory is that how like the
Speaker 1: is that how the remuneration structure works for the liquidity provider,
Speaker 1: just like how much of their the whole pool of
Speaker 1: their steak is. You know, what we're calling fees is
Speaker 1: actually very is much closer to what a spread would
Speaker 1: be on a quarter book UM. And there's no you know,
Speaker 1: exchange fee. Right, There's the whole point, right is it's
Speaker 1: it's decentralized, and so you have participants who are creating
Speaker 1: these liquidity pools, and then there is this this spread essentially,
Speaker 1: which is what the point three percent is, which is
Speaker 1: you know, collected on a trade, and those are paid
Speaker 1: out to liquidity providers proportional parada proportional their portion of
Speaker 1: the liquidity pool. What's the downside of providing liquidity in
Speaker 1: this way? Because I imagine without someone sort of in
Speaker 1: between the trades or a traditional market maker, you could
Speaker 1: for instance, see like quite a big spread, I guess,
Speaker 1: or at least like prices move before a trade is
Speaker 1: actually executed on well, so there's risks to being a
Speaker 1: liquidity provider, right. Being a liquidity provider is similar to
Speaker 1: being a market maker, which is that you take on
Speaker 1: price risk. Basically, you take on risk in the divergence
Speaker 1: between the two assets, right, because you're putting up two
Speaker 1: tokens and you're getting out two tokens, but you're not
Speaker 1: getting them out at the same ratio. If there's been
Speaker 1: a price change, and so you know, UNI swab is
Speaker 1: constantly being arbitraged against other against other markets. If there's
Speaker 1: a very large price movement, you might have sold some
Speaker 1: of your token. You just essentially sells on the way
Speaker 1: up and buys on the way down. And so if
Speaker 1: you there's a very large price movement, you might have
Speaker 1: sold some tokens at a suboptimal price and and lose
Speaker 1: some some money there. But you know you're earning fees
Speaker 1: along the way, and you know, very frequently or very
Speaker 1: often that makes up for it. So someone could put
Speaker 1: in ten nis in ten USDC and Okay, I'm gonna
Speaker 1: forget about it for a year and collect some yield,
Speaker 1: but I do run the risk of crashes of the meantime, Yeah, basically,
Speaker 1: but you know it could crash and it could still
Speaker 1: be profitable in a world where enough fees have been collected.
Speaker 1: One thing to think about here is if you're thinking
Speaker 1: about maybe like the biggest market paers in the world, right,
Speaker 1: you still can compete on these But as I kind
Speaker 1: of highlighted before, for kind of you know, let's say
Speaker 1: it's some new asset gets created, it's just got created today.
Speaker 1: Let's say, and you know they want and you know
Speaker 1: they can't, they can't immediately just reach out to a
Speaker 1: professional market making firms and say, hey, we created this
Speaker 1: new asset. You know, we're one of five thousand assets
Speaker 1: that got created today on ethereum. You know how do
Speaker 1: we uh? And I'm barely exaggerating there in the numbers. Essentially,
Speaker 1: all the creators of that asset need to do is
Speaker 1: a basically can deposit some of that to some of
Speaker 1: one token and some of another token into unit swap
Speaker 1: and there's immediately a trading pair that people can trade
Speaker 1: against immediately. So it's kind of one one thing to
Speaker 1: think about. One analogy, it's almost like the user generated
Speaker 1: content like Netflix first YouTube, but for liquidity Netflix, you
Speaker 1: kind of have this limit in the amount of content
Speaker 1: you can create, and they sort of whereas this is
Speaker 1: like user generated content, but for liquidity. So just on
Speaker 1: that note, I guess one of the problems with decentralized
Speaker 1: UM user generated content is that it could migrate somewhere else.
Speaker 1: And I have to admit, like I just heard a
Speaker 1: little bit about this. I had some people actually asking
Speaker 1: UM if we could do an all thoughts episode entirely
Speaker 1: on this, but could you please explain what happened with
Speaker 1: shoot Sushi Swap and this idea that they UM siphoned
Speaker 1: off your liquidity. Oh, we're good, this is the good
Speaker 1: stuff here. Yeah. So this is like people call this
Speaker 1: a vampire attack, which immediately means we must ask you
Speaker 1: about it. Yeah. Yeah, so so funny enough. You know
Speaker 1: that the siphon off thing is is really funny because
Speaker 1: before Sushi Swap launched, Una Swap had three hundred million
Speaker 1: dollars in its liquidity pools, and and after Sushi Swap
Speaker 1: it had about one point six billion, and today it
Speaker 1: has about nine billion. It definitely has enciphoned off liquidity.
Speaker 1: But essentially, unit swamp is a decentralized protocol, right, and
Speaker 1: you know, something that's sort of core to smart contracts
Speaker 1: on Ethereum is the the idea of open source software.
Speaker 1: Unit swap is basically built entirely open source, right, so
Speaker 1: all the code is is probably available so that people
Speaker 1: can verify the kind of workings of it. And but
Speaker 1: basically the whole idea, right is users don't need to
Speaker 1: trust anyone with their money, they're just trusting the code
Speaker 1: that's being run. And so all the code of UNI
Speaker 1: swap is is publicly available. And so essentially what we
Speaker 1: saw is Shi swap was if someone created a fork
Speaker 1: of unit swap the same way we've seen forks of
Speaker 1: Bitcoin in forks of other crypto platforms, and they released
Speaker 1: a new token, uh, and they basically INCENTI said, anyone
Speaker 1: who is our version of this protocol will be earning
Speaker 1: sushi tokens. And so they kind of incentivized people to
Speaker 1: basically put their liquidity in Sushi swap instead of Uni swap,
Speaker 1: to kind of try to compete with Uni swap and
Speaker 1: grow their own liquidity. And for a while that had
Speaker 1: an effect where you know, there's a little bit added
Speaker 1: context here, which is that when you create liquidity on
Speaker 1: uni swamp, you get a token that represents your portion
Speaker 1: of that liquidity pool. Right, I had kind of mentioned that,
Speaker 1: you know, if you're earning if you're one percent of
Speaker 1: the pool, you're earning one percent of the fees. There's
Speaker 1: actually a token that says, you know, I own one
Speaker 1: percent of the DIE and USDC in this contract. So
Speaker 1: what Sushi Swap did is a basically incentivized people to
Speaker 1: deposit their Uni swab liquidity tokens. While they were deposited,
Speaker 1: they were earning fees. Basically they were earning sushi tokens.
Speaker 1: And then at the very end of this I think
Speaker 1: it was like a ten day period basically they migrated
Speaker 1: all the liquidity over to their own system. The actual result, though,
Speaker 1: is funny enough, a huge increase in Uni swaps liquidity
Speaker 1: during that period of time and how was migration. Actually
Speaker 1: huge amount of liquidity stayed and and the overall system
Speaker 1: has grown. So it's been quite beneficial in the long
Speaker 1: run for you SPA. But it was a very interesting,
Speaker 1: uh time for share So what were you actually thinking
Speaker 1: when this was happening. It's sort of like a ten
Speaker 1: day period when people have basically you know, they're leaching
Speaker 1: off the protocol that you created in order to um
Speaker 1: steal your liquidity. How did that feel? I'm just curious,
Speaker 1: like what you were doing during that time frame for
Speaker 1: some contacts. Right, I had been working on this project
Speaker 1: for over three years at that point, so I know
Speaker 1: the first two years was was I was the only
Speaker 1: person working in full time on unit swab, and then
Speaker 1: I've kind of built out of a company over the
Speaker 1: past year and a half two years. Someone came along, right,
Speaker 1: and the probably in five days, they created a new
Speaker 1: token and they forked the entire protocol and said, hey,
Speaker 1: you know, use this one instead and have a huge
Speaker 1: portion of those tokens reserved for the people who created it.
Speaker 1: This open question and defied generally, right, which is like,
Speaker 1: you know, how do creators capture value owen and how
Speaker 1: do our creatives rewarded for their efforts? And there did
Speaker 1: did There was this element it was maybe a little
Speaker 1: bit personal to it, but at the same time that's
Speaker 1: also part of you know, the fact that it was
Speaker 1: open source. It's also fair game, right, as part of
Speaker 1: the ethos is the fact that you can kind of
Speaker 1: have competitor spin up and then the long runess it's
Speaker 1: worked out. There's so many questions, but I will make
Speaker 1: a so many things. I'm trying to think which way
Speaker 1: to go next, but I will say so unite swab
Speaker 1: on May five. So I don't know exactly what day
Speaker 1: people are gonna be listening to this, but right about now.
Speaker 1: But on May five, according to something, you're launching a
Speaker 1: version three and we could talk about some of the
Speaker 1: upgrades and why you launch new versions. But you are
Speaker 1: releasing that code under a different license, Am I correct? Yeah? Correct,
Speaker 1: We're using something called the Business Source License, which essentially,
Speaker 1: you know, all the code is public, all verifiable. You know,
Speaker 1: people can build on top of it and integrate it.
Speaker 1: And for the first two years or two years at
Speaker 1: a maximum, could could be less, but two years of
Speaker 1: sort of this hardcap. Essentially you can't you can't or
Speaker 1: get in a production set. So in theory, you can't
Speaker 1: be sushi swapped, you can't be vampire attacked for at
Speaker 1: least two years in there does that sort of fly
Speaker 1: in the face of the decentralized ethos, Like I get
Speaker 1: that it's always a balancing act, but it feels like
Speaker 1: one of the big selling points of UNI swap was
Speaker 1: that it was truly a decentralized exchange, and if you
Speaker 1: move away from open source UM ideals, then maybe it
Speaker 1: isn't I think that it's you know, truly decentralized in
Speaker 1: that you know, it's all completely verifiable, it's all you know,
Speaker 1: no one controls it, right, there's still this no control
Speaker 1: even the kind of license. Uh, you know, there's this
Speaker 1: sort of this community governance system that I haven't even mentioned,
Speaker 1: we haven't gotten into, but the community government system actually
Speaker 1: does have so the un swap community does have the
Speaker 1: ability to kind of grant exemptions to that license or
Speaker 1: even reduce the kind of two year period where it's
Speaker 1: can't be forked. One of the kind of funny things
Speaker 1: is that there is this sort of community of users
Speaker 1: and developers around unit spop And when we were releasing
Speaker 1: the UNI swaft e three code, there was kind of
Speaker 1: this feeling of you know, what, what would the uniwop
Speaker 1: community want. Does it want you know, to be CUSHI
Speaker 1: swop day one? Does it want to be swap day two?
Speaker 1: Or does it you know, does it want to have time?
Speaker 1: You know, the kind of long term modes almost if
Speaker 1: you think about it, of decentralized protocols, the best example
Speaker 1: would always be ethereum for for these types of things.
Speaker 1: But the long term value is in the network effect,
Speaker 1: in the community um that build up around it. And
Speaker 1: so the idea here is essentially to kind of protecting
Speaker 1: un swap community in the short term and in the
Speaker 1: long term there will be this sort of massive network
Speaker 1: effect built up around it. Explain the role of the
Speaker 1: unit swap token in the network, because there is in
Speaker 1: addition to the exchange of the protocol, like everything, there
Speaker 1: is a token associated with it. My understanding of right,
Speaker 1: and is that the token doesn't really confer anything. It's
Speaker 1: not equity. I don't think from what I understand, the
Speaker 1: token holder actually collects any of the trading fees or
Speaker 1: the spread or anything. And yet the token has gone
Speaker 1: absolutely nuts. And if you bought it a year ago
Speaker 1: or when it came out, you'd be sitting out of
Speaker 1: fortune right now. What is the role of the uh
Speaker 1: UNI the coin? Yeah, so I think that, you know,
Speaker 1: it might even be helpful here to back up and
Speaker 1: give some added context about you know, what are it like?
Speaker 1: You know, the value of defying the value of unit
Speaker 1: spop is in its decentralization, right, And there's a decentralization.
Speaker 1: There's kind of a lot to even unpacking that word, right.
Speaker 1: You know, it doesn't mean that no one controls. It
Speaker 1: doesn't mean that, you know, there's no kind of central
Speaker 1: points of failure. And there's different ways of achieving decentralization. Right.
Speaker 1: One way of achieving decentralization, and we've seen a lot
Speaker 1: of people talk about it, is through kind of automation, right,
Speaker 1: and so what that means is basically relying entirely on
Speaker 1: code essentially, right, So smart contracts can have logic that's
Speaker 1: built in, and you know that logic can basically lead
Speaker 1: to a very decentralized world, right where the you know,
Speaker 1: you're not relying on any people or any company to
Speaker 1: to follow its word. You're just relying on the code
Speaker 1: to execute as defined. And so you know this at
Speaker 1: its core, unit swap is decentralized and that the logic
Speaker 1: for unit swap, the protocol is entirely in these on
Speaker 1: chained smart contracts. And one of the benefits, right is
Speaker 1: that there's you know, it's not custodial, so people who
Speaker 1: put their their tokens in there, they're not trusting any
Speaker 1: third party, like if you deposit liquidity into unit spap
Speaker 1: that liquidity. The sort of right to claim that liquidity
Speaker 1: is it's in a smart contract and that smart contract
Speaker 1: is not controlled by anyone or anything other than kind
Speaker 1: of you know, Ethereum skin census your private key. Right,
Speaker 1: if you have an Ethereum private key, that gives you
Speaker 1: the right to claim your portion of the liquidity and
Speaker 1: no one else can claim it and you're not you
Speaker 1: don't need to trust anyone else this type of system, right,
Speaker 1: that's the most important version of decentralization. But what there
Speaker 1: are there are things that can't be decentralized in that
Speaker 1: same way. You know, another way of achieving decentralization is
Speaker 1: relying on almost market dynamics, and so a really good
Speaker 1: example would be like proof of steak and Ethereum is
Speaker 1: basically achieving decentralization and proof of work I guess, and
Speaker 1: b pitpoint is achieving a decentralization through economic incentives. Essentially,
Speaker 1: you know, people have an incentive to act in a
Speaker 1: good way or they're losing money. That's that's another version
Speaker 1: of decentralization and an incredibly important one. But when you
Speaker 1: talk about you know, a decenter, like a decentralized ecosystem.
Speaker 1: But there there are still things. There's still sometimes decisions
Speaker 1: that can't be perfectly made and don't have perfect answers
Speaker 1: from a market incentive standpoint, right, those types of decisions
Speaker 1: are still important words building out this this decentralized finance ecosystem.
Speaker 1: The way that I think about unit swapped the un
Speaker 1: swapt token, which is a governance token. Essentially, its role
Speaker 1: is taking on decision making in the best way possible,
Speaker 1: um in the most es centralized way possible, make making
Speaker 1: decisions that can't be immediately automated and can't be you know,
Speaker 1: it's essentially coordinating the human element of the decentralized finance
Speaker 1: movement and end of unit swap, which you know can't
Speaker 1: just be perfectly automated or and it can't perfectly rely
Speaker 1: on market incentives. That's essentially the role of the UNI token.
Speaker 1: And so something that's really cool is that unique token
Speaker 1: holders can't, for example, just withdraw all the funds from
Speaker 1: the un spot protocol. Right, that's a decentralized you know,
Speaker 1: it makes them more decentralized. Right. But there are kind
Speaker 1: of these other things, right like long term community ecosystem
Speaker 1: growth and development. Uh, there's a lot of value that
Speaker 1: can be kind of created by the un spot protocol UM,
Speaker 1: and there's a lot of sort of human work and
Speaker 1: effort that can be coordinated to towards building value and
Speaker 1: growing the protocol. That's sort of the role of the
Speaker 1: UNI token. So the only kind of are the main
Speaker 1: kind of governance action that it's taken so far, it
Speaker 1: is basically spinning out this this grants to me UM.
Speaker 1: So you know what the Uni swap governance is it's
Speaker 1: an ontain government system. So unied token holders can vote
Speaker 1: on on actions from a smart contract, and that smart
Speaker 1: contract has a treasury. Just to be clear, could at
Speaker 1: some point the UNI token holders vote to pay a
Speaker 1: de facto dividend to unied token token holders down the road.
Speaker 1: I mean, so use governance is a smart contract and
Speaker 1: it's very broad in what it can do. And so
Speaker 1: definitely the UNI swap token holders are unwap Governance has
Speaker 1: this thing that we call the fee switch, which is
Speaker 1: a sort of built in kind of bee that can
Speaker 1: be taken off the you know, basically it can come
Speaker 1: out of liquidity provider fees. So right now point three,
Speaker 1: but this UNED token holders could vote to add up
Speaker 1: to a point zero five percent fee, which is a
Speaker 1: pretty low fee kind of coming out of that that
Speaker 1: that could theoretically be kind of given. You know, it's
Speaker 1: sort of a government system, so it can do whatever
Speaker 1: it wants with the fees that it got and so
Speaker 1: or whatever the UNI token holders want and whatever the
Speaker 1: community wants. So the UNISWAP governance system has it's like
Speaker 1: built in trad tree and so it has kind of
Speaker 1: and and so far it's it's basically the main things
Speaker 1: that it is done is basically fund other teams and
Speaker 1: projects and developers building on top of the unit spalp ecosystem.
Speaker 1: So you know, there's other kind of teams building analytics
Speaker 1: platforms and other interfaces, and those kind of gifts have
Speaker 1: been funded out of UNI token holders who who voted
Speaker 1: to fund that. So there's this community treasury. It technically
Speaker 1: has a fourteen billion dollars worth of UNI tokens in it,
Speaker 1: and so it doesn't necessarily need trading fees either because
Speaker 1: it can sort of use the UNI tokens for for disbursement,
Speaker 1: but in the future it could theoretically collect keys. So
Speaker 1: I mean, it does seem like you guys are working
Speaker 1: on quite a lot at this moment in time. We
Speaker 1: spoke a little bit about the new protocol, but what
Speaker 1: do you think is next for you, um in terms
Speaker 1: of your own company's development, the technology and the wider
Speaker 1: crypto market. So we we've just seen this big moment
Speaker 1: for coin base, which we talked about a little bit
Speaker 1: in the intro, But where do you see UNI swap
Speaker 1: actually going over the next you know, a couple of years. Yeah,
Speaker 1: I think that it's you know, something that's really important
Speaker 1: to think about when you're thinking about DEFY is how
Speaker 1: early on we're in DEFY And you know DeFi is
Speaker 1: essentially what we're trying to do is modernized financial infrastructure.
Speaker 1: And so there's all these you know, these benefits, right
Speaker 1: that are kind of inherent. You might have seen stuff
Speaker 1: like you know, very centralized exchanges, whether it's crypto exchanges
Speaker 1: like coin based and Finance, or you know non crypto
Speaker 1: exchanges like robin Hood, or brokers like robin Hood or
Speaker 1: you know a meritory. They all have these sort of
Speaker 1: downtime and you know, there's these like inherent benefits to DEFY,
Speaker 1: but you know it's also early and so there's also
Speaker 1: sort of these uh early downsides. One way to think
Speaker 1: about is we're in the early days of the internet, right,
Speaker 1: and so you know, people who there's sort of transaction
Speaker 1: fees can be high at times, it doesn't have it
Speaker 1: can't process them that many transactions in the early days, right,
Speaker 1: So it's kind of like you know a O L
Speaker 1: days where things are still a little bit slow, but
Speaker 1: they're getting built out very rapidly. And I think that
Speaker 1: over the coming years we should expect Defy and Ethereum
Speaker 1: to scale up from being able to do what it
Speaker 1: can do today, which is ten transactions per second to
Speaker 1: you know, being able to do hundreds or thousands or
Speaker 1: millions of transactions per second. We've seen a kind of
Speaker 1: explosive best explosion in the usage of d fium. So
Speaker 1: you know, you just didn't exist two years ago. Right
Speaker 1: today is doing ten billion dollars in volume. Six months ago,
Speaker 1: it was doing per week. Six months ago, I was
Speaker 1: doing about two billion, and a year ago I was
Speaker 1: doing about fifty million. So we've kind of seen this explosion,
Speaker 1: and I think it's attracting a lot of new users.
Speaker 1: We've we've seen that kind of similar explosion users, but
Speaker 1: it's still in the like maybe five thousand users range.
Speaker 1: But I think over the coming years, these sort of
Speaker 1: inherent benefits of d FI are gonna become more apparent
Speaker 1: and the downsides are going to be slowly worked out. Well,
Speaker 1: let me ask you a question, because you talk about
Speaker 1: users and you talk about the benefits of Defy, and
Speaker 1: I have to admit, like the technology, the sort of
Speaker 1: rethinking of what a market maker can be, he's really cool.
Speaker 1: And the liquidity I'm super impressed by it. However, when
Speaker 1: you think about like a traditional stock exchange, one of
Speaker 1: the nice things about a stock exchange is you can
Speaker 1: raise money there and then go do something. So, for example,
Speaker 1: you could be a company like game Stop and raise
Speaker 1: money on the stock market and then go build physical
Speaker 1: video games stores, which may not be the best business
Speaker 1: these days, but whatever it is, what it is, or
Speaker 1: you could build something really exciting. When I look at
Speaker 1: what's when you refer to like using defy, it just
Speaker 1: seems like, Okay, you have a bunch of people who
Speaker 1: are trading, that's cool, and you have people who are
Speaker 1: sort of lending or staking and earning yield. That's cool,
Speaker 1: But like who's doing the borrowing? In other words, like
Speaker 1: where are you competing with trad fire. I guess for
Speaker 1: like actual people who need liquidity or people who want
Speaker 1: to raise money, it seems like a bunch of trading
Speaker 1: and lending. But where is the like sort of like
Speaker 1: end user who's getting something out of the system that
Speaker 1: isn't just more trading. Because also when I look at
Speaker 1: all the top coins, everyone just seems to me it's
Speaker 1: like this like Russian doll of Well, this is the
Speaker 1: thing that it's just more coins. That's a really good question,
Speaker 1: and I think that that gets to what I was
Speaker 1: saying about it being in the early days, and so
Speaker 1: you know, where a DeFi is now will necessarily be
Speaker 1: where it is in a couple of years. I think
Speaker 1: that in you know, five ten years, it won't be
Speaker 1: called defiled, just be called finance. So in part of
Speaker 1: what we're trying to do is build better financial infrastructure
Speaker 1: that has inherent benefits to it that will sort of
Speaker 1: benefit the entire class of existing financial use cases. There
Speaker 1: is a lot right now. It is sort of living
Speaker 1: like there is kind of this almost closed ecosystem or
Speaker 1: closed system of crypto and crypto like you know, like
Speaker 1: within crypto, right you saw already kind of works better
Speaker 1: than most centralized exchanges, right, and and these decentralized lending
Speaker 1: systems are far more used than than other ones. But
Speaker 1: outside it's still not it hasn't quite penetrated. And in
Speaker 1: the early days of of anything, right, it's more as
Speaker 1: kind of die hard users and kind of early adopters.
Speaker 1: And that's definitely the phase where we are. And over time, though,
Speaker 1: basically the kind of ux barriers will will be reduced
Speaker 1: and the kind of security will increase, in the kind
Speaker 1: of groutput will increase, the more people will be exposed
Speaker 1: to the very real benefits that underlie it, because there
Speaker 1: are so there's sort of like fundamental benefits and value
Speaker 1: to defy. It's true that those are not all being
Speaker 1: accessed by a wide enough audience. And what we're expecting
Speaker 1: over the coming years is for that to change, and
Speaker 1: we're expecting for more people to get brought in. But
Speaker 1: that's like a you know, an ongoing process, and we're
Speaker 1: still in the early days of that. But can you
Speaker 1: give me an example of how someone who needs to
Speaker 1: raise money for something that's not just more tokens, or
Speaker 1: someone who needs to borrow for something that's not just
Speaker 1: a token development thing gets value from financing, and the
Speaker 1: DeFi system is opposed to all the One kind of
Speaker 1: really easy example is people in kind of you know,
Speaker 1: like we have this sort of a nice advantage of
Speaker 1: living in the US and having at least mostly trusting
Speaker 1: our banks and you know, having a lot of acts.
Speaker 1: You know, we we still have pretty good access to
Speaker 1: financial tools, but there's definitely you know, a huge portion
Speaker 1: of the world that doesn't have as good access, and
Speaker 1: you probably would love to even be able to open
Speaker 1: a US bank account. A very probably early adopt use
Speaker 1: case that I could see UM growing is first off,
Speaker 1: having a U a US bank account would be great
Speaker 1: just being able to store dollars and in US dollars,
Speaker 1: but then beyond that being able to earn a return
Speaker 1: on them. And so these decentralized money markets that we're seeing,
Speaker 1: along with these kind of decentralized stable points that we're seeing,
Speaker 1: could give people, you know, in in in the world
Speaker 1: countries and in developing economies exposure to less risky assets
Speaker 1: and and even yields on those assets UM which I
Speaker 1: think will be a pretty big early ES game. Do
Speaker 1: you worry at all that as DeFi becomes more accepted
Speaker 1: by traditional finance or more incorporated into traditional finance that
Speaker 1: it loses I guess some of the ethos or culture
Speaker 1: that began it. Like I'm thinking this idea of generating
Speaker 1: yields and things like that, there are people out there
Speaker 1: who would see this very much as a money making opportunity.
Speaker 1: One thing that that's kind of important is, you know
Speaker 1: what infrastructure is the global economy run on? And right now,
Speaker 1: it's sort of run on these kind of siloed centralized
Speaker 1: systems that people are bridging across. And there is these
Speaker 1: inherent benefits to running everything on this sort of shared,
Speaker 1: globally accessible infrastructure, and you know, there's still benefits I think,
Speaker 1: I think the defy you know, in the long run, right,
Speaker 1: not everyone wants to self custody either on fund right,
Speaker 1: Plenty of people don't want to think about you know,
Speaker 1: private key management all this stuff, right people, you know,
Speaker 1: many people want to use a bank, but you know what,
Speaker 1: what are banks using as their rails? Are they using
Speaker 1: kind of you know, these siloed, closed off systems or
Speaker 1: are they using this sort of global infrastructure that is
Speaker 1: kind of inherently accessible but and shared. And I think
Speaker 1: that's part of the the idea here, like there's these
Speaker 1: inherent benefits. Right, So one one thing to think about
Speaker 1: is downtown time. In other ways, like centralized exchange hacks. Right.
Speaker 1: You know a lot of the problems that Defy solved
Speaker 1: users don't really care about until it affects them personally.
Speaker 1: But what it does, it's like catastrophic, right. And so
Speaker 1: you know a lot of people have held funds and
Speaker 1: you know, not being able to withdraw them, or your
Speaker 1: your bank shut you out, or all these different things
Speaker 1: that happened. Right, the kind of in the long run, right, people,
Speaker 1: you know, if if Defy successful this sort of amount,
Speaker 1: the kind of these types of events should be much
Speaker 1: more rare, and users should have a much better kind
Speaker 1: of experience using financial tools um in a way that
Speaker 1: you know, they might don't even think about it in
Speaker 1: the moment, but they're sort of benefiting it from it indirectly.
Speaker 1: And so yeah, I do agree that, you know, it's
Speaker 1: incredibly important as we build defy to some extent, right,
Speaker 1: it's a it's a chance to correct some of the
Speaker 1: wrongs that were made the first time in the kind
Speaker 1: of creation of the first of the of the existing
Speaker 1: financial system. One really interesting example of that is, you know,
Speaker 1: incentive alignment. Um, there's sort of this principal agent problem
Speaker 1: that we see. You know, if you think about even
Speaker 1: like the subprime mortgage crisis, where you know a lot
Speaker 1: of the people who were kind of creating these risky mortgages, right,
Speaker 1: they didn't have personal risk and personal accountability, um, if
Speaker 1: something went wrong. And our hope in building out defy
Speaker 1: as an ecosystem is essentially the people who are making
Speaker 1: the decisions, right, they're directly accountable financially or if something
Speaker 1: goes wrong, and you know, the hope is that that
Speaker 1: kind of benefits everyone. You know, the yeah, there'll be
Speaker 1: a lot of people kind of making money and and
Speaker 1: in it for themselves, and you know, that's sort of
Speaker 1: just part part of how capitalism works. But I think
Speaker 1: that there's these sort of inherent benefits that can be
Speaker 1: built into the systems, you know, if the people who
Speaker 1: are building them care to do so. And that's sort
Speaker 1: of my hope. So on these big so you know,
Speaker 1: you talk about some of the benefits of decentralization, so
Speaker 1: on these like the big block chains like Bitcoin and ethereum,
Speaker 1: it would be extremely hard for anyone to hack them
Speaker 1: or take control of them or block transactions. But conversely,
Speaker 1: they're computationally expensive, and that translates into monetarily expensive fees
Speaker 1: For if you want to send a bitcoin transaction are
Speaker 1: fairly high, if you want to send an ethereum transaction
Speaker 1: are fairly high. Uh, they're not particularly fast. There are
Speaker 1: other decentralized exchanges that exist. The second biggest one right
Speaker 1: now is I think something called pancakes Swap, which runs
Speaker 1: on the the Binands smart chain, which is its own
Speaker 1: a blockchain, and they're selling point is from what I understand,
Speaker 1: way faster, way, lower fees, probably somewhat less decentralized. But
Speaker 1: if you're just sort of a random retail trader, you're
Speaker 1: someone who wants to spin up a project, why go
Speaker 1: to UNI swap where a trade or a connection could
Speaker 1: you know, cause like fifty dollars and the ethereum when
Speaker 1: you can go way go way cheaper and faster on
Speaker 1: something like serum or pancakes swap. Something that I said
Speaker 1: before is people don't care about the benefits of decentralization
Speaker 1: until it affects them, right. Pancake Swap is essentially is
Speaker 1: saying like, yeah, it's you get all the benefits of
Speaker 1: UNI swap except you know, except it's run on you know,
Speaker 1: twelve servers on by binance, right, and so it kind
Speaker 1: of and and that sort of gets that this like
Speaker 1: what is the fundamental value of UNA. The fundamental value
Speaker 1: of uniswap is that it's decentralized. And you know, there
Speaker 1: there are hundreds of people around the world working really
Speaker 1: hard to kind of scale up uh, you know, decentralized protocols,
Speaker 1: but it's a sort of long and there there. I
Speaker 1: think that some of them are kind of going to
Speaker 1: be coming to the market very soon, but it's still
Speaker 1: like a very kind of intense technical problem. And if
Speaker 1: you're kind of just saying, oh, well, you know, we can,
Speaker 1: we can centralize it and everything will be fine, I
Speaker 1: mean some people don't you know, some people don't care,
Speaker 1: and you know, centralized exchanges probably will always have market share.
Speaker 1: But in the long run, right, they still still have
Speaker 1: this same problem, right, which is that what happens if
Speaker 1: if finance decides to kind of change everyone balances, you know,
Speaker 1: you know, they kind of change change their twelve notes
Speaker 1: to to running, right, they can kind of rewrite history whatever, right,
Speaker 1: and so you sort of lose these kind of fundamental
Speaker 1: value and so yeah, you can always scale up to
Speaker 1: by sacrificing decentralization. But what is really hard is scaling
Speaker 1: without sacrificing decentralization. And you know, the main kind of
Speaker 1: solutions there which are in the works and it are
Speaker 1: coming are you know, THEORYM two point oh with with charning.
Speaker 1: But also you know ethereum layer two solutions such a
Speaker 1: roll up, you know, those are kind of the real
Speaker 1: solutions that are much more decentralized and retain more of
Speaker 1: the properties that I think are you know, fundamentally valuable
Speaker 1: about defied. So there's one other um big thing which
Speaker 1: we haven't really mentioned, and I guess it's again a
Speaker 1: sort of tension um or risk that's inherent in defy.
Speaker 1: And this is the response of the regulators. Do you
Speaker 1: worry at all that someone like the Securities and Exchange
Speaker 1: Commission is going to come in and take a hard
Speaker 1: look at the tokens trading on your platform and decide
Speaker 1: that you are in fact dealing registered securities or unregistered securities,
Speaker 1: I should say, yeah, I mean I think that you
Speaker 1: know one interesting thing here right is you know you
Speaker 1: can almost look at bitcoin and you can look at
Speaker 1: Ethereum as leading examples where you know, I think it
Speaker 1: took time for regulators, and I think, but I think
Speaker 1: over time, you know, regulators have slowly become more comfort
Speaker 1: able with bitcoin and with ethereum as these infrastructure layer
Speaker 1: uh decentralized infrastructure layer platforms, and sort of recognize that
Speaker 1: people can build you know, regulatorily compliant or non compliant
Speaker 1: applications on top of them. Right, you can build a
Speaker 1: compliant token on on on ethereum, and you can build
Speaker 1: a non compliant token on on ethereum, and you can
Speaker 1: build right and and Ethereum is sort of this lower
Speaker 1: level infrastructure underlying it and you know, unit swap while
Speaker 1: there are stuff like interfaces to it that that exists
Speaker 1: on top of it, and those interfaces kind of feel
Speaker 1: more like you know, traditional exchanges in terms of what
Speaker 1: they look like, uh, you know visually, the infrastructure underlying it, right,
Speaker 1: is still this sort of low level infrastructure and platform
Speaker 1: that supports you know, regulated and and you know that
Speaker 1: can kind of people can spin up a you know,
Speaker 1: a regulated compliant market on top of the unit swap, right,
Speaker 1: and and we've seen that happen. And and then there's
Speaker 1: still value in defy even with that being the case.
Speaker 1: And so I think that, you know, as the same
Speaker 1: way that sort of regulators became comfortable with Ethereum over
Speaker 1: time seeing it as an infrastructure. There I think that
Speaker 1: all the same things, you know, un kind of hits
Speaker 1: the same bars of decentralization that ethereum itself does because
Speaker 1: it runs entirely on Ethereum and is you know, entirely
Speaker 1: composed with Aum smart contracts, right, and so you know,
Speaker 1: the hope is that in much the same way that
Speaker 1: Ethereum is is understood to be infrastructure, it will be
Speaker 1: recognized that unit swap resolves. So is this you say
Speaker 1: it's infrastructure, but is this is the argument therefore that
Speaker 1: in the end there's no there's no securities being traded.
Speaker 1: It's just infrastructure all the way down or up. I mean,
Speaker 1: you know, I don't know how many apparently have two
Speaker 1: thousand coins? Are some of them? What are they? Are
Speaker 1: they securities? There's tens of thousands, about two per days.
Speaker 1: But it's it's it's not that the idea is basically
Speaker 1: that you know, much like the you know, the internet, right,
Speaker 1: people can do illegal or illegal things on the Internet, Right,
Speaker 1: people can do illegal or non illegal things on a
Speaker 1: theoryum can people can do illegal or not illegal things
Speaker 1: on bitcoin in that same way people can do illegal
Speaker 1: or not illegal things on unit swop. And it's a
Speaker 1: decentralized protocol that no one controls, right. And so the
Speaker 1: idea is basically that you know, maybe and I don't,
Speaker 1: I don't want to, you know, speculate where you know
Speaker 1: where regulations should occur, right, But you know, it could
Speaker 1: be you know, the issues of assets. Right. It could
Speaker 1: be you know, you can build a token that's compliant, right,
Speaker 1: you can. It could be the kind of it could
Speaker 1: be interfaces built on top of it. It could be
Speaker 1: be you know, specific marketly you know who knows. Right,
Speaker 1: But the you know, uni swap is kind of fundamentally decentralized.
Speaker 1: Someone could come to send me a letter that says,
Speaker 1: hey didn't show off unit swap, and I'd say, I
Speaker 1: can't do that, right, I have no ability to shop.
Speaker 1: You could have no ability. You could shut off unit
Speaker 1: swap dot org. Right, I've ben showed off uniswap dot org,
Speaker 1: which is a well act. Uniswap dot org is a
Speaker 1: specific training interface that exists on top. But you know,
Speaker 1: there's also something like thirty forty other trading interfaces that
Speaker 1: let you access unit swap, and so there are you know,
Speaker 1: the portion of training volume that comes through the one
Speaker 1: interface is actually a relatively small portion more than you know,
Speaker 1: something like trading happens on other interfaces or in other
Speaker 1: smart contracts. Um. You know, something we didn't really get
Speaker 1: into is that you know, you swap is this because
Speaker 1: all the liquid exists on chain, it can be used
Speaker 1: very easily within other smart applications. So a lot of
Speaker 1: trading on unit swap doesn't even happen on any interface,
Speaker 1: but happens directly on chain in other applications. And so yeah,
Speaker 1: maybe maybe you know, after got org could be shut
Speaker 1: down or could be kind of running away, you know,
Speaker 1: where it kind of restricts assets, specific assets. In fact,
Speaker 1: it already kind of does limit what you see in
Speaker 1: in in a way that is kind of designed to
Speaker 1: protect users. But there are alternate interfaces, and you know,
Speaker 1: the code is all open source, and so people have
Speaker 1: even forked the interface and spun up their own versions
Speaker 1: that that do other things, and you know, we don't
Speaker 1: really have any control over that. Hayden um I mean,
Speaker 1: is there anything else that's sort of like you want
Speaker 1: to like make sure our our listeners understand about it
Speaker 1: before we go. One really interesting aspect is what I
Speaker 1: would call them most like permissionless innovation and sort of
Speaker 1: the ease of building applications traditionally, Right, if you wanted
Speaker 1: to build let's say you wanted to build a like
Speaker 1: a I don't know, like a margin trading platform, the
Speaker 1: kind of amount of things that you would need to
Speaker 1: build to do that, right, You would need to build
Speaker 1: an exchange, you would need to build a lending system
Speaker 1: or integrate with one, you would need to kind of right,
Speaker 1: there's sort of all these different things that you need
Speaker 1: to build. But in crypto we sort of, uh, you know,
Speaker 1: there's sort of this like what we call interoperability between applications.
Speaker 1: There's you might have heard the phrase money legos, and
Speaker 1: essentially what that means is that, you know, in a
Speaker 1: single day, right, someone could basically spin up a new
Speaker 1: application that and they don't need and they could source
Speaker 1: you know, liquidity from unit swap. Right, they don't need
Speaker 1: that application. It might need exchange as a component, but
Speaker 1: it doesn't they don't need to build their own. They
Speaker 1: can just access liquiding from unit swap and you know,
Speaker 1: they maybe they spend up and they use compound for
Speaker 1: for for lending right, and you could kind of build
Speaker 1: and you know, a new system that lends an asset
Speaker 1: on on compound and trades it for another asset and
Speaker 1: unit swap and put and you can kind of create
Speaker 1: these sort of you can kind of compose applications in
Speaker 1: this sort of really powerful way where you know, things
Speaker 1: that take years to build outside of Defy can be
Speaker 1: built in days. And one of the reasons that I've
Speaker 1: seen so much, you know, so many different things, and
Speaker 1: it can be almost hard to even keep up with
Speaker 1: what's happening is how much is getting built and how
Speaker 1: quick people are building it. And there's there's kind of
Speaker 1: a lot of noise, but beneath that noise, there's like
Speaker 1: a lot of value being built. And you know, I
Speaker 1: think that that will become a more in sort of
Speaker 1: I think that the really valuable applications will become more
Speaker 1: apparent over time. I guess that's one other thing awesome. Well,
Speaker 1: I really appreciate it. I learned a lot from this,
Speaker 1: and you know, I know there's a lot more to
Speaker 1: like Defy we didn't really get into like compound and
Speaker 1: lending and old farming and all that, but this was, uh,
Speaker 1: this is great, appreciate having me, Thanks a lot, h
Speaker 1: thanks so much, Hidden That's great, So Tracy, I found
Speaker 1: that conversation to be really fascinating. I find unite swap
Speaker 1: to be fascinating. I find the whole like rethinking of
Speaker 1: market structure and this automated market maker model to be
Speaker 1: super fascinating. I have to say that, like the thing
Speaker 1: I'm like still hung up on is like, it's great
Speaker 1: to trade, and it's great to have liquidity, but I'm
Speaker 1: still like hung up on the like, yes, but liquidity
Speaker 1: for what you know, And like that stock exchange, at
Speaker 1: least in theory, you like go raise money and you
Speaker 1: do something with it. With defied SOT, it just seems
Speaker 1: like liquidity for the sake of liquidity, or trading for
Speaker 1: the sake of trading. Yeah, I agree. That's still, like
Speaker 1: I guess, a big hurdle to the market really getting
Speaker 1: UM accepted or incorporated into traditional finance. The other thing
Speaker 1: I was thinking about was this idea of uni swap
Speaker 1: basically having to completely or completely is unfair, but you know,
Speaker 1: reinvent itself every once in a while and evolve and
Speaker 1: respond to new developments in the market and things like
Speaker 1: the sushi swap vampire attack. And I think in technology
Speaker 1: that kind of experimentation or adaptation, it is the usual thing,
Speaker 1: like people change their products and they kind of experiment
Speaker 1: with what they're doing. But I think the difference with
Speaker 1: crypto is that you're always doing that with money, and
Speaker 1: that seems to make it so much more difficult, right,
Speaker 1: Like you're experimenting with people's money, and you know, for
Speaker 1: a lot of people at the moment, crypto is still
Speaker 1: this fun thing. It's just something they kind of do
Speaker 1: on the side, but it is more sensitive, and I
Speaker 1: think that makes it more difficult over the long run. Yeah,
Speaker 1: And it's a lot of money, Like all the coins
Speaker 1: added together, I don't know as of right now, it's
Speaker 1: somewhere like around two trillion dollars, And so it's a
Speaker 1: lot of money. And two, you have a lot of
Speaker 1: people who have become like insanely wealthy by buying some
Speaker 1: coin and then it goes up over the next year.
Speaker 1: This is great, but it's a little weird when it's
Speaker 1: that much money. And as Hayden basically seem to admit
Speaker 1: there's no one like at the other end, like no
Speaker 1: one is there's still it hasn't actually like found its
Speaker 1: end market for what Defy serves, and so it's like, okay,
Speaker 1: maybe it's going to be something in emerging markets and
Speaker 1: people have access to something or other, but it's kind
Speaker 1: of weird like a how much money there is and
Speaker 1: be how much money people have already made, where there's
Speaker 1: still this like ambiguity of like okay, well, like what's
Speaker 1: it going to be used for? Yeah, I mean defy.
Speaker 1: Defy contains multitudes I think, and means different things to
Speaker 1: different people. For sure. It's kind of a shame that
Speaker 1: we didn't touch more on the yield farming aspect of it.
Speaker 1: Um on that note, because you do a yield farming
Speaker 1: one too, because I know that's like a big thing
Speaker 1: and like you like put your money in here and
Speaker 1: then you get a coin, and then you put the
Speaker 1: coin in another thing and collect more yield you like,
Speaker 1: I know, a yield farmer. Maybe it will have a
Speaker 1: yield farmer on the show. Yeah, let's do it. Let's
Speaker 1: do like opposing ends of the defied movement. Let's do that. Yeah,
Speaker 1: like it's there's something for sure super interesting there and
Speaker 1: like the whole like it is very inventive, so I added,
Speaker 1: I'm super interested. It's fun. I went on Unit swap.
Speaker 1: It's fun to like look at how these things work
Speaker 1: and the ease. It's like, you know, you don't have
Speaker 1: to set up an account. You just start like dragging
Speaker 1: down things you can theoretically trade. But uh yeah, it's
Speaker 1: it's fascinating to see where it's going. Should we leave
Speaker 1: it there? Yeah, let's leave it there. Okay. This has
Speaker 1: been another episode of the All Thoughts Podcast. I'm Tracy Halloway.
Speaker 1: You can follow me on Twitter at trace See all Away,
Speaker 1: and I'm Joe wi Isn't all. You could follow me
Speaker 1: on Twitter at the Stalwart. Follow our guest Hayden Adams.
Speaker 1: He's at Hayden ze Adams. Follow our producer Laura Carlson.
Speaker 1: She's at Laura M. Carlson. Followed the Bloomberg Ahead of
Speaker 1: podcast Francesca Levie at Francesca Today and check out all
Speaker 1: of our podcasts at Bloomberg. Onto the handle ad podcast.
Speaker 1: Thanks for listening.