The Bitcoin Layer – a new-ish addition, I’m a regular reader of Nik’s newsletter, and the podcast offers a low-frills analysis of macro and specifically the US bond market, interest rates, and the Fed; he also tends to invite guests who are slightly less featured than the usual podcast-guest-circuit (eg, the Rogan-Friedman-Huberman axis, or the Ferriss-Rose-Vaynerchuk axis)
Scriptnotes – a long-time sub; swings back and forth between industry insider gossip and screenwriting 101; invites great guests (eg, recent episode with The Daniels)
Iced Coffee Hour – surprised by how much I enjoyed their chat with Tai Lopez, helped to humanize the guy behind his omnipresent Lambo and books; the show provides (me with) valuable insight into how a certain kind of Gen Z influencer / ambitious individual thinks
TWIML – been dipping more than a toe into the waters of AI and ML recently, and this podcast has frequent topical interviews that are the right mix of accessible and technical for me
My First Million – a guilty pleasure, but having been a steady subscriber since it’s early days, I now find that it relies a bit too much on Shaan and Sam’s personal stories (so after listening to eg, 10 episodes, it’ll start to feel like a family reunion where gregarious grandpa tells you about that one time he did X)
Bankless – comfort food for Ethereum fans, with occasional entrees of delicious deep dives, gotta appreciate Ryan + David’s chemistry
What Bitcoin Did – comfort food for Bitcoin fans; more philosophical as of late; always enjoy his Lyn Alden interviews; for me, it scratches a similar itch to Preston’s weekly Bitcoin interviews
Lex Fridman – in a class by itself; he’s the only interviewer who can bring world class guests (like this one w/ game designer Todd Howard) to spend 3 hours chatting about anything and everything; enhanced by Lex’s mix of patience and skeptical kindness
These notes are a bit old (from April 2022). I thought I’d already published them, but couldn’t find it on my blog or twitter so…
Guest: Sam Kazemian
Host: Bankless
Sam got into crypto via GPU mining
Worked on wikipedia competitor
Started Frax Finance
Got in crypto 2013, UCLA student, mining dogecoin
One of first to signup for ETH newsletter in 2014 (Vitalik talking about counterparty and colored coins)
First “stablecoin whitepaper” was Robert Sam’s seignorage whitepaper
Two token system – stablecoin + share token / volatile token to represent seignorage / cashflow
There’s a WordPress of stablecoins now – cookie cutter playbook, infra is there
Will be Cambrian explosion for next 12 months
Stablecoins are one of 3 multi trillion dollar crypto narratives
1. Bitcoin
2. ETH
3. Stablecoins
Each are unique assets
Tells short story about central banking – from JP Koenig blog
https://jpkoning.blogspot.com/2018/03/more-fiatsplainin-lets-play-fiat-or-not.html
USDT
Start with each piece of paper has $1 USD behind them
Then limit or reduce redemption
Then say don’t have 1:1 redemption, but have these other assets
Frax created concept of fractional algorithmic stablecoin
Never broken peg (1cent plus or minus from $1)
Billions of dollars of onchain liquidity Frax is partial claims on hard money
RSA: Type 1 Hard money > Type 2 Claims on hard money > Type 3 Fiat money
Frax launched with Frax and FXS
Last week launched price index stablecoin
Frax is $1 stablecoin
FXS is governance token (named after Robert Sams whitepaper)
Algorithmic = expand or contract based on minting or burning FXS
Some people would say 100% collateralized, just part of collateral is FXS (but kinda circular bc it’s kinda like being backed by itself)
Hard assets / reserve = DAI, USDC, CRV emissions, protocol liquidity
Frax is mintable on 12 chains, lots of L2s
versus UST (all algorithmic, aside from Luna tokens and recent BTC purchases)
UST moving more toward fractionalized with recent BTC and AVAX purchases
Only difference is collateral ratio
Maker DAO started with fundamentally sound reserves = $1 stablecoin backed by $2 worth of other assets
Over time, everyone’s learned it’s extremely difficult to issue a USD stablecoin without having lots of actual USD / hard assets
Even Terra works closely with Jump and other market makers
If you want to autonomously be a Central Bank (Terra, Maker, Frax are the big 3) – you need hard assets to do it
When redemption window is open (1/3 of one cent off) – can redeem, get a mixture of assets – get USDC and FXS minted at current collateral ratio
So even last redeemers will still get equal pro-rata shares of the different assets as everyone else – so no benefit to redeeming first
And as the peg is off by 1/3 of one cent+, the collateral ratio increases
Entirely onchain, extremely decentralized approach No legal entity – there’s no off chain assets
Frax takes some of algo stablecoin scalability (Terra), but reduce risk of bank run / crash (Maker)
Lots of stablecoins will move toward Frax model – question is what collateral ratio?
Maker is 150% (?)
Frax is 85%
Terra is 10-20% BTC
People focus too much on collateral ratio and not enough on ability to keep the intended $1 peg
Terra really good at strategy, adoption, also a lot of market making activity from people with interest in Terra / Luna succeeding – eg, Jump Capital – other people with billions of dollars to ensure the $1 peg
No market maker is willing to do this without incentives
Thus all onchain stablecoins like Maker and Frax need USDC
Frax has 40s% USDC / Tether exposure, less than Maker at ~50-60%
Trying to wean off USDC / Tether
Mim – overcollateralized model – tried to work with them but had Sifu episode
Used for a lot of degen leverage
Great ex of overcollateralized – but still risky!
Risk is summation of all market activity
“Frax is as safe as DAI”
“UST is way more safe than people think” – lot of people have very strong interest in UST peg – difficult to quantify, but MUCH safer than the idea that “there’s nothing here” – if actually true they would’ve collapsed in those crazy downturns / dips
Big 3 – UST, Frax, Dai
What drives FXS price?
Can be staked as veFXS – Curve model – 1 week to 4 years – can’t be transferred – then have veFXS balance – get cash flow from profit of Frax market operations
APR is 4.7%, can vary from 3-20% depending on profitability and yield opportunities – entirely cashflow
Entirely self sufficient actual profit, not token emissions
Frax has $2.7B supply – ~$200M of annual revenue
What is FPI?
Second stablecoin in Frax ecosystem (after Frax itself)
First one pegged to CPI of federal gov’t
Custom Chainlink oracle – designed with Chainlink and Vault (Volt?) projects
Worked on it for one year
Grand vision – evolution of stablecoins will look like evolution of central banking – eventually will peg to our own definition of exchange rate, not some external exchange rate
That’s what FPI is – “final evolution of onchain stablecoins”
Eventually weight of basket of goods for CPI will be entirely onchain – not reliant on government or centralized data source
Today was highest CPI reading in 40 years – 8.5%
Can mint FPI with Frax
Eventually FPI can float against dollar
Curve wars / Curve4 pool
New Curve stablecoin liquidity pool
Removing liquidity from DAI (3 pool) and point towards 4 pool (UST, Frax, USDC, Tether)
Talked to Do for awhile – not a surprising move – one of smartest and most ambitious guys in space
Known Do since 2018, when he started Terra, he’s very good strategist
Currency success = how many people using it, how much economic activity it supports, and a mixture of uses is important
Curve is like WordPress of stablecoins or pegged assets (stables, ETH & stETH)
Nothing wrong with Maker / DAI’s strategy – if they wanted to do DAI 4-pool, Frax would work with them like all the other stables
They take a thorough, slow, methodical approach to governance
Maker isn’t as interested because they don’t see Curve at same importance as Frax or Terra
Frax and Terra are aggressive about growth – want your currency anywhere there’s economic activity
Curve is more than just a DEX, it’s an algorithmic savings account, get yield on it
Some people think it’s just a Ponzi game but they’re mistaken
Frax has largest CVX holdings, Terra also has a lot, but Maker doesn’t
4-pool will be massive when it gets going
Just launched on Arbitrum, Fantom and Polygon are already available “Will be the savings account for very large part of crypto industry”
Stablecoin pegs are stronger together – focused on positive sum innovation
Frax has been spot on with thesis of fractional algorithmic stablecoin, and now FPI (first CPI-pegged stablecoin) In 12-24 months, will be consolidation around 3-4 decentralized stablecoins
Are BTC / ETH better as inflation resistance or as “central bank reserves” in crypto
Do Kwan kickstarting BTC as gold narrative, Frax doing same for ETH
So inflation resistance crowd will be captured by stablecoins like FPI, and BTC / ETH will be perfect reserves
And this is a “fractional crypto stablecoin, anime style” according to Stable Diffusion:
A16z – new $4.5B fund, largest crypto fund ever – venture investing, mostly early stage, 10+ year time horizon, open source, contribute to broader crypto community, doing a lot in policy, invest a lot in content and media, 72 people team and growing
cdixon = “Kendrick Lamar of mental models”
Internet’s original sin – it was illegal to have money on internet, do business online – US government was paying for it then, was a fed funded research project w/ taxpayer money
Ethos as non-commercial, open source, free software movement
Impossible to imagine Netscape, making money on internet
Internet built as zero-trust, lack of economic incentives created many problems such as spam, reliance on advertising
Netscape created javascript, cookies, SSL – core internet primitives
SSL was controversial, classified as munitions, government thought only terrorists would use encryption
Narrative battle then – information superhighway (eg, AOL, Disney) vs decentralized (eg, Netscape)
Encryption was used in warfare, but not in daily life
Invented SSL protocol to enable encryption
Govt still tries to ban encryption periodically, same fights
Many early actors do have bad intentions – but stopping them means you also stop the positive uses and limit the potential; it will create jobs; importance of privacy for sensitive data (health, finance)
If these technologies exist, you want them in your country so you can better regulate and observe them
Bull case for open systems:
Bill Joy, cofounder of Sun – “Joy’s law” – no matter how many smart people work for your company, there are more smart people who don’t
“Permissionless innovation” – internet was like this, PC, iPhone, crypto is like this
Generational component to this – kids see this as their opportunity; older people have status quo bias, their power is at risk
Doomed to fight these things over and over again
Cathedral vs Bazaar
Cathedral = Microsoft (hierarchical, centralized)
Bazaar = early PCs (open systems)
Encarta vs Wikipedia
Crypto picked up baton of open source software, open systems
Disadvantages is 2 step process – recruit developers first to build the software, which attracts the users
Early protocols were not human readable – binary code
Internet protocols (eg, SMTP, HTTP) – text based protocols, human read & write, easier to build on it, write your own protocols
Was meaningfully slower this way
Did this to drive demand for broadband and innovation on top
First laptops were 43 pounds and early reviews were scathing – the critics were right but didn’t see the future
When there’s a movement and attracting world’s smartest people – the critics’ list of problems becomes the precise opportunities
Internet – right answer is always to LIBERATE – ethos of freedom of speech, John Barlow’s declaration of independence of cyberspace
Web3 bringing trust to an untrusted network
Can imagine entire global economy running on blockchain
Net neutrality – Twitter originally described itself as free speech wing of free speech party
Lot of those advocates are now advocates for censorship – 180 turn
Ethos shift – all these companies are under intense pressure to censor and block
Crime wave in 1920s, 30s – car plus tommy guns – new thieves with new tech – created mass panic and lots of bank robberies, but then banks and police adapted. Society adapts
Full anarchy isn’t a good idea either – question of judgment by leaders and community
Mental model for software – as flexible and plastic as writing fiction – massive design space
Questions of whether capital can have too much influence over governance – it’s a problem that can be solved with more innovation and better design
Becomes question of political philosophy – Machiavelli said 3 forms of government, rule by one, rule by few, rule by many
Lots of direct democracy experiments fail – California propositions, Florentine direct democracy so catastrophic it led to anarchy
Historically most democracies have some level of representation / delegation
Full democracy may be unrealistic expectation
But different communities can make different tradeoffs
On internet as things are increasingly adopted, more embedding adds more friction points to governance process
Speed running history of finance, and now speed running history of governance
Blockchains are core tech – new kinds of computers, “computers that can make commitments”
Two other movements – money / defi, web3 (reinventing internet services owned by communities)
Web1 = democratized information – “read”
Web2 = democratized publishing – but controlled by small sets of companies – “read write”
Web3 = democratizing ownership – “read write own”
Networks’ hardest problem is cold start – tokens are powerful solution to this
Lot of people are uncomfortable with money – intellectuals in particular see ideas as superior to money
Another view – money as a tool, crystallized human effort – incentivize and measure value between people
We tried societies without money – Soviet Union is an example and it didn’t go well
Money is fundamental tool to build civilization
Key turning point for modern civilization is “clear title to land” – once you have that, you have motivation to improve it, build on it – then you can borrow against it, which is what makes R&D, business, modern economy possible – unlocking capital
Web 1.0 – closest to ownership is domain names – and was linchpin for how web stayed somewhat decentralized
Domain name isn’t a consumer product, which limited its potential
RSS didn’t succeed but there’s alternate future where RSS + crypto (value ownership) could have avoided lots of web2 problems of centralization and censorship
NFTs – way to connect culture and art to internet – history of art has always been a big deal, value is tied to provenance (is it real, did artist actually make it, who owned it before)
World has fraction of art we should have – funding art has always been a tough problem
Allowing artists to access global market of patrons
Bullish on global explosion of creativity
Jack Dorsey’s critique of web3 – “you don’t actually own web3, know what you’re getting into”
Jack believes in decentralization, differ on details (believes BlueSky can do it on Bitcoin instead of other blockchains)
Norm of a16z portfolio ownership is sub 5% – which is less than web2
Moxie critiques – new things re-centralizing like OpenSea – but OS doesn’t own those NFTs, they’re all on blockchains, more pressure on take rates and more competition
Processes of tech adoption
1. Ignore
2. Refute – list of criticisms
3. Name calling – people getting mad, realize it’s gonna be a thing, represents re-ordering of power and status; we’re entering this phase now
How many web3 critiques are just critiques of capitalism
Western culture has 800 year history of freedom of speech and expression – important to keep these
Early Bitcoin had a libertarian culture which skews right, which also gets confused in the debate with broader crypto and what crypto is like today
In long run, the truth wins
Internet is winning – fundamentally a good thing
People use it, buy into it, get value from it
Advice to young people
-look for place you can make contribution (don’t believe in follow your passion)
-focus on satisfaction over happiness (deep and enduring over temporary and fleeting)
-all of this stuff is about people, great teams – people who share a lot in common, sublimate themselves, work together
-hard work (work life balance isn’t as important when you’re young, there’s no substitute for hard work, great things require intense effort over long time)
New tech there’s a magical window
For mobile it was 2009-2011 (Snap, Instagram, Uber, Venmo, huge influx of builders, funding)
With web3 we’re in it now, magical few years, hence the massive fund to go all-in
Ethereum whale Tetranode on “how to become a whale”
What is a Tetranode?
Quake game reference
Played Starcraft a lot growing up
Calls himself a “retired software engineer” but still works 100 hours/week It’s a compulsion, doesn’t feel like work
First 4 years of crypto he just hodled – built discipline
Initially crypto community on reddit, moved to Twitter
Eventually bought a house with crypto gains but still drives a Toyota
Several levels of wealth
1. When poor, just want more money
2. Make millions – self-retirement, freedom
3. Then you wanna make others rich
Early investor in FunFair but held through crash, learned the importance of execution
For investments, he wants to know he can be the biggest customer – so he can help / influence
Measures his wealth in ETH
“hardest money on Earth”
Why bullish ETH in early days? Angry that bitcoin didn’t scale (during block wars)
Started buying ETH at Kraken listing in 2015
Why not alt L1s? None of them really solve the scalability trilemma – just make different tradeoffs
At his scale, security issues become greater
Experimented with Fantom and BSC – but bridge UX wasn’t good, and bridges are dangerous for larger transfer sizes
Why does decentralization matter?
The consequences are fat-tailed – eg, censorship resistance
Centralization adds risk – eg, Binance regulatory risk, and CZ keyman risk
Don’t do buybacks – causes a project’s treasury to bleed and doesn’t help project in long-run
What he values: Large addressable market; How the product helps his own needs
Farmers he respects
-@Pleyuh
-@DegenSpartan
How does Tetranode move markets?
Either through online influence or direct market actions
He’s not a true market maker like 3AC
Info asymmetry exists even in Ethereum – its value should surpass Bitcoin based on activity and fees alone
Better to make own judgments early than wait to be validated later (when your alpha is gone)
Trust your tuition to make the call
How are whale games played?
With smaller investments he can control the market and will do things like liquidating short sellers In a few whale rooms where they can collab to make those decisions
Nowadays he makes money by #1 Farming and #2 Being advisor for new projects
How he helps: Tokenomics advice; Market making; Marketing
His favorite projects (Infinity Gauntlet)
-Dopex (highest conviction) – his most used L2 app
-Redacted + Olympus (partners)
-Fei + Rari
-Rocket Pool (only decentralized staking pool)
-Curve (tokenomics is among best)
Governance doesn’t really work in 2022 – voting isn’t binding, controlled by a few large hodlers – it’s more “decentralization theater”
Profit sharing is more effective (eg, Curve)
1/3 of his portfolio is on L2
Lending market is a weakness currently, need more uptime assurances
Ideal L2 has fast withdrawal time
ZKSync is holy grail but no generalized EVM compatibility yet
In long run, ZKP is end game (because open source)
Yassin
Engineering + finance
Crypto in 2017, joined Ark
Frank
GPU mining in 2017
Previously data + cloud engineer
Ark typical week —
Monday – portfolio review
Middle of week – research, long-form writing
Friday – brainstorm with advisors and team
Every financial asset will eventually become a crypto asset
Generational shift from internet > crypto
Balaji – Blockchains:scarcity what internet:information
Easiest explanation of crypto is a distinct asset class, requires separate framework from trad assets
Continuation of “software eats the world”
Every bank needs a fintech strategy now, and soon every bank will need a crypto strategy
Spectrum of centralized vs decentralized trust
“There are no solutions, only tradeoffs”
Money requires most decentralized trust
Defi / web3 requires a bit less
Status quo / web2 is very centralized trust
Different revolutions evolving in parallel – Ark believes money revolution is most profound (Bitcoin)
Bitcoin is prime candidate to compete as global base money – the more boring and predictable, the better
Eth, Solana, Terra – tradeoff decentralization for higher throughput and lower cost
What does perfect balance look like?
Eth 2.0 vision – PoS, sharding, rollups – the upgrades enable it to compete with the alt L1s (unlike bitcoin where conservatism is a core value)
alt L1s sacrifice the decentralization for greater throughput and speed – makes them more similar to status quo (web2, centralized)
Bitcoin could be $1M+ by 2030
$28T market cap = 3x gold market cap
Becomes global store of value
Ark first gained BTC exposure in 2015 through GBTC
Bitcoin’s use cases are additive and zero-sum given 21M fixed supply
Supply shock given that majority are long-term holders
Bitcoin is Veblen good – demand increases as price increases
How it gets there:
1. Digital gold (replacing gold)
2. Corporate treasury (eg, Microstrategy, Tesla, Square)
3. Global HNW investment (seizure resistant)
4. Nation-state treasuries (eg, El Salvador)
Defi / web3
Crypto native protocols are generating much higher revenues per employee than trad finance
Power of open source, software eating finance
Uniswap = 20 people, $40M revenues per person
Chris Dixon: Uniswap may be the most valuable codebase per line
ETH market cap could > $20T in next 10 years
All ETH transactions = chain revenue
More and more tradfi revenue moving on-chain, plus new sources of on-chain revenue
ETH = Hybrid of global dev platform + value to token of being native currency to that ecosystem $20T market cap = $180K ETH price
Financial revolution (ethereum) is more competitive than money revolution (bitcoin) – riskier / more uncertain
If ETH wins both financial and money revolutions (beats bitcoin and competing L1s), then ~$50T market cap
NFTs
From static collectibles to dynamic digital assets NFTs are digital property rights = own our data for first time
Right now web2 (eg, FB) owns data
Incentivizes more spending on digital content
Gaming opportunity – Fortnite makes $5B in revenue for purely status based digital goods
Good example – in Indonesia, $SLP (from Axie) is being accepted for local taxi rides
Growth of metaverse – eventually online monetization and spending will surpass offline
In 5-10 years
Frank: proof points that crypto is becoming mainstream, being adopted, diversifying, no longer speculative like 2017
Crypto becoming popular for (some) politicians to support, and increasing regulation as positive for ecosystem
Yassin: unbelievable to be witnessing in real time, who knows what next 4 years will bring
