Speaker 1: Hello, and welcome to another episode of The Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. You know, there's probably, like,
Speaker 1: let's be honest, there's probably some connection between the fact
Speaker 1: that we've been doing a bunch of crypto episodes lately
Speaker 1: and the big sell off that we have in crypto today.
Speaker 1: Like that's just always how it works. It's like you
Speaker 1: you get to something and by the time you start
Speaker 1: talking about it, it's probably the top you think it
Speaker 1: was our fault and not not. Elon Musk. No, I
Speaker 1: don't think it's like our fault per se. But maybe
Speaker 1: it's just like, you know, it's just how timing works.
Speaker 1: By the time the mainstream media is focused on something,
Speaker 1: the mainstream media like the Odd Lots podcast, it's like
Speaker 1: coming in, it's like, all right, final chapter. This is
Speaker 1: the curse of the magazine cover, right like soon is
Speaker 1: it yet the cover of Barns or The Economist or whatever. Um,
Speaker 1: it's time to sell and get out. So we are
Speaker 1: recording this May thirteenth, and last night Ellen Musk tweeted
Speaker 1: that due to the electricity consumption of bitcoin, they would
Speaker 1: no longer They're gonna still hold it, but they're not
Speaker 1: gonna be involved in transacting it in anymore. I don't
Speaker 1: really know what the real reason is. I mean, that's
Speaker 1: what he says, and he you know, all the coins
Speaker 1: are falling, but you know, there's volatility of the space.
Speaker 1: But all the coins are falling today, even the ones
Speaker 1: that aren't mined with lots of electricity, a little bit
Speaker 1: of a mini crypto bear market. Yeah, they're definitely falling.
Speaker 1: And bitcoin and other cryptocurrencies have always been volatile, that's true.
Speaker 1: But I do think, you know, people talk about crypto
Speaker 1: as this decentralized ideas something that works as an inflation hedge,
Speaker 1: something that's sort of beyond the ability of governments and
Speaker 1: central bankers. Too many pipulate, and so it's kind of
Speaker 1: ironic that one tweet from a CEO can cause this
Speaker 1: kind of mayhem in the market. Yeah, totally right. And
Speaker 1: you know, I have to say, like, earlier in my career,
Speaker 1: I would have said something like, oh, this is the
Speaker 1: top the bubble burst or whatever, but I no longer
Speaker 1: think that. I mean, I don't know, cycles come and go,
Speaker 1: but I this is all as a phenomenon is a thing.
Speaker 1: I mean, you know, Elon could tweet whatever he wants.
Speaker 1: It's clearly not going away any anytime soon. As a
Speaker 1: as a phenomenon is a part of the world and
Speaker 1: maybe a part of the finance world. Yeah, I agree.
Speaker 1: We've learned our lesson about calling bubbles in bitcoin. We're
Speaker 1: not going to do that anymore. But what we are
Speaker 1: going to do is talk about some of the things
Speaker 1: that are helping crypto I guess, become more widely adopted
Speaker 1: or more entrenched, one of the reasons why it's not
Speaker 1: going away. Yeah, So listeners may recall a couple of
Speaker 1: weeks ago, we did an episode on decentralized exchanges. So,
Speaker 1: you know, a centralized exchange like coin base, you send
Speaker 1: them for out currency that you could trade cryptocurrencies like
Speaker 1: bitcoin or ethereum. On the centralized exchanges, they don't hold
Speaker 1: your money. You don't even need to start an account
Speaker 1: or anything like that. In fact, you can't start an
Speaker 1: account and all the trading is done on the block
Speaker 1: chain itself. We talked to Hayden Adams, the developer of
Speaker 1: the unit Swap protocol, which is behind the exchange unit Swap,
Speaker 1: and I talked about automated automated market making and so forth,
Speaker 1: and it was super fascinating, but like, I still need
Speaker 1: to learn more, Like I still like I'm only like
Speaker 1: maybe of the way they're in terms of like getting
Speaker 1: how this all works. Maybe just ten same here. And
Speaker 1: for those of our listeners who actually listened to the
Speaker 1: very end of that podcast, you might have heard us
Speaker 1: say that we wanted to record an episode on yield farming,
Speaker 1: which is this phenomenon that has come about because of
Speaker 1: D five. So the Defy system has basically allowed this
Speaker 1: to happen. I know absolutely nothing about the space other
Speaker 1: than it's a way to earn money or interest on
Speaker 1: your cryptocurrency. I'm very very interested in learning more, right so,
Speaker 1: and again people should probably listen to that episode. But
Speaker 1: the premise of these this automated market making model is yes,
Speaker 1: you could trade one coin verse another like any exchange,
Speaker 1: but you can also stake your coins. You can put
Speaker 1: coins that you hold into a liquidity pool as you
Speaker 1: have your coin stake there, you can earn interest yield,
Speaker 1: you can firm yield. There's all kinds of crazy stuff
Speaker 1: you could do. So we're gonna learn more about how
Speaker 1: this all works from the perspective of an actual trader
Speaker 1: slash yield farmer. We're gonna have a We're gonna have
Speaker 1: a farmer on the episode today. We have had actual
Speaker 1: farmers on the episode before, but we have yet to
Speaker 1: have a yield farmer. So let's do it. Yeah, exactly right.
Speaker 1: We've had horn and other stuff like that, and a
Speaker 1: cattle farmer and stuff like that cows, but now someone
Speaker 1: who farms yield. So I'm very excited about our guest today,
Speaker 1: actually long time friend of mine, acquaintance. At least, we're
Speaker 1: gonna be speaking with Aaron Lammer, who himself also as
Speaker 1: a podcast so. He is the host of the Exit
Speaker 1: Scam podcast brand new podcast out, which chronicles the collapse
Speaker 1: of the Canadian Crypto Exchange quadriga uh, absolutely fascinating story,
Speaker 1: absolutely fascinating story. He is also the host of very
Speaker 1: popular podcast, The long Form Podcast. And I've been talking
Speaker 1: to him for years as he has dived deeper and
Speaker 1: deeper intoto the crypto rabbit hole. And one time, a
Speaker 1: few uh several months ago, I think it was last summer,
Speaker 1: he messaged me and he says, Joe, I'm defied pilling
Speaker 1: all of the suburban dads of Long Island. So he's
Speaker 1: he himself has been a hooked. He is hooking other
Speaker 1: people to defy. He is a yield farmer, and he's
Speaker 1: going to explain his descent into madness or maybe how
Speaker 1: he's made a bunch of money. So I'm very excited.
Speaker 1: Aaron Lammer is on the podcast. Aaron, thank you very
Speaker 1: much for joining us. Hi Joe, Hi Tracy, thanks for
Speaker 1: having me. You're fully defied, pilled. Huh. When you were
Speaker 1: saying that the market had crashed, I was thinking not
Speaker 1: really for me, because I don't have any bitcoin and
Speaker 1: I'm deep in ethereum world. Ethereum appears to be where
Speaker 1: it was at an all time higher earlier this week,
Speaker 1: so I'm not worried. I'm just saying I'm not worried. Okay,
Speaker 1: good to establish that. Are we going to become yield
Speaker 1: farmers by the end of this episode? Are you going
Speaker 1: to convert us? I mean, the reason I d m
Speaker 1: Joe in the first place was to test whether he
Speaker 1: was open to farm make a little bit with me,
Speaker 1: and I still I think I'm gonna I think I'm
Speaker 1: gonna flip him eventually. You should you didn't say that.
Speaker 1: You should have said, Joe I've got this huge money
Speaker 1: may g opportunity. Drive over to my house on Long
Speaker 1: Island right now. I'm gonna make you a bunch of money.
Speaker 1: And if I had listened, like I think that was,
Speaker 1: like I don't know, that was several months ago, I
Speaker 1: probably have made a bunch of moment absolutely damn. Can
Speaker 1: we start with the very very basic question, which is
Speaker 1: what is yield farming? Yeah? I mean I think we
Speaker 1: sort of have to like rewind through ethereum history a
Speaker 1: little bit. I didn't start off wanting to become a farmer,
Speaker 1: and I should say that my farming is like when
Speaker 1: someone moves from Brooklyn to Vermont and has like a
Speaker 1: few chickens and maybe one cow. I'm not I'm not
Speaker 1: doing this on an industrial scale. There are people You
Speaker 1: can actually look at other people's wallets in Ethereum because
Speaker 1: it's all open, So like I'm looking, there's a really
Speaker 1: big farmer named ox zero x B one and he's
Speaker 1: farming hundreds of millions of dollars, and in your wallet
Speaker 1: you can just watch him farming. So if you're interested
Speaker 1: in like farming visuals, you can actually add them to
Speaker 1: your own wat I'm a small farmer and I kind
Speaker 1: of backed my way into it. Um. I was interested
Speaker 1: in Bitcoin, interested in Ethereum. I've always believed that UM
Speaker 1: to really understand this stuff, you actually have to do it,
Speaker 1: Like you have to try the products with like real
Speaker 1: coins and and play live. So I've always like tried
Speaker 1: all the weird Ethereum world things that existed, Like I
Speaker 1: used to make markets on this thing called Auger, which
Speaker 1: was a decentralized prediction market. I think that was the
Speaker 1: first Ethereum product that I actually used. And all these
Speaker 1: Ethereum products, what they have in common is that you
Speaker 1: log in with a wallet. Most people may use Meta mask.
Speaker 1: I think it's probably the most popular one. And this
Speaker 1: is both an Ethereum wallet that holds your coins and
Speaker 1: it's a form of pseudonymous identity. It's basically all any
Speaker 1: of these services know about you is this person uses
Speaker 1: this wallet and they have access to the private keys.
Speaker 1: So oh, I started getting into the yield stuff when
Speaker 1: I started trading on dex Is, and a dex is
Speaker 1: exactly what Hayden Adam, who was on this show makes
Speaker 1: he makes the biggest, most famous one. I would say
Speaker 1: that if you're familiar at all with the decks. It's
Speaker 1: probably unit swap unit swap. When I first started using it,
Speaker 1: I didn't even really know what was so different about
Speaker 1: it than say, trading on coin Base. I understand a
Speaker 1: lot better now, um, but unic swap is what's called
Speaker 1: a automated market maker. Don't quote me if I got
Speaker 1: that acronym wrong. And basically, instead of having a central
Speaker 1: order book, it uses a big liquidity pool to create trades,
Speaker 1: and it uses algorithmic arbitrage basically to figure out a
Speaker 1: price within that. So I started trading there primarily because
Speaker 1: I find centralized exchanges pretty sketchy and have had some
Speaker 1: sketchy experiences. I didn't lose money in Quadriga, but I
Speaker 1: used to trade uh get coins on a exchange called
Speaker 1: Cryptopia that went down. So I've been burnt by before
Speaker 1: by um sketchy exchanges. But if you like trading these tiny,
Speaker 1: small cap coins, it's unlikely they're gonna be on somewhere
Speaker 1: like coin base or Gemini, so you kind of have
Speaker 1: to find a place where you can trade them. And
Speaker 1: the really incredible thing about unit swap and other dex
Speaker 1: is is there's this kind of coin called e r
Speaker 1: C twenty and I consider it like a variety of etherium.
Speaker 1: Like you know, there's different wines that come from different regions.
Speaker 1: These are all like takes on the basic ethereum coin,
Speaker 1: and they are all interoperable, and the protocol can recognize
Speaker 1: all of them. So basically any e r C twenty
Speaker 1: can be traded on unit swap or any decks. This
Speaker 1: is a pretty powerful idea. It means that anyone can
Speaker 1: just come out with a project and if people put
Speaker 1: a little liquidity into unit swap, you can trade it.
Speaker 1: Sometimes I've found coins that are so small that they
Speaker 1: won't even be recognized by unit swap. You have to
Speaker 1: copy and paste in the smart contract and then unit
Speaker 1: swap goes Okay, yeah I know what that is. Yeah,
Speaker 1: you can trade it. Go ahead. Might not have a
Speaker 1: logo for it, but like the protocol recognizes it. So
Speaker 1: I was trading this way for a while and I
Speaker 1: started to see these incredible yields that you could get
Speaker 1: by um providing liquidity for these pairs of coins, many
Speaker 1: of which I happened to already have. So I would see, wow,
Speaker 1: this pair is paying seventy a p Y. And when
Speaker 1: I say p y, that would mean if I kept
Speaker 1: my my coins in the liquidity pool for one year,
Speaker 1: and that rate was stable through that year, which is
Speaker 1: unlikely to be. I would earn seventy on top of
Speaker 1: the coins I already had, which is a pretty appealing idea.
Speaker 1: So let's talk about out this some more. I mean,
Speaker 1: this is really the key thing. So there's two things
Speaker 1: that a trader can do on a deck like unite swap.
Speaker 1: You can identify a coin that you think is going
Speaker 1: to go up, which is I guess what most people
Speaker 1: think of as trading or speculating or whatever. You see
Speaker 1: some project that you like, it's small, you think the
Speaker 1: number is going to go up. That's sort of the
Speaker 1: essence of what a lot of what draws people to crypto.
Speaker 1: But then the other aspect of it is this idea
Speaker 1: that you can if you have a coin, you can
Speaker 1: put it into this pool and earn yield. So just
Speaker 1: explain to us the mechanism there, how that works, and
Speaker 1: why you get paid to put your coin into a pool.
Speaker 1: So this isn't actually the only way to get yielled.
Speaker 1: And I think this is one thing that's confusing about
Speaker 1: farming is there's actually like dairy farming and like big farming,
Speaker 1: and each of them are a little different, but this
Speaker 1: kind of yield. Basically, you're taking a pair of two coins,
Speaker 1: so I'm gonna get, say, for example, ethereum and uh die,
Speaker 1: which is a stable coin. All right, a lot of
Speaker 1: people are trading die for ethereum all the time, so
Speaker 1: I can supply equal amounts ethereum and die into the pool,
Speaker 1: and then that will be used to facilitate trades. Each
Speaker 1: of those trades pays a fee, and I get a
Speaker 1: portion of that fee relative to how much of the
Speaker 1: pool I own. So the best pools for me to
Speaker 1: be in are the pools where people are trading the
Speaker 1: most and where there's the least liquidity relative to how
Speaker 1: much trading there is. So this is why you're seeing
Speaker 1: things swing wildly in turns of these APIs when you
Speaker 1: see the least liquidity, you mean the smallest pools, So
Speaker 1: there is a lot of volume of trading, but not
Speaker 1: many people have put their pairs into the pool exactly,
Speaker 1: so you can actually see in unit swap how much
Speaker 1: of the pool you own. So there's a pool for
Speaker 1: This is going to get a little complex, but there's
Speaker 1: a pool for f F two x F two X
Speaker 1: is a token that basically tracks the price of ethereum
Speaker 1: with two x leverage. So I happen to hold that
Speaker 1: token and the Ethereum token, so I put them into
Speaker 1: that pool. I now own currently about point one percent,
Speaker 1: so I own one one of that pool. Of all
Speaker 1: the money in that pool is money I put in,
Speaker 1: and therefore each fee that gets paid, I get of
Speaker 1: that fee. And therefore I'm looking for places where I
Speaker 1: can either own a lot of the pool or um.
Speaker 1: There's massive volume on the pool, and my little share
Speaker 1: UH is valuable, and these are swinging in real time
Speaker 1: because everyone's out chasing this yield. So today's yield is
Speaker 1: not tomorrow's yield at all. I've got. I've seen the
Speaker 1: pool I'm in go from a p Y two under
Speaker 1: ten percent a p Y in the course of twenty
Speaker 1: four hours because people are pulling their liquidity in and
Speaker 1: out of the pool. So can you maybe walk us
Speaker 1: through I remember that Hayden talked about this a little bit,
Speaker 1: but walk us through the actual fees that you can
Speaker 1: earn on something like this, And you know, how does
Speaker 1: it work being the biggest one in a pool versus
Speaker 1: being in a pool where there's a lot of activity
Speaker 1: going on, which one is more profitable, and also how
Speaker 1: labor intensive is yield farming. So you just described having
Speaker 1: to sort of move from thing to thing to thing
Speaker 1: to chase the liquidity. Does it take up a lot
Speaker 1: of time? I mean crypto in general, I think takes
Speaker 1: up a lot of time, But that's more of a
Speaker 1: brain disease than an actual like need to do anything.
Speaker 1: So you could potentially just deposit in a pool and
Speaker 1: leave it there for a year and you would just
Speaker 1: get a a rolling average of whatever the a p
Speaker 1: Y was over that time. The more you want to
Speaker 1: maximize yield, the more you would do, I think. But
Speaker 1: every time you deposit into one of these pools, you
Speaker 1: pay gas, And if you're doing this on the Ethereum network,
Speaker 1: gas is very expensive right now because it's scaled by
Speaker 1: Ethereum being worth hundred dollars per coin, So you really
Speaker 1: wouldn't want to be moving these multiple times a day.
Speaker 1: I try to do as little possible as possible. Now,
Speaker 1: there's a site that you can go to and log
Speaker 1: in with your wallet called fees dot WTF, and it
Speaker 1: tells you the lifetime value of all the fees you've
Speaker 1: all the gas you've paid on the Ethereum network, and
Speaker 1: when I looked at mine, it like ruined like a
Speaker 1: month of my life. Um, I mean I've I've lost
Speaker 1: a lot of money to gas fees. So there's certain
Speaker 1: properties about which pools are valuable that I think you
Speaker 1: can sort of see as patterns. Pools that have stable
Speaker 1: coins pay very well. And the reason is most people
Speaker 1: in crypto don't want to hold a bunch of stable
Speaker 1: coins because they're d gen gamblers. They would rather hold
Speaker 1: Bitcoin or Ethereum or an even smaller coin that's going up.
Speaker 1: So because not many people want to hold stable coins,
Speaker 1: stable coin pools pay very well. There's a thing where
Speaker 1: you can pool with other people in a sort of
Speaker 1: automated way called pull together, and stable coin pools usually
Speaker 1: pay thirty to a p y. This is against I
Speaker 1: don't know what what does a bank pay in terms
Speaker 1: of yield right now? Right zero point one at best? Okay,
Speaker 1: So you're holding basically a token that represents one dollar
Speaker 1: and you're getting paid thirty tot a p Y versus
Speaker 1: less than one percent it's bank. But some of this
Speaker 1: yield stuff is starting to uh infect other parts of
Speaker 1: the ecosystem. So now coin base and Gemini are saying
Speaker 1: you can stake your ethereum, probably in a way that's
Speaker 1: more are safe than the way I just described. For
Speaker 1: I think six to eight percent a p y, So
Speaker 1: depending on your callents for risk. There are other ways
Speaker 1: to earn yield. The simplest way is to stake your
Speaker 1: ethereum for EF two, which is a big update that's
Speaker 1: coming to to ethereum, and you can basically stake your
Speaker 1: ethereum now and get paid. I'm not sure if it's
Speaker 1: six or eight percent. I think it depends who. You
Speaker 1: do it well with um for the entire time until
Speaker 1: that happens, and when Ethereum upgrades to heath to your
Speaker 1: tokens are unlocked and you get paid that yields for
Speaker 1: that whole period. So the kind of yield farming where
Speaker 1: you're providing liquidity is maybe the most active and the
Speaker 1: way that you can optimize the most for your results.
Speaker 1: But there's other ways that are far more passive that
Speaker 1: you can more safely earn what's still a pretty good
Speaker 1: yield compared to like a bank. All right, let me
Speaker 1: ask you a question about the pool mechanics that I
Speaker 1: guess I still like, don't quite get So there is
Speaker 1: a pool, you know, like the EF DIE pool or
Speaker 1: the U S d C pool different both of them
Speaker 1: are stable coins. I assume some of the biggest pairs
Speaker 1: that exist on the on the unite swap network, you
Speaker 1: stake both sides of the coin. What happened? How does
Speaker 1: it work? Okay, let's say I want to make a
Speaker 1: directional bet. I have some of US d C. I'd
Speaker 1: be like, all right, I want to trade it for ethereum.
Speaker 1: So I go into that pool and I just buy
Speaker 1: some ethereum in that pool. Does the ratio change inside
Speaker 1: the pool? Explain? Like? What is what's happening there? Like
Speaker 1: who's if am I getting? Exactly where does it come from?
Speaker 1: There's a This is a fascinating question, and I am
Speaker 1: still not totally clear on it. So I'm gonna give
Speaker 1: you what I think without being totally right. So there's
Speaker 1: something called impermanent loss. And this has to do with
Speaker 1: the fact that the two things in the pool are
Speaker 1: not being equally drawn right at ethereum is going up.
Speaker 1: There's more demand for ethereum, more ethereums getting pulled out
Speaker 1: of the pool than die and Therefore, to be in
Speaker 1: a pool like that is to actually lose some of
Speaker 1: your exposure to ethereum. You might end up getting put
Speaker 1: in equal amounts die in ethereum, but because of changes
Speaker 1: in the pricing of ethereum relative to die, you might
Speaker 1: get out more die. So going into these liquidity pools
Speaker 1: can blunt some of your upside two holding crypto, but
Speaker 1: you're getting paid a fee to do that, And someone
Speaker 1: might look at eth die and say, hey, I don't
Speaker 1: want to be in that pool. If eight moons, I'm
Speaker 1: gonna end up with more die than EAT, and that's
Speaker 1: a loss for me. So in some ways we're incentivizing
Speaker 1: people to create liquidity, and their liquidity makes they're trading
Speaker 1: a little bit less valuable perhaps, So sorry, just just
Speaker 1: to be clear here, you put in both sides of
Speaker 1: the coin in equal proportion, correct, but you're not guaranteed
Speaker 1: to pull out the same volume of them or like explained,
Speaker 1: like what are you guaranteed to be able to pull out? Well,
Speaker 1: this is like a tricky concept, but like let's just
Speaker 1: think about something that's pegged and something that's not pegged.
Speaker 1: So let's say I deposited two thousand dollars worth of
Speaker 1: ethereum when it was two thousand dollars a coin, and
Speaker 1: I put in two thousand Die, but now as of
Speaker 1: yesterday had doubled to four thousand dollars. Right, So basically
Speaker 1: the whole time, the liquidity pool, as I understand it,
Speaker 1: is acting as sort of a balancer, like as if
Speaker 1: it was balancing in E T F, so that I
Speaker 1: have the same amount value of each. So as a theory,
Speaker 1: Um is going up in value, I'm it's tilting towards
Speaker 1: die so that they're worth the same amount, and that
Speaker 1: when I withdraw, I'm getting more of the other thing.
Speaker 1: That seems like a bad deal when crypto is going
Speaker 1: way up and you're pegging it against the stable coin.
Speaker 1: It's a little more complicated when you're talking about pairs
Speaker 1: where it's say an alt coin like compound er Maker
Speaker 1: and Ethereum. You don't necessarily know which direction they're going.
Speaker 1: So I think in practice it almost acts more sort
Speaker 1: of like a cost average, where it's continually rebalancing these
Speaker 1: two assets that you have so that you have equal
Speaker 1: amounts of them. The pool always needs to have equal
Speaker 1: amounts of both, and I'll admit that's confusing, and I
Speaker 1: don't totally get it well. I wanted to ask exactly
Speaker 1: on this point on the sort of like chain of
Speaker 1: ownership or chain of transaction. So all of this is
Speaker 1: enabled through unice swaps Automated market Maker system UM, which
Speaker 1: we may not quite understand all the details of. But
Speaker 1: you mentioned that you became interested in yield farming because
Speaker 1: you didn't trust traditional crypto exchanges. It sounds weird to
Speaker 1: put it like that, UM, but central lies crypto exchanges
Speaker 1: because you had about experience. What would happen to your
Speaker 1: coins if Unit swap or two go down suddenly? And
Speaker 1: I realized I'm saying that, and Hayden told us that
Speaker 1: it couldn't go down suddenly because it is decentralized. But
Speaker 1: I'm just curious, like how much of this relies on
Speaker 1: UNI swap functioning well and the decisions that they are making.
Speaker 1: I think it relies very little on decisions that are
Speaker 1: humans are making at Unit Swap, and it depends deeply
Speaker 1: on how well the protocol itself works. The money is
Speaker 1: not like locked up in some office that Unit swap bones.
Speaker 1: It's locked up into the smart contracts. So all of
Speaker 1: this stuff is as strong as the smart smart contracts
Speaker 1: that support it. The good thing is that those smart
Speaker 1: contracts are something you can just see. You can see
Speaker 1: the money's there. Unlike in the case of Quadrigo, which
Speaker 1: was a centralized exchange that was lying and running a
Speaker 1: fractional reserve. If Unit Swap didn't have the money that
Speaker 1: it was supposed to locked into its smart contracts, we'd
Speaker 1: all know. And a lot of these protocols have gotten hacked,
Speaker 1: so there is risk. I would I would not downplay
Speaker 1: the risk of this stuff. You have. People were often
Speaker 1: pseudonymous creating products that lock up billions of dollars in value,
Speaker 1: and there could be a catastrophe. But unlike the centralized
Speaker 1: exchange system, I think it's more likely that catastrophe would
Speaker 1: happen at the code level and less likely it would
Speaker 1: happen at the human thieflies level. And my own orientation
Speaker 1: is to sort of trust that system far more than
Speaker 1: I would trust um any person who was running in
Speaker 1: exchange and those kind of ideas. I mean, you've talked
Speaker 1: about decentralization on the show. It sort of goes beyond
Speaker 1: just safety and risk. I think it's fundamentally you know
Speaker 1: who's in control when you go to a center realized exchange,
Speaker 1: they're choosing which coins you can trade. They're influencing the
Speaker 1: market heavily simply by letting you buy certain things and
Speaker 1: not letting you buy other things. What happens if both
Speaker 1: coins just tumble and dollar value. So let's say you're
Speaker 1: trading in some pool that's like eve verse, some coin
Speaker 1: we've probably never heard of, you know, and one of
Speaker 1: these tiny coins, and it pays some fat a p
Speaker 1: y but then someone tweets something or it's like a
Speaker 1: bunch of stuff happens, and they both go down. How
Speaker 1: do you, as a trader think about the sort of
Speaker 1: like cost benefit of yield verse price and basically finding
Speaker 1: good opportunities such that the yield appeals to you without
Speaker 1: having to worry about downside price risk because although you
Speaker 1: know cryptos of this multi year bowl market, that's not guaranteed,
Speaker 1: and of course there have been many crashes in the past. Well,
Speaker 1: I started as a trader, and I don't really consider
Speaker 1: myself like a hardcore farmer, so I'm mostly speculating on coins.
Speaker 1: This is a way for me to get the coins
Speaker 1: I already have and a bit more. If ethereum crashes,
Speaker 1: and I have one point two times as many ethereum
Speaker 1: as I did before. I'm still in a better position,
Speaker 1: so I don't really choose what I buy based on
Speaker 1: what farming I can do. I'm more used farming as
Speaker 1: a bonus. And one other thing I didn't mention about
Speaker 1: that sort of fee that you get from unit swap
Speaker 1: is Unit Swap is this like very austere, non scammy
Speaker 1: presentation kind of company. But they have a lot of
Speaker 1: competitors who would rather you put their liquidity with them
Speaker 1: instead of unit swap, and those people offer incentives on
Speaker 1: top of the fees to juice the value of providing
Speaker 1: liquidity there. And I think you talked about Sushi Swap
Speaker 1: on there the Vampire. I loved when you when you
Speaker 1: brought up sushi Swop there, because I I'm not sure
Speaker 1: I had actually ever heard Hayden Adams directly say what
Speaker 1: he thought about Sushi Swap, which is a clone of
Speaker 1: his exchange. But when Sushi Swap was started getting started,
Speaker 1: they basically said, we'll pay you these ap y fees
Speaker 1: and will pay you this bonus in our native sushi
Speaker 1: token to bring your liquidity over here. So on top
Speaker 1: of the liquidity providing you get a LP token, Right,
Speaker 1: so my deposits aren't just something I know I have.
Speaker 1: I can actually see my LP token in my wallet,
Speaker 1: and the case of sushi swap, you can then deposit
Speaker 1: that LP token and earn these incentives on top of
Speaker 1: the A P y So a lot of this farming
Speaker 1: stuff is like bonus on top of bonus. I'll give
Speaker 1: you like an example of like a way you can
Speaker 1: stack some some of this yield earning. There's this thing
Speaker 1: called Lado Finance which will do that F two steaking
Speaker 1: that I was describing, and you can deposit your F
Speaker 1: with them and they give you pack a token called
Speaker 1: steath STF, which is basically staked F. When you take
Speaker 1: that staked F, you can then go deposit that somewhere
Speaker 1: like compound or A A V A V and borrow
Speaker 1: against it. So you can take that stick death and
Speaker 1: go borrow a bunch of stable coins against it and
Speaker 1: then earn yield on those. The really hardcore farmers are
Speaker 1: using a system of constant lending and borrowing to get
Speaker 1: the most advantageous yield while basically still holding their original collateral.
Speaker 1: That's the game is to hold your original collateral and
Speaker 1: get as much else as you can. So when you
Speaker 1: ask what would happen when it crashed, the same thing
Speaker 1: would happen when it crashed. That would happen to me anyway,
Speaker 1: except I'd have more of the thing that had crashed,
Speaker 1: which gives me a better position. How has the the
Speaker 1: yield farming phenomenon impacted the crypto coins themselves? So you
Speaker 1: have this whole process at unit swap that is dedicated
Speaker 1: to creating liquidity in cryptocurrencies, whether they're you know, big
Speaker 1: or small coins and a minimum I would imagine this
Speaker 1: is allowing a lot of those smaller coins to sort
Speaker 1: of get traction. It's allowing small coins to get traction,
Speaker 1: and big protocols to lock large amounts of value which
Speaker 1: allow them to do lending and borrowing stuff. And then
Speaker 1: there's this service called YEARN that's kind of on the
Speaker 1: top of a lot of this stuff where if you
Speaker 1: don't want to go out and seek out all these
Speaker 1: yield opportunities, you can just lock your coins and YEARN,
Speaker 1: and YEARN works in an automated fashion to try to
Speaker 1: find you the best opportunities. So I would say that
Speaker 1: actually most of the yield farming that's happening, isn't people
Speaker 1: who are like making a bunch of manual decisions. It's
Speaker 1: people who are locking their money into these big protocols
Speaker 1: that go out and use strategies that require tons and
Speaker 1: tons of capital. If you only have a few thousand
Speaker 1: dollars in crypto, it may not be worth it to
Speaker 1: do this, but it might be worth depositing that crypto
Speaker 1: into YEARN and letting YEARN move around billions of or
Speaker 1: hundreds of millions of dollars in the way they can
Speaker 1: earn the most yield. So not everyone is like me,
Speaker 1: trying to do this themselves, which is probably stupid. I
Speaker 1: think a lot of the smarter people actually just go
Speaker 1: for these automated strategies. Backing up for a second, you know,
Speaker 1: you mentioned like finding some sort of like smaller coin,
Speaker 1: some tiny coin where maybe you're going to dominate the
Speaker 1: pool or you already had it or something like that.
Speaker 1: You know, I think that like when people like buy stocks,
Speaker 1: you know, there are certain metrics that they use and
Speaker 1: they look at profitability or whatever, like how do you
Speaker 1: begin to evaluate I mean there's that, you know. I
Speaker 1: think as Hayden Centers, like they're having two thousand coins
Speaker 1: a day on you and a swap or something like
Speaker 1: like just some insane number. How do you evaluate, uh,
Speaker 1: what's a coin you want to buy? Like, what are
Speaker 1: the things you look for? Well, it's a really interesting
Speaker 1: question because I have really dabbled in in the all
Speaker 1: the stages from the blue chip prestige defy to the
Speaker 1: very very tiny market cap, and I've tried to play
Speaker 1: those kind of weighted. So I have most of my
Speaker 1: defy money and things like the top ten defied tokens,
Speaker 1: things like unit swap that you've heard of, UM, And
Speaker 1: then as you say, two thousand being added a day,
Speaker 1: there's a lot of really tiny cap coins. So I'll
Speaker 1: admit I for a period would scan the top five
Speaker 1: coins top gainers UM when n f T s were big.
Speaker 1: I just looked through the entire list on coin get
Speaker 1: Go of n f T related coins. I'm looking for
Speaker 1: a good logo. I'm looking for a clear presentation that
Speaker 1: offers what the value is. And above all, I'm looking
Speaker 1: at the market cap. You know, if I can see
Speaker 1: a coin that has a market cap and the market
Speaker 1: cap this is in crypto turns just basically how how
Speaker 1: much at the current price are all the tokens in
Speaker 1: circulation worth? And I also like to look at how
Speaker 1: much will the token the total market cappy when it's
Speaker 1: fully diluted, because there's a lot of manipulative tactics where
Speaker 1: it's like, oh, you know, we only have released a
Speaker 1: certain amount now, but we're going to release a ton
Speaker 1: in the future, which is going to crash the price.
Speaker 1: So I'm on the lookout for all that stuff, but
Speaker 1: I'm mostly looking for what looks like a legitimate project
Speaker 1: that has like a clear value proposition. Ideally it's doing
Speaker 1: something that earns money, right, unit swap earns money, it's
Speaker 1: earning millions of dollars and fees every day. That's a
Speaker 1: good look. I like that. I look at all those
Speaker 1: factors and then I try to figure out where I
Speaker 1: am sort of in the narrative of that coin. And
Speaker 1: I generally don't like to buy things when they're like
Speaker 1: really really at the beginning, because liquidity is really bad.
Speaker 1: You know, some of these really tiny coins, if you're
Speaker 1: to sell off anything over say like ten dollars worth
Speaker 1: of them, you can slip the market. I've had times
Speaker 1: when it's going to slip the market cent if I
Speaker 1: sell off my own coins, right, So some of those
Speaker 1: things you need to be careful of. It may look
Speaker 1: like a great opportunity that's doubling every few days and value,
Speaker 1: but not necessarily easy to get out of some of
Speaker 1: those positions. So each of those factors are kind of
Speaker 1: like weighing against each other. And I'm so bullish on
Speaker 1: Ethereum right now that I'm like kind of less loath
Speaker 1: to be dabbling in these really tiny coins, but I
Speaker 1: think that's kind of a market cycles thing. I'll probably
Speaker 1: be back there at some point. But one of the
Speaker 1: reasons there's so many of these little projects that I
Speaker 1: actually do think are worth buying and I have invested
Speaker 1: money in, is that the whole defy system makes it
Speaker 1: really easy for people who make open source software to
Speaker 1: do their own projects. You've got dows digitally autonomous organizations,
Speaker 1: which are tools to coordinate lots of people around the
Speaker 1: world and split the upside amongst them. You've got a
Speaker 1: lot of people who are willing to flood capital into
Speaker 1: tiny projects, often with almost no information. So in the
Speaker 1: same way that I think, like I don't know, two
Speaker 1: thousand and nine, like Silicon Valley was probably a good
Speaker 1: place to just invest in like every little startup that
Speaker 1: was coming up, and people made a lot of money
Speaker 1: doing that. When I look at the sort of shallow
Speaker 1: end of the DeFi world, I just see like a
Speaker 1: lot of really young people experimenting, and some of those
Speaker 1: projects will become big. I'm probably not going to like
Speaker 1: hold them for three years, so I might not see
Speaker 1: all of that. But if I can ride it, you know,
Speaker 1: through the early part of the project, it's it's kind
Speaker 1: of exciting and a lot of these projects, like I
Speaker 1: was interested in this project n f t X, which
Speaker 1: basically creates funds based on n f t so they
Speaker 1: have like a crypto punks fund where instead of actually
Speaker 1: owning crypto punks, you can get exposure to crypto punks
Speaker 1: through this coin. It's just a bunch of people. They're
Speaker 1: on Twitter. You can see the people who are running
Speaker 1: the project. I follow them and it's kind of fun,
Speaker 1: and following them to is give me some insight. Like
Speaker 1: I saw that they had a designer who was doing
Speaker 1: a rebrand of the site. It's kind of bullish, you know,
Speaker 1: like people who are shipping new software and doing stuff,
Speaker 1: those are the people I would cry in bath. I
Speaker 1: have a really blunt question, um, and I don't mean
Speaker 1: to pry or anything at all. How much money have
Speaker 1: you made that you know I need to know? Okay,
Speaker 1: for science, I won't tell you how much money I made.
Speaker 1: I'll tell you how much a factor of what I
Speaker 1: put in and what it's worth now. So I think
Speaker 1: I've gone about fourteen or fifteen x my original investment.
Speaker 1: But that original investment was years ago. If I had
Speaker 1: just bought bitcoin when I very first got into crypto
Speaker 1: and never done anything, I would have done better than
Speaker 1: I did now. So I was into all of this
Speaker 1: small cap coin trading during the first alt coin boom
Speaker 1: in and I also made a lot of money during
Speaker 1: that period. Not a lot of money I had. My
Speaker 1: initial investment was very small, but as a percentage a
Speaker 1: large amount of money, and it lost it all in
Speaker 1: the crash. So I don't really know that I'm gonna
Speaker 1: walk away even with as much as I've made now,
Speaker 1: and I know people who have made a hundred times
Speaker 1: more than me through more aggressive strategies. I'm kind of
Speaker 1: in it to like mess around a little bit, more
Speaker 1: like I like to try things. So some of the
Speaker 1: things I do are and are not necessarily the smartest
Speaker 1: or most you know, putting your money in during the
Speaker 1: first run in a exchange that was supposedly I think
Speaker 1: in New Zealand, but the guy's exit scammed like that
Speaker 1: wasn't smart. That wasn't like a smart financial move to
Speaker 1: do that. Some of the things I think I've done
Speaker 1: and defy, like I've bought some like dumb n F
Speaker 1: T s. I've bought some like projects that went to zero,
Speaker 1: like there have been mistakes along the way, but you know,
Speaker 1: this stuff is so new that simply riding the success
Speaker 1: of even the biggest projects probably would have yielded you
Speaker 1: many multiples now. And I didn't Actually, I wasn't into
Speaker 1: this during the Defy summer last summer, which was when
Speaker 1: people made the most games. I only got into this
Speaker 1: like after the first wave of interest. I thought I
Speaker 1: had no idea what it was when it was first
Speaker 1: happening years ago. I think it was like sometime in
Speaker 1: seventeen or like I think we got a we got
Speaker 1: hot pot together and Aaron was trying to pitch beyond
Speaker 1: like setting up some like mining operation in upstate New
Speaker 1: York to mine like a fork of like Manaro or
Speaker 1: something just some like crazy things. So I've always really
Speaker 1: admired your sort of like spelunking into this space, the experimentation.
Speaker 1: Did you ever get that mining rig off the ground? I?
Speaker 1: So I did go visit. My plan was to buy
Speaker 1: a defunct hydro electric dam and upstate New York that
Speaker 1: had its own power generating station and then use that
Speaker 1: to mine. And like most things in crypto, like that
Speaker 1: wasn't gonna happen, but it did lead me an interesting place.
Speaker 1: It eventually hooked me up with these guys Bison Trails,
Speaker 1: who were starting a mining center, which I actually think
Speaker 1: their mining center didn't do that well, but they build
Speaker 1: a bunch of software for their mining center to coordinate
Speaker 1: all the miners, and then coin Base acquired them because
Speaker 1: they wanted off this like mining software. So like that's
Speaker 1: a lot of cryptos like that. A few losses, then
Speaker 1: a win, a few losses then a win. Here's something
Speaker 1: And I have to admit, like this is probably like
Speaker 1: a super boomer question of me and why like I'm
Speaker 1: not like you know, like you and have made a
Speaker 1: ton of money, but I'm curious, like you know, like
Speaker 1: this is the part that always gets me, Like when
Speaker 1: and this is also like when we were talking to Hayden,
Speaker 1: and it's like when I think of like finance, regular
Speaker 1: trad five regular banking, like there's always some like in theory,
Speaker 1: there is some non finance end to it. So it's
Speaker 1: like the finance exists, but then it's like some non
Speaker 1: finance things. So someone invests in like uber early on
Speaker 1: you mentioned like silicon value two thou nine, but that
Speaker 1: like someone's doing something non finance, which is that they're
Speaker 1: like selling rides or the first like sort of like
Speaker 1: model of venture capital was whaling ships and you like
Speaker 1: lay off some of your risk to investors because whaling
Speaker 1: is very dangerous, but if you get a bunch of
Speaker 1: whale on an expedition, you make a lot of money,
Speaker 1: so you distribute the risk. But that's a non finance
Speaker 1: thing going out in um hunting whales. When I like
Speaker 1: look into Defy stuff, every project that I see is
Speaker 1: just like something about more coins. So it's like, oh,
Speaker 1: here's a really cool project and a lot as you
Speaker 1: to like balance your coins. Here's a cool project that
Speaker 1: allows you to like lend. Here's a cool project that
Speaker 1: allows you to find more like WiFi, find more other
Speaker 1: things to lend an automated way, but where do you
Speaker 1: see it going until it's like okay in terms of
Speaker 1: like okay, we have this financial infrastructure that exists now,
Speaker 1: high volume, high liquidity, very impressive technologically, but like what
Speaker 1: is it going to be used? Like four because at
Speaker 1: the moment it's all just looks like kind of what
Speaker 1: you describe where it's like more speculation in coin. Okay,
Speaker 1: So you're not wrong at all, and I think that's
Speaker 1: an accurate way to characterize like where it is right now,
Speaker 1: which is very early. So we're like, I don't know,
Speaker 1: if we look at like Una Swap as like one
Speaker 1: of the launch of unit swap is like one of
Speaker 1: the first landmark events here, I don't know. I think
Speaker 1: that's less than three years ago that it even launched
Speaker 1: the V one product. So I think where we are
Speaker 1: now is we're moving a lot of capital into this
Speaker 1: system because the traditional finance world shows you need a
Speaker 1: lot of capital to do any of this stuff. You
Speaker 1: can't just like start from zero. So a lot of
Speaker 1: these incentives and a p wise, they're they're here to
Speaker 1: to learn people in. But I think once that's established,
Speaker 1: there's a lot of ways that this can um givoraid
Speaker 1: That story by Borhees, I think it's called talon Uckbar.
Speaker 1: It's about a guy who writes like a fictional story
Speaker 1: and then the objects start bleeding into the real world.
Speaker 1: So I do think DeFi has the potential to bleed
Speaker 1: into the real world and the easiest ways that I
Speaker 1: can imagine that happening early on. Or I do think
Speaker 1: like home loans will be done through this system in
Speaker 1: the not very distant future. I actually think you could
Speaker 1: do it now, but you'd have to be like me,
Speaker 1: like a guy who is willing to do it as
Speaker 1: kind of a stunt, I think right now, but you know,
Speaker 1: there's nothing stopping you. Let's say you have a large
Speaker 1: amount of coins, which a lot of these early crypto
Speaker 1: people do, including bitcoin people who hate this stuff, if
Speaker 1: they come around, you could potentially lock up some of
Speaker 1: your bitcoin in a protocol through rap wrapping it wrap bitcoin,
Speaker 1: and then take a loan against it and stable coins
Speaker 1: and buy a house that you can live in. And
Speaker 1: potentially there are ways to do that where you get
Speaker 1: the money you need but don't even actually lose your collateral.
Speaker 1: It's just sort of sitting there to guarantee your loan. Um.
Speaker 1: So for people like me who like don't have like
Speaker 1: a full time job and haven't for like a decade,
Speaker 1: you know, it's a weird proposition to try to get
Speaker 1: lent money to buy a house. Um, I have to
Speaker 1: really sort of justify and like, no, I'm a podcast maker.
Speaker 1: I make podcasts. Those kind of things don't really go
Speaker 1: over well with like banks. So I think that's one
Speaker 1: potential application. But I think an even deeper application is
Speaker 1: in company formation itself. I think we will form companies
Speaker 1: in which everything the company does, from earning money to
Speaker 1: paying out money, to even establishing like forms of like
Speaker 1: a constitution that basically dictates how the company is governed,
Speaker 1: all these things can happen on the blockchain. Young people
Speaker 1: are doing it, the same young people that I saw
Speaker 1: in San Francisco doing startups whatever year start up mania
Speaker 1: and San Francisco peaked. Those people are doing this stuff
Speaker 1: within the DeFi world. Now they're forming taws, they're starting protocols.
Speaker 1: You know, a lot of defy I think of as
Speaker 1: like people use the metaphor of legos, right, so you
Speaker 1: may not even know which different protocols you're interacting with.
Speaker 1: These protocols are all stacked on top of each other,
Speaker 1: and each of them can earn value. So I think
Speaker 1: it bleeds into the real world when some of those
Speaker 1: legos stop being like things that are just smart contracts
Speaker 1: and actually start to interact with the real world or
Speaker 1: became companies that started in a DeFi fashion and then
Speaker 1: are like doing business with the rest of the world.
Speaker 1: And startups are usually the easiest way to understand that,
Speaker 1: because there are things that need a bunch of capital
Speaker 1: quickly for an experimental project that will probably fail, but
Speaker 1: if you invest in one hundred of them, you'll probably
Speaker 1: do pretty well. So I have one more prying question,
Speaker 1: which is, on a day your day, what is your seed?
Speaker 1: Please tell us your twelve word seed phrase to your
Speaker 1: metal meth. Well, yeah, does anyone from the I R
Speaker 1: S listen to the show. I'm having exective thoughts about
Speaker 1: some of this. Okay, go ahead, okay, okay, just one more.
Speaker 1: But on a day like today, when you know Elon
Speaker 1: Musk tweeted bitcoin fell, although you know, as we're recording this,
Speaker 1: it's paired some of those losses, but all the crypto coins,
Speaker 1: all the crypto related stocks are all falling. What was
Speaker 1: today like for you, like, what did your yield farming
Speaker 1: portfolio look like? You know, I honestly didn't even check.
Speaker 1: Like most of this yield stuff just kind of happening
Speaker 1: in the background. I'll look and see how much I've made,
Speaker 1: but I'm looking more at the prices of the tokens
Speaker 1: than yields. I think that there are people who are
Speaker 1: just seeking yield out there, but those are people who
Speaker 1: have a lot more capital to start with than I
Speaker 1: do and are like not wanting to risk it, but
Speaker 1: want to just burn yield on like stable coins. I'm
Speaker 1: primarily holding a theoryum and other defy tokens. So when
Speaker 1: I saw that, I actually was happy because I'm an
Speaker 1: ethereum true believer, and I believe that ethereum will pass
Speaker 1: Bitcoin at some point, and I am fine with accelerating
Speaker 1: that if it can pass Bitcoin by going up or
Speaker 1: by Bitcoin going down um, and I don't love the
Speaker 1: hostility in the space between the two camps. It's getting
Speaker 1: ugly out there. I will say I I kind of
Speaker 1: left crypto for a year or two, and the new
Speaker 1: thing that that really he came in is true animosity
Speaker 1: between the ethereum and Bitcoin camps. So for me, I
Speaker 1: look into very specifically what was said, which was Alan
Speaker 1: Musk said we're pulling. First of all, I think people
Speaker 1: were playing with fire when they turned Elon and Michael Sailor,
Speaker 1: he was he on the show, Michael Michael. Okay, I
Speaker 1: won't say anything negative about him since he's been on
Speaker 1: the show, but I think I think when you sort
Speaker 1: of create idols out of these people, um, the rug
Speaker 1: can get pulled out from under you, and you know,
Speaker 1: the same thing works the other direction. So the thing
Speaker 1: is the environmental stuff, and I have thoughts about it.
Speaker 1: I know Joe is Um in contact a lot with
Speaker 1: Nick Carter, who has written a lot about this. I'll
Speaker 1: just put say that the environmental stuff is not something
Speaker 1: I consider myself particularly knowledgeable about. But I do know
Speaker 1: that a big difference between Bitcoin and ethereum is that
Speaker 1: ethereum is moving towards proof of steak. And this actually
Speaker 1: all the stuff that we've talked about, it all interlinks.
Speaker 1: When I say that you can earn money by staking
Speaker 1: for atheroryum too, that is staking ethereum that will ultimately
Speaker 1: power the proof of steak system that moves ethereum off.
Speaker 1: Mining Bitcoin has no plans to leave proof of work
Speaker 1: mining behind. So it's a really big difference between the
Speaker 1: two of them. For me, when I read that, I
Speaker 1: was like, Okay, I'm gonna take a small hit here,
Speaker 1: the market's going to come down, But ultimately I think
Speaker 1: it leaves Ethereum stronger than Bitcoin, and I'm hoping that
Speaker 1: more and more of the market shifts away from these
Speaker 1: centralized exchanges that were sort of established during the Bitcoin
Speaker 1: period and moves towards this new Ethereum future of dex is.
Speaker 1: So I know that was kind of a long explanation,
Speaker 1: but like all of those things were coloring my thinking
Speaker 1: about this news event that probably some PR person at
Speaker 1: Tesla Road I don't even know if it had anything
Speaker 1: to do with like the actual lan musk Um, but
Speaker 1: all moves the markets a lot. So this is really
Speaker 1: important and I'm sure we're gonna have to do a
Speaker 1: follow up episode on this. But just so that people understand, currently,
Speaker 1: Ethereum and Bitcoin of roughly the same security mining model.
Speaker 1: People by chips and they expend a lot of energy
Speaker 1: to secure the network and to create new chips, and
Speaker 1: Ethereum has had for several years on its roadmap a
Speaker 1: plan to move from the so called proof of work,
Speaker 1: which is this sort of very computationally intensive, energy intensive system,
Speaker 1: to proof of steak in which that is not going
Speaker 1: to happen, and it's sort of secured by people locking
Speaker 1: up their ethereum in some manner. What is the roadmap
Speaker 1: as you understand it, the timeline for the handover to
Speaker 1: east to the new proof of steak ethereum that will
Speaker 1: not and I know it's been pushed back multiple times
Speaker 1: so that it won't be as computationally expensive. If I
Speaker 1: was like an angry bit corner, I would say, never
Speaker 1: gonna happen right now. And what I would say is
Speaker 1: the next big landmark is July fourteen, so it's soon,
Speaker 1: and it's e I P fififty nine. These are like
Speaker 1: constitutional spend for Ethereum Improvement Protocol that is uh, not
Speaker 1: positive about the P, but it sounds right to me um.
Speaker 1: So it's basically like a change to how ethereum works.
Speaker 1: And these are planned a lot in advance and don't
Speaker 1: always happen, but this one is happening. I would bet
Speaker 1: very strongly that this happens on January on July, So
Speaker 1: right now, when you pay your fee to the etherorem
Speaker 1: your gas fee that goes to miners, or a percentage
Speaker 1: if it goes to miners. That's how we pay all
Speaker 1: these miners, right we're giving them they're they're holding up
Speaker 1: the network. We pay them a fee. After e I p.
Speaker 1: Fifty nine, we're gonna stop paying the miners. Mining is
Speaker 1: going to become less profitable and we're gonna start burning
Speaker 1: that ethereum. And ethereum is going to go from an
Speaker 1: inflationary asset. There's more and more ethereum every year. Two
Speaker 1: ethereum has the potential to become deflationary as we burn
Speaker 1: more than it's created. And that's a step towards the
Speaker 1: ultimate goal of going into this proof of steak model
Speaker 1: in which there's no mining at all. In fact, I'm
Speaker 1: not really sure after e I p. Fifteen fifty nine
Speaker 1: whether there will be any mining um. I don't know
Speaker 1: what the timetable for the true shift to proof of
Speaker 1: steak is. But when a lot of this environmental stuff
Speaker 1: came up, people were like, let's do it right now,
Speaker 1: Like there was a movement with an ethereum to expedite it.
Speaker 1: So I think that there is a huge pressure to
Speaker 1: do it and my guess would be by two will
Speaker 1: be you know, in a proof of steak system, there
Speaker 1: may be people who know more about the timing than
Speaker 1: I do. But for people who like me, the next
Speaker 1: big thing that we're thinking about is this e I
Speaker 1: P FIFTNE. It's funny because you go on like CNBC
Speaker 1: and they're doing like a maybe it's not c NBS.
Speaker 1: There was some TV thing that had to like how
Speaker 1: to get into ethereum mining, and like, this is the
Speaker 1: worst possible time to get into ethereum mining. That equipment
Speaker 1: will be trash um in a few months when this happens.
Speaker 1: It's not so different right now, but they're on very
Speaker 1: different trajectories with regards to mining, and the people who
Speaker 1: are making the bulk case for ethereum are saying, look,
Speaker 1: we're doing all this stuff and defy, that burns a
Speaker 1: lot of gas. The amount of gas being burned to
Speaker 1: do all this stuff is immense. And if we start
Speaker 1: not paying that out to miners who then sell it
Speaker 1: and instead of literally burning it um, ethereum is just
Speaker 1: going to go through the roof um as it becomes
Speaker 1: deflationary and more people want it and people need it.
Speaker 1: You know, businesses I think will eventually do business within defy.
Speaker 1: People will hold company treasuries in yield farms. I know
Speaker 1: that sounds crazy, but it's coming and all of those
Speaker 1: are gonna need ethereum gas to put their money in
Speaker 1: and out and do stuff. So the big change for
Speaker 1: me with ethereum from you know, getting into this stuff
Speaker 1: with bitcoin is you can actually do stuff with ethereum,
Speaker 1: and when you do stuff, it causes ethereum to be destroyed.
Speaker 1: Post post alive fourteen doage coin is proof of work
Speaker 1: as well. Right, you're just trying to think about what
Speaker 1: Elon Musk's next tweet might be. Honestly, like, he's playing
Speaker 1: so many narrative threads at once that I don't I
Speaker 1: don't even know how all these things can like coexist
Speaker 1: in one space. But yeah, I think Doges is forked
Speaker 1: off of light coin or forked off of something light
Speaker 1: coin related, so it's a descendant of it's merge mind
Speaker 1: with light coin, so light coin miners get doge as well.
Speaker 1: There you go, see Joe's the doge expert in the call.
Speaker 1: But ironically, you know, I don't know if you heard
Speaker 1: about this thing Sheba ask you about that I had
Speaker 1: a question about well, ask asked me the question, and
Speaker 1: I'm not particularly knowledgeable about it, and I know, but
Speaker 1: I did not get any There is this like doge
Speaker 1: um parody whatever it is called Sheba went through the
Speaker 1: moon and it's traded on the Ethereum network and what's
Speaker 1: and it's a joke coin. I mean, I don't think
Speaker 1: anyone really thinks it or doge or anything is as
Speaker 1: like that bright of a future. But that's not But
Speaker 1: that's not the point. The point is it had this
Speaker 1: mania and the trading of the coin got so it's
Speaker 1: got so insane that it significantly drove up the gas
Speaker 1: fees for everyone trading on the Ethereum network, is my understanding.
Speaker 1: And this raises a question to me, which is like, okay,
Speaker 1: you have this like open blockchain network, anyone can make
Speaker 1: a coin. We saw this in two seventeen with the
Speaker 1: crypto kitties phenomenon where people aren't crazy for that, and
Speaker 1: that was all on the ethereum blockchain, and just trading
Speaker 1: in those drawings of cats themselves caused the fees to rise.
Speaker 1: So as it stands right now, no coin, big coin,
Speaker 1: etherorum whatever, is really that big yet in terms of
Speaker 1: like a meaningful share of like economic activity happening with
Speaker 1: these coins. It's still like sandbox era for the most part.
Speaker 1: So if one joke thing like a Sheiba coin or
Speaker 1: crypto kitties taking off among ultimately a fairly small section
Speaker 1: of the population could cause the entire system to jam up,
Speaker 1: does that raise I know, like, how do you think
Speaker 1: about like the future of all these coins or the
Speaker 1: future of ethereum if like a joke or a meme
Speaker 1: coin or whatever can raise everybody's gas fees, including people
Speaker 1: who theoretically have to do various serious transactions in a
Speaker 1: timely manner. If a business is actually going to use
Speaker 1: it for real purposes, people are paying for those transactions,
Speaker 1: so it's not like they're just joking. They are actually
Speaker 1: spending money. They're spending the same money the gas costs
Speaker 1: the same amount is for a joke and for a
Speaker 1: serious purpose. So the friction is there. And the short
Speaker 1: story is that some people believe that people are going
Speaker 1: to flee Ethereum to other networks that are basically clones
Speaker 1: of Ethereum but with miniscule gas prices, and the best
Speaker 1: known one would probably be finance smart chain, and they
Speaker 1: achieve that by sacrificing decentralization exactly, all this stuff is
Speaker 1: super easy, and you can do a gazillion throughput whatever
Speaker 1: if it's just running on a server somewhere. We've solved
Speaker 1: these problems for centralized currencies. It's much harder to do
Speaker 1: in a decentralized way. So the answer for if you
Speaker 1: don't think the future is everyone just trading on a
Speaker 1: centralized finance system is Layer two. And Layer two, like
Speaker 1: e I P. Fifteen fifty nine, is something that's like
Speaker 1: incoming right now in Ethereum. There's already certain ways you
Speaker 1: can use it, and there'll be a lot more by
Speaker 1: this summer. And as I understand it, there's basically two
Speaker 1: major threads of how we can deal with these congestion
Speaker 1: problems with Layer two. The first way is through Ethereum
Speaker 1: side chains, and the most famous one is probably Maddic.
Speaker 1: I think they've rebranded as Polygon, and Maddic is actually
Speaker 1: a different network. Like if you're in meta mask, you
Speaker 1: have to go off Ethereum network and onto Madic network,
Speaker 1: which isn't the easiest thing, but Maddic basically takes all
Speaker 1: of the protocol level stuff that's going on with Ethereum
Speaker 1: and lets you do it on their own, still decentralized,
Speaker 1: but not Ethereum main net, and pay sense on the
Speaker 1: dollar in terms of fees. So I'm actually farming on
Speaker 1: MADIC right now, and because Madic is trying to larn
Speaker 1: people to do that, the incentives are excellent. Um. I'm
Speaker 1: using the the Madic unit swap clone. It's called quick swap,
Speaker 1: and quip swap is offering all sorts of incentives to
Speaker 1: do to provide liquidity, So I'm providing some liquidity there.
Speaker 1: You do still pay a gas fee when you jump
Speaker 1: between the Ethereum network and the Maddic now at work.
Speaker 1: I don't actually think that is going to be the
Speaker 1: implementation that solves this. I think the implementation is going
Speaker 1: to be something called roll ups. And my understanding is
Speaker 1: that unit swap, the new unit swap will eventually use
Speaker 1: roll ups uh to lessen fees. And I can't tell
Speaker 1: you how they work technically, but basically it batches a
Speaker 1: large number of transactions in the space that currently only
Speaker 1: a few transactions can fit, and uses some dynamic system
Speaker 1: and that should allow for a lot more throughput directly
Speaker 1: on the Ethereum main net. This is probably like the
Speaker 1: biggest issue in DeFi right now is figuring this stuff out,
Speaker 1: because as the price of ethereum keeps going up, it's
Speaker 1: not so much that gas fees are high right now.
Speaker 1: They are, they're high scaled by the price of ethereum.
Speaker 1: So one important concept I think for people listening is
Speaker 1: that whatever network you're on, you pay the native token
Speaker 1: and gas. So when you're on the Ethereum main net,
Speaker 1: you pay ethereum, when you're on the finance smart chain
Speaker 1: you pay B and B, and when you're on the
Speaker 1: Madic network you pay Madic. So ethereums in this tricky
Speaker 1: position where not only is the the network congested, the
Speaker 1: coin itself has seen you know, ten x gains over
Speaker 1: the last year, and the gas fees are scaled by that.
Speaker 1: I think there's also a counter argument that some of
Speaker 1: the friction and high gas fees is not a terrible thing.
Speaker 1: It actually causes people to only want to use your
Speaker 1: chain for serious things, So you know, I guess you
Speaker 1: could look at Sheba as a counter example of that,
Speaker 1: although I think the Sheba era is now already over
Speaker 1: because Metalic just dumped all of his Sheba, but overall,
Speaker 1: some people might say, it's not such a bad thing
Speaker 1: that it's really expensive to do something on the network,
Speaker 1: people will only do things that are valuable instead of
Speaker 1: what you saw when gas was really cheap, which is
Speaker 1: a lot of like front running bots and things like
Speaker 1: that that are basically just trying to extract stall small
Speaker 1: amounts of value and that becomes unprofitable as gas becomes expensive.
Speaker 1: I think that's a great place to leave it. So no,
Speaker 1: we only have like ten more episodes to do on
Speaker 1: this before I start understanding it a little bit. But actually, Aaron,
Speaker 1: that was fantastic. And I think you're a great guest
Speaker 1: because you yourself are a podcaster and you know how
Speaker 1: to speak. That was great. I really appreciate it. I
Speaker 1: wish I could get someone like Hayden to explain some
Speaker 1: of this stuff to me, because honestly, the deeper this
Speaker 1: DeFi stuff goes, it's like it's like I I was
Speaker 1: here for algebra, but I'm not here for calculus. That
Speaker 1: was great, Aaron, And UH really appreciate you, uh joining us,
Speaker 1: Thank you, thank you very much. Thanks Sara, take care
Speaker 1: and thanks a lout. It really that would great. I
Speaker 1: actually I did learn quite a lot from Aaron on this,
Speaker 1: I still have like a million more things, and they're
Speaker 1: like all kinds of technical market mechanic questions, But I
Speaker 1: thought he did a great job of explaining some of
Speaker 1: the some of the basics of trading on these networks
Speaker 1: and where the opportunities come from. There's definitely a lot there. Uh.
Speaker 1: And it's kind of funny how each one of our
Speaker 1: crypto episodes lately just leads to another crypto episode, this
Speaker 1: one in particular, I think we're probably gonna walk away
Speaker 1: with at least five ideas for new episodes. But on
Speaker 1: that note, it does also sound like it's a pretty
Speaker 1: labor intensive activity. And I think this is a theme
Speaker 1: that we've talked about at various points in time, when
Speaker 1: you get into a new market, when you spot some
Speaker 1: sort of arbitrage opportunity, like it takes a lot of
Speaker 1: work to do that sometimes. And I know Aaron was
Speaker 1: talking about how there are automated yield faring strategies and
Speaker 1: things like that, but just this notion of going through
Speaker 1: dozens and dozens of new coins trying to figure out
Speaker 1: which one's look most promising or which ones have the
Speaker 1: nicest logo, that's a lot of work. It is a
Speaker 1: lot of work, and I but I do think that
Speaker 1: that really is like a consistent theme crypto or not
Speaker 1: crypto that like I guess the sort of the richest
Speaker 1: trading environment for like an actual like trader are in
Speaker 1: markets that are just like not even close to efficient.
Speaker 1: And I always like go back to like our god
Speaker 1: our interview with like Doug Ceafood the virtue CEO, which
Speaker 1: is like could not be more opposite than this in
Speaker 1: terms of like a market that's just gotten, you know,
Speaker 1: the stock market that's like so insanely hyper efficient, the
Speaker 1: market for listed US equities, and there's like this like
Speaker 1: crazy spectrum of like I keep thinking about this, like
Speaker 1: Doug on one end and guys like Sam bankman Fred
Speaker 1: or Erin on the other end, and the amount of
Speaker 1: like just the literal amount of work that it is
Speaker 1: to like execute a trade or like switch over to
Speaker 1: another protocol or whatever. It's like this like fascinating whole spectrum.
Speaker 1: And but you know, the richest opportunities are in like
Speaker 1: whether there's just a lot of work to work involved.
Speaker 1: I have another prying question, but this time for you, Oh,
Speaker 1: why is whale hunting your like model, your de facto
Speaker 1: model for finance. For the purpose of finance, you brought
Speaker 1: it up like three times. Now. There's a great book
Speaker 1: that came out a year ago that was basically about
Speaker 1: the history of whaling. I forget the title. I'll tweet
Speaker 1: it out after this I'll find it and then people
Speaker 1: can go find me on Twitter and tweet it out.
Speaker 1: But that is basically like making the case that like
Speaker 1: the venture capital the venture capital was founded with whaling.
Speaker 1: That the first like if you trace the history of VC,
Speaker 1: you could sort of like draw this lineage that goes
Speaker 1: back to people funding whaling expeditions because the distribution of
Speaker 1: the returns of whaling, which is that you had a
Speaker 1: few expeditions, they got tons of whales and tons of
Speaker 1: blubber and oil, and they paid for tons of failed
Speaker 1: expeditions where people died or didn't catch anything or had
Speaker 1: to turn around. And that was like the first sort
Speaker 1: of like VC investing it. So like that is my
Speaker 1: model essentially for like the purpose of finance, which is
Speaker 1: to essentially create liquid markets out of like these sort
Speaker 1: of sort of like matchup entities that have a lot
Speaker 1: of like cash and have one risk profile versus entities
Speaker 1: that are just the highly liquid and so I keep
Speaker 1: like going back to that is like the sort of
Speaker 1: like that is the purpose of finance on some like
Speaker 1: deep level. See, so now we're going to have to
Speaker 1: do a whaling episode. Yeah, that's your right, we should
Speaker 1: talk to that's the next episode is well, let's find
Speaker 1: that book. I'll find it, we'll get the author, and
Speaker 1: we'll talk about the history of whaling. Because yeah, I
Speaker 1: guess that makes sense. Why do I keep talking about whaling?
Speaker 1: That is the reason I'm glad you asked? All right, um,
Speaker 1: shall we leave it there? Let's leave it there. This
Speaker 1: has been another episode of the All Thoughts podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy
Speaker 1: Alloway and I'm Joe wi isn't Thal. You can follow
Speaker 1: me on Twitter at the Stalwart. Be sure to follow
Speaker 1: our guest Erin Lammer. He is the host of the
Speaker 1: new podcast Exit Scam. Definitely want to check that out.
Speaker 1: His handle is at Aaron Lamber. Follow our producer Laura Carlson.
Speaker 1: She's at Laura M. Carlson. Follow the Bloomberg head of podcast,
Speaker 1: Francesco Levi at Francesca Today, and check out all of
Speaker 1: our podcasts at Bloomberg, under the handle at Podcasts. Thanks
Speaker 1: for listening, O.