You may have seen NeoSwap on Stacks Twitter by now (if not, come follow us), or seen our mesmerizing GIFs being shared like below:

But what is it?

You are seeing the future of commerce. Smarter barter. Neo-barter to be precise.

NeoSwap is a multi-item, multi-party NFT swap platform. You can bring any mix of NFTs and Stacks and get swapping.

You may end swapping & receiving:

• only NFTs,

• only tokens,

• Tokens & NFTs

Right now NeoSwap is available on Stacks only, however, we will be coming to Ethereum, Solana and other chains to be announced! :)

So with that, where do you begin:

Step 1:

Connect with your Hiro wallet at the top right of the page, fill in your profile and add your email address (this is just to let you know when the smart-contract is ready to sign!)

Step 2:

Join the Room you have come for!

Step 3:

Set your budget- don’t worry here, you can change it later AND it doesn’t mean you will spend it!

Step 4:

Select your NFTs you would be willing to trade.

Step 5:

Set your reserve prices on your NFTs

Click save & next!

Step 6:

You will see all the other NFTs people have brought to the room, select the ones you like!

Step 7:

Now you can bid on them- DON’T BE AFRAID to bid on them ALL, there is no way you can overspend, this is the cool part! Go have fun!

Now the magic happens!!

The NS Algorithm does its thing and will propose you a trade.

Step 8:

If you like it, we will create a smart contract for everyone to sign and the trades take place!

It is that simple.

It can seem intimidating at first, and there are a few concepts to wrap your head around when you are used to the standard peer-to-peer swaps, but as you can see, it is really simple to use once you’ve walked through it!

So come swap frens :)

P.S.

We are hosting daily NeoSwap Parties accompanied by Twitter spaces.

Check out our Twitter here to find out more details:

www.neoswap.ai/ and https://neoswap.party/

Every once in a while as an investor you have a company come across your desk/inbox/DM’s/(insert trendy thing here) that makes you stop.

You just think, ‘wow, this idea is incredible’.

That is what I had with NeoSwap.

Initially, I was introduced to the team via a mutual contact and I began advising them. The founding team are brilliant people (more on that later) and what they were working on was absolutely fascinating and potentially world-changing.

So when the CEO asked me to come on board as Head of Strategy, I had to think about it very seriously…and then, of course, say yes.

What is NeoSwap?

NeoSwap is a multi-party, multi-item NFT swap platform.

It adds potential liquidity everywhere (and we all know liquidity is what makes the world go round).

In essence, the problem NeoSwap is solving is figuring out the optimal way to allocate or reallocate items across a group.

This is known as neo-barter.

We all have NFTs we don’t want, feel agnostic towards or maybe even dislike as we got them in a blind mint.

So we list them, but did you know 65% of listed NFTs never sell…?

We all want NFTs we don’t have, maybe we don’t quite have the money to buy them, especially in the current world of rate hikes, inflationary pressure, rising energy costs, etc.

And I am sure we have all tried selling things peer-to-peer, be it on Sudoswap, STXNFT, Opensea, Magic Eden, LooksRare... wherever.

Sometimes it works, but often you get low-ball offers, or you are offered something else you don’t quite want for part-exchange. Trades can be difficult and fall apart quickly, especially when it’s dependent on two parties finding a resolution.

Enter NeoSwap.

NeoSwap is a place that allows multiple parties to come and create incredible multi-way trades.

The algorithm behind NeoSwap proposes multi-way trades that would be impossible to put together otherwise: both to figure out the trade and to coordinate all the parties involved.

We create win-win-win situations. Pretty amazing.

Check out the mesmerizing GIF of a live trade done on the platform below. Bear in mind this all happens in one transaction:

You can see how items can come from or go to multiple different users, as can currency. In aggregation, the trades are great but imagine trying to coordinate this as a series of 1–1 trades. Impossible.

When you look at the size of the NFT market, and the illiquidity issue in many collections, the promise of the platform becomes huge.

When dealing with items that have a subjective valuation, one phrase comes to mind:

“One person’s trash is another person’s treasure”

Imagine being able to swap items within a community directly for others you want. Maybe your floor Satoshible that you aren’t keen on for 2 others you really like.

Perhaps you own a bunch of in-game items or accessories you don’t need or want, you can swap them with other community members, get an NFT and some tokens out of it.

Maybe you swap across communities where you’d like exposure to a different collector base. Usually, you’d have to list your item in hopes it sells, (that could take a while, or never happen), then exchange it for a token, go to the next collection, and hope you can get one you like and for the price you need.

With NeoSwap you could arrange an event between collectors or each group (or a bunch of different groups) and get swapping.

As you can see from the GIF above, tokens can be involved, so you can come to the table with NFTs, tokens or a mix and you can also leave with a mix.

NeoSwap has the power to unleash liquidity in the NFT markets in an unprecedented way. As a collectooooooooor myself, with many many illiquid NFTs, there are plenty I would swap for ones I find more aesthetically appealing or might have some other subjective value to me they don’t have to someone else.

I really believe this idea is revolutionary and has the potential to change the way we conduct commerce.

NFTs are a great starting point, as digital goods that have subjective value and offer immediate settlement it can show the power neo-barter unlocks.

The Team

Another reason I was so excited to work with NeoSwap, past the revolutionary idea, was the founding team. These people are so bright and so enthusiastic about what they are building and how it can change the world. Their energy is infectious.

John Ennis is the CEO and founder. He has a PhD in Mathematics and Post-Doc in Computational Neuroscience. In the crypto-world, we affectionately refer to that as Galaxy-brained :)

Prior to founding NeoSwap, John was already a successful entrepreneur in the Artificial Intelligence space, founding Aigora. He has been a key-note speaker in the industry and a market expert.

Check out his talk on NeoSwap here at Bitcoin Unleashed ‘22.

Hamza Diaz** **is CXO and co-founder. We were lucky enough to spend time together in Portugal at the Sol Breakpoint event in Nov 21. Hamza’s obsessions with the user experience and constant iteration/improvement blew me away. Watching his interactions with people as he showed them demos was fun. Hamza is a full-stack developer & data scientist and it shows with his approach towards everything.

**Kuba Kwiecien **is CTO and co-founder. Yet again, galaxy-brained. He has a Masters in Theoretical Physics and was Head of Artificial Intelligence at Aigora.

John, Kuba and Hamza have all worked together previously and have a great working relationship and style, which shone through when I was advising the business.

I know this is cliche, but they always say you should aim to be the dumbest person in the room/surround yourself with people smarter than you are- this is not hard in this instance… :)

It is a team I know will work hard and smart to make an impact on the world. They have a deep confidence and belief in their product. Now, so do I.

Stacks is just the beginning for NeoSwap, but it is an exciting one. There is a growing and passionate community of NFT users on there, and smart people coming to build great products on there every week.

We are currently looking for selected projects and communities to partner with. It is a great chance to support artists and their communities and show them the power of NeoSwap.

If that sounds like you, get in touch!

The future is much bigger than only NFTs, but this is absolutely the best place to begin our journey.

Come swap with us frens!

This week I wanted to take a look into Tracer DAO. Cool name eh. I was lucky enough to get to speak to Lucas of Tracer DAO & Mycelium for this one :). Sidebar, it was nice to speak to an actual human being for this one, rather than purely sitting in front of 100 open tabs for days on end, which I still did.

So what is Tracer DAO? Is it for people who are bad at drawing but want to claim photorealistic copies as their own? Not quite fren.

Tracer DAO is an ‘ecosystem of derivatives products’. It is being built as a place where you can build derivatives markets for anything. I mean anything.

Interestingly, Tracer has high ambitions to be a useful protocol past just speculation. By offering open-source and permissionless derivatives they envision a world where these products are available and used by households, rather than only accessible by sophisticated investors. They want to democratise derivatives. This can allow people to hedge things like the commuting cost, cost of energy, or exposure to certain assets (all of which feel especially relevant with rising energy costs, inflation, and threats of rising rates!!!).

Currently, it is most easily viewed as a perpetual pools protocol, (say that 10 times fast). Perp pools are their first product, with more on the way! People can use them to take a leveraged position to avoid the risk of liquidation with no margins.

That is the tagline, but what does it mean!?

Perpetual Pools

Well typically, when leverage is offered to people you also have liquidation risk. Say you have $1000 in your wallet, on DYDX you could go 10x long BTC- so you are buying $10,000 worth of BTC with your $1000 as collateral.

If BTC goes up by 10%, great, you have doubled your money, but equally, if the price dips you can get ‘liquidated’ if you don’t add more collateral. This means your collateral, in this case, $1000, gets wiped out and you are left with nothing..rekt.

With some clever engineering from TracerDAO, perpetual pools eliminate this.

The way it works is- each side deposits collateral into a pool to take either a long or short position. This collateral could be anything in principle but to begin with, it is USDC. So each pool has two sides — long & short.

The pool will stipulate the equivalent leverage, so it could be 1x, 3x, 10x, etc.
You then mint a token that represents this position.

Now here is where it diverges from traditional leverage again. V1 of the pools used something called power leverage, V2 has moved to something called sigmoid leverage, it sounds intimidating but both represent a calculation that determines the amount one side ‘pays’ the other depending on price movements.

This matters because it “gives returns almost equivalent to “times” leverage for typical price movements, but dampens returns to extreme price movements so users can never lose 100% of their collateral”.

So this means when the price stays in a lower volatility range, you get almost the same upside as you would do with pure-play leverage, but when the price starts swinging more your upside is more limited. This protects the collateral in the pool and prevents liquidation.

This is the graph below that TracerDAO use in their documents to demonstrate 3x leverage. You can see the blue line tracks your returns with traditional ‘linear’ leverage, the red line is using perpetual pools.

https://www.desmos.com/calculator/tiiien4h8l — You can toy around with the graph here if you’d like :)

The lines track together initially and then begin to diverge, this is the dampening effect. The difference between the two lines is what you would ‘miss’ out on if you had used traditional leverage. However, when using the pools you don’t get the liquidation risk.

The way I am thinking about it is: you all deposit collateral into a pool and you initially have a claim of X amount. When market conditions change your claim amount changes, this applies to everyone in the pool, but it all always adds up to 100%. The power leverage kind of supercharges your claims within a certain range, while dampening your upside if things go strongly your way (hey it can’t all be pure upside, no downside right?). At the end, you get to burn your token and take your claim out. So my understanding is your maximum benefit (from a returns, not hedging, perspective) comes when the asset prices aren’t too volatile.

Perpetual pools also offer some other benefits to users:

• you don’t have to manage margins/collateral

• there are no expiration dates

• no counterparty risk

• because the position is tokenised it becomes a composable part of the wider ecosystem (i.e you can use it on other protocols, like depositing it on Rari to use as collateral for borrowing

On the first point, one thing I’d like to expand on is the management of the position. The pools and token take care of this so you don’t have to.

This is known as rebalancing- which is how this value/claim transfer is managed. This is done hourly and managed by ‘keepers’. These are bots that rebalance the pools for a fee. This makes perp pools a lot more cost-effective than their closest real-world counterparts like leveraged ETFs where the trading and management fees add up quickly! I believe Tracer’s management fee is 1% PA. This also means there are periods, I believe it is 5 mins, where you can’t enter or exit a pool to prevent front-running.

V2 Launch

V2 of their perp pools is also on the way and with that they have been able to reduce volatility decay, meaning you can hold these positions for even longer. The short explanation is volatility decay is where, by holding leverage, you end up with less than you would have without leverage because of a series of volatile moves that are amplified by leverage.

V2 is also bringing:

• No more minimum buys (V1 was a $1000 minimum)

• Permissionless deployment via the Perp Pools Factory (in the ethos of DeFi anyone can come and set up a pool)

• The ability to create custom indices- which track a basket of assets (see Perpetual Punks Token as what’s on the way as an example of what can be done!)

All of the above serve to democratise access to derivatives tools. There are a number of ways people and protocols might use Tracer DAO:

• Hedging for treasury management

• Hedging for energy prices

• Hedging for assets/investments i.e Real estate, Eth, BTC.

• Speculation

• Using unproductive assets (like governance tokens) as pool collateral

• Gaining price exposure to assets you otherwise couldn’t i.e Punks Token above!

• More things my smol brain cannot currently imagine.

TracerDAO has a close relationship with Chainlink the oracle provider (for more on oracles check out my article here) which provides price feeds and is extremely well respected in the industry.

The team building the initial product and setting up the DAO is Mycelium, an Aus-based dev studio.

The main risks I can see with setting up your own pools would be that the oracle data feeds are compromised or fed with poor information (however Tracer has partnered with ReputationDAO to try to tackle this issue). As always there is smart contract risk, like anything in this space!

Another nice benefit to note is that Tracer is deployed on Arbitrum (an Ethereum l2) so gas fees are much much cheaper! I was pleased to see this as it means the barrier to entry is much lower. People don’t have to have high 4 figures or 5 figures sums for it to make sense.

Other things worth mentioning: you have to bridge funds to Arbitrum to use the protocol so there will be a bridging risk, also when you want to withdraw funds from Arbitrum to Eth L1 there is a 7 day waiting period. However, you are free to move your assets on Abritrum freely, quickly, and cheaply :)

The DAO

Oh and one last point I’d like to mention! As the name may suggest TracerDAO is in fact…a DAO…

Their DAO is run by holders of the Tracer Token, by holding tokens you get a vote and become a ‘Governor’. It is cool to see DAOs in the wild, much like Barnbridge, who I wrote about previously here.

It is a democratic voting system, which I have my reservations about in general, not specific to Tracer, but again the upside is- you got a token? You get a vote.

There are plenty of job opportunities to work with the DAO and the core team, hop into their Discord (link on website/Twitter) or check out some chances here.

I am interested to see the launch of V2 for Tracer. The protocol and the idea has kind of gone under the radar in the DeFi space. Especially when people are calling for more ‘real world’ applications. The team has quietly kept building. Being able to create your own indices and pools will be fun and has a lot of practical use cases!

Plus, my understanding is, Tracer is a developer layer too, they want people to come and build ON it as well as use it natively. The applications and usefulness of the protocol seems huge and currently untapped to me.

As usual, this isn’t an exhaustive examination of everything Tracer DAO, I feel I could write 20,000 words on the protocol and still not cover everything, but hopefully, this has whet your appetite as it has mine!

Cheers

Kieran

This week I wanted to take a little dive into an OG of the space, Barnbridge. Barnbridge has been around since March 2020, so in DeFi years it is now 12,000 years old.

Barnbridge was created by some well-known names in the space: (Lord) Tyler Ward, Troy Murray, Bogdan Gheorghe, Dragos Rizescu and Milad Mostavi.

It is a tokenised risk protocol which in its own words is ‘a fluctuations derivatives protocol for hedging yield sensitivity and market price’

So what does that mean?

Simply put it is a way for users to pick between two different risk profiles and then get a different yield depending on which one they pick.

There is a little more to it, Barnbridge offers 2 main products:

• SMART Yield

• SMART Alpha

I think the best place to start is SMART Yield, as everything else really builds of that.

SMART Yield

In essence, what Barnbridge proposes is nothing new in finance, they are known as CLO’s (Collateralised Loan Obligations) but for those not familiar-

This is when you pool debt instruments together to form one combined security. The theory is that you reduce default risk on the overall debt and can achieve higher returns than possible otherwise.

The interesting part is they applied it to crypto. Traditionally you need bankers, lawyers, contracts and a lot of structuring involved to create these types of instruments. With crypto a lot of this friction is removed and you are able to do this via smart contracts, reducing the fees and (in some ways) the complexity.

We have also seen this with Ribbon, the structured products protocol I wrote about previously here.

SMART Yield takes this concept and then lets users pick a risk profile.

You have **Senior tranches **and Junior tranches.

The senior tranches get a fixed rate return, this will be lower than what is available in the markets, but the market rates are variable and so have a degree of risk.

The junior tranches receive a variable rate of return but this will potentially be higher than what is available in the market because it is boosted by the senior tranche.

The senior tranche basically sacrifices some upside for the guarantee that they will get their fixed %.

The junior tranche gets a higher % but takes on more risk.

What is this risk? That the % needed to cover the senior tranche isn’t reached or is only just covered and the junior tranche has to either cover the losses with their principal, or gets little/no return on their principal.

You can see here on Barnbridges website for example:

If you want to supply DAI as a senior pool you can get 1.44% on your principal.

As a junior pool entrant, you would receive 2.23%.

One other way to think about it:

You have $1000 to invest and so do 10 of your friends. All of you have different risk appetites, unsurprisingly.You decide to all pool your capital but 4 of you agree beforehand that you want a minimum of 5% on your money after 3 months. Anything that gets made on top of that 5% can go to the remaining 6 friends who don’t want a guaranteed return and are happy to take on that risk.

If in 3 months' time (I chose this time period at random) the investment makes a 20% return, as a group you have $12,000 dollars.

However, you and your 3 friends (the senior tranche) personally have $1050 each. Why? Because 5% of $1000 = $50.

Your 6 friends who took on the higher risk (the junior tranche) have $1300 each, because they get to claim the 15% made on top of the 5% minimum. This is actually a 30% return for them.

Great for them!

But what happens if they only made enough to cover the senior tranches 5% or worse, what if they lost money!?

The junior tranche has to subsidize this loss. In the first instance, where they only made enough to cover the senior tranche, the junior tranche gets nothing.

In the instance where they lost money, they have to pay the difference out of each of their initial $1000.

You can see quite quickly how this creates an appealing dynamic for those involved. People with a lower risk tolerance are happy to take a fixed yield, while those who are more aggressive get leveraged upside, but also greater downside risk- and everyone loves leverage in crypto right?… :)

This is the essence of SMART yield!

SMART Alpha

SMART Alpha works on a similar principle, but this time instead of stabilising yield it is connected to the underlying price of the asset.

In this way, the two tranches are broken down and the senior tranche just has less exposure to the upside AND downside swings of the asset. Conversely, the junior tranche has a multiplied exposure to the price swings.

Another way to word this, if the price of ETH is $3000 and it drops to $2500, the junior tranche has a higher exposure to the loss than the senior tranche. The same is true in reverse, if the price of ETH moves to $3500, the junior tranche gets a higher percentage of the upside.

If you look on Barnbridge’s website currently, we can take the WETH-USD 1 week pool.

The senior tranche is protected against 10.43% downside movement of ETH. i.e they will only start taking losses if ETHs price decreases by more than 10.43%

However, for this protection they only get 7.18% of the upside. i.e for every $100 ETH increases the senior tranche gets $7.18.

The junior tranche takes the opposite side of this. The junior tranche has 7x leverage to the upside, but also 7x leverage to the downside.

The % difference is variable with each asset pool depending on the calculations performed in the smart contract.

Barnbridge has some great wording around this:

(The) Senior rate is defined as the maximum amount of downside price movement the underlying asset can experience in a week before senior depositors suffer dollar-denominated losses. Junior dominance is defined as the share of a given ERC-20 token’s pool that is comprised of junior depositors.

This gives people two options: you can have less downside risk while holding an asset BUT you get less of the upside.

OR

You get leveraged exposure to the upside BUT you also have leveraged exposure to the downside.

This can be useful in portfolio construction where perhaps you want to hedge your exposure, or you are very bullish an asset and want more upside.

One other thing to note, Barnbridge launched fully as a DAO. They issued their $BOND token as the governance mechanism.

Interest in the protocol certainly wained with the end of Defi summer but I note that there was a recent proposal to change some of the DAO processes.

You can read more here:

Barnbridge has some fascinating mechanics and has brought some interesting tradfi structures to the DeFi landscape. They were extremely early in allowing degens to even consider getting fixed-rate/variable-rate risk-adjusted returns on deposits.

Since their inception, other protocols have come along like Yield & Notional, but they were pioneers in this space.

Granted Barnbridge suffered with the CREAM exploit and users lost money. However, and I do not say this lightly, we all understand that smart-contract risk is a huge risk in the space with any platform you are using.

Nevertheless, I think it is an interesting protocol to look at and understand the principles of how it functions.

This is not intended as an exhaustive history of Barnbridge and its uses-cases, but an introduction to the concepts behind it and how it was a first-mover in bringing some helpful concepts and experiments to the DeFi space.

Thanks

Kieran

PS.

I have to say, Barnbridge has also done an excellent job of curating their documents to make the protocol easier to understand.

For those wishing to learn more, I highly recommend you start there:

https://docs.barnbridge.com/

No, not a TokAmak, but a TokEmak. I am not here to do a dive into nuclear fusion today. I wish I could jump to a discipline like that, but I am not a galaxy brain!

This will not be an exhaustive look into Tokemak but rather an introduction to how it works for those curious to learn more.

Tokemak is a relatively ‘new’ protocol, it launched in July/Aug 2021 (aka 100 years ago in DeFi).

Tokemak’s goal is to create: “sustainable DeFi liquidity and capital efficient markets through a convenient decentralized market making protocol”.

That sounds wonderful, but what on earth does it mean?…

Liquidity is simply the amount of capital around to let you swap from one asset into another. The more liquidity there is, the less effect you have on the price of the assets when swapping them. If you think of suppy vs demand. If I have £10 and I want to swap it for $’s, there is (probably) trillions worth of liquidity between those two assets, so me swapping £10 doesn’t effect the swap price. Now imagine if there was only $100 of liquidity, when I went to swap £10, I move the supply/demand curve significantly and I can affect the price (this is also known as slippage).

All markets ideally want more liquidity because it creates more efficiency an price stability. You are able to enter or exit assets without making the price. I.E if I had $1million versus 1 billion worth of Apple stock, it is easier to sell $1 million and not move the price as I mak up a smaller % of the market.

Liquidity in DeFi

DeFi has a liquidity issue, it is hooked on inflationary liquidity mining rewards, and while it tells us it can ‘quit anytime it wants’, that remains to be seen…

So now we know what liqudity is, what’s the issue?

DeFi protocols want liquidity to help grow their platform. This has typically involved something called liquidity mining/liquidity bootstrapping. What this means is that protocols will set aside a % of their tokens as rewards for the early providers of liquidity.

So a trader comes in to X Protocol who are just getting started. X Protocol has set up a liquidity pool on Uniswap to of ETH/XProtocol. X Protocol have also declared that they are doing an incentivised liquidity mining scheme. 25% of their tokens will be rewarded to liquidity providers for the first 3 months of the pools life.

What happens? Traders will come and provide liquidity, but they are mercenaries, they will try and capture as many of the rewards as they can before dumping the token on the market and guess what that does to the price…

This means DeFi protocols are in a tricky spot, they need liquidity to scale and grow but they don’t want to attract the wrong kind of liquidity and damage the project. It is also expensive for these protocols, they have to acquire enough ETH to be able to create a pool to start (A pool will start 50% one asset/ 50% the other). This is time-intensive as well as capital intensive.

Call in the Tokemak

This is where Tokemak enters the stage. They are aiming to solve this problem, and create sustainable liquidity which in their words is:

- Sustainably produced — not powered by inflationary means

- Democratically sourced

- Capital efficient

- Super fluid — flowed to markets where it’s most beneficial

- Encourages a deep accumulation of assets to reduce slippage towards zero

Oh and also reduces impermanent loss, so not an ambitious project at all… :)

There are quite a few moving parts of Tokemak. While trying to come to grips with everything I have also made a few diagrams to go alongside the description. Stick with me!

The intial keys parts of Tokemak are:

1. Liquidity Providers

2. Liquidity Directors

3. Genesis Pools

4. Individual Reactors

5. TOKE token

Liquidity Providers- these participants provide the assets needed. A liquidity provider could be a protocol providing their own token, or an individual providing idle assets such as ETH/USDC etc.

Liquidity providers have 2 options: they can deposit ETH or USDC into the ‘Genesis Pools’ or they can also deposit into the individual reactors.

Liquidity Directors- these participants stake TOKE in the individual reactors to then get a vote on directing liquidity to the reactors AND which exchange the liquidity is then deployed on- i.e Uniswap, Sushiswap etc. Liquidity directors earn yield in TOKE for doing a good job. However their staked TOKE is collateral to cover losses in the case of poor performance, so they have skin in the game.

Genesis Pools (aka Pair Reactors)- these are the pools where LPs can deposit either ETH or USDC. The benefit here is it is a general pool from which the liquidity directors can direct the ETH or USDC to specific reactors. So an LP doesn’t have to actively manage where they are deploying their assets, the LDs do it for them.

Individual Reactors- these provide the liquidity for specific projects. An individual reactor could for example be AAVE/ETH or SUSHI/USDC or many other pairings. LDs stake their TOKE in these individual reactors to get a vote on how much ETH/USDC to deploy into the reactor and then which exchange the combined assets (e.g AAVE/ETH)are deployed on.

TOKE token- I can’t say it better than Tokemak themselves: “*TOKE *can be thought of as generalized or tokenized liquidity. TOKE holders are able to generate liquidity on demand for whatever tokens they want, on whatever exchange they want, by controlling and directing Tokemak’s TVL”

Here is how I am understanding/visualising the flow:

Example of an individual reactor:

Oversimplification but highlights the main points for now :)

Now a new DeFi protocol can spin up their own reactor.

The reason yield is earned in TOKE? This is the part where Tokemak are trying to eliminate impermanent loss for the depositors (great video here if you aren’t familair with the concept). The rewards that Tokemak earns in the native assets by deploying them on exchanges becomes part of what known as ‘Protocol Controlled Assets’. So it gets put in a pot that Tokemak now ‘owns’.

When you, as an individual liquidity provider go to withdraw your funds you are always able to withdraw the same amount and if there is any shortfall it will be made whole either by; the PCA pot being used, or in the worst case by TOKE which is taken from the liquidity directors staked TOKE.

This reminds me of AAVEs collateral staking model where staked AAVE is used as repayment of last resort in a catastrophic event.

There are a number of potential benefits to Tokemak. If you are a new DeFi protocol you can start a new reactor- although how you then incentivise LDs to bring liquidity to you I am not clear on?

If you are a large protocol or an exchange you can acquire TOKE, stake and then vote to bring liquidity to your protocol or exchange. You benefit from more volume and then you also share in the rewards on the TOKE side.

If you are a TOKE holder, long term the aim of Tokemak is to build their PCA vault up to such a size they can provide their own liquidity anywhere. The yield generated may be paid out to token holders and exposure to a wide variety of assets in the PCA.

Tokemak is still in its early days, with $947m TVL at the time of writing this, it is nothing to be scoffed at.

There are more individual reactors coming online,they are currently at 9, and just as I write this the team have released a short-term roadmap you can find here :)

I feel like I could write a short book ok Tokemak, we didn’t touch on how DAOs can use it for their treasuries for example. However, I think the above is enough to digest for now!

Cheers

Kieran

P.S. for more in-depth information on the protocol check out the team docs here: https://docs.tokemak.xyz/

Give it a read, it is short.

James is the founder of Sanctus, a business focused on mental health in the workplace (it is a lot more than just that really).

Here is a bit that stuck with me:

Because what if?

Because if I let myself feel it, I’ll jinx it.

Because I shouldn’t feel happy, life should be hard right?

Anyone else resonate with that?

I had a period of about 7 years where it was almost comical all the ‘bad’ things that happened to my family & I. To the point I was half-waiting for a piano to fall from the sky while I walked on the pavement (sidewalk for my America frens). I didn’t celebrate the wins because I was waiting for the next bad thing.

Anyway, I realised I have often felt like that above. Like joy is something to be afraid of, because it’ll jinx it, or something to feel guilty about because things went well and everything should be a grind. I suspect this is more common than people realise.

Learning to see the positives in the unknowns, the excitement of not knowing what is around the corner, the fun in the chaos. Optimism is powerful, in life, investing, everything.

Plus there are always silver linings, I nearly died when I got type 1 diabetes. I was incredibly lucky as I had deteriorated to such a point. Now I take care of myself better than I probably would have without diabetes. It has taken me to some great places, I have raised money for charity, been able to meet some awesome people and it has given me a different perspective on life and how precious it is, and how important it is to live it. There are a million other positives too.

James’ post also made me think, is it possible to have the extreme-highs without the extreme-lows? I have always experienced both, but if you shallow out the lows does the same thing apply to the highs?

I don’t have an answer.

On the bottom waves, the lows are shallower, but so are the highs.

Maybe I need to become more like the farmer…maybe

Or maybe I don’t need to be like anything…maybe.

This week is a bit different as I am looking at a protocol that hasn’t actually ‘launched’ yet. It is currently on Polygons Mumbai Testnet. It isn’t strictly DeFi but the name DeFi Dives is catchy so I am leaving it.

Social media in the blockchain/crypto/web3 (insert the next new word here)?

There have been a few attempts at it, perhaps the most (in)famous is Bitclout, now rebranded to DeSo. We haven’t seen anything with large traction yet. Some of the team behind AAVE, including the legend Stani Kulechov, are attempting to change that!

Lens Protocol was announced on Feb 7th on Twitter

Lens Protocol is “a permissionless, composable, and decentralized social graph that makes building a Web3 social platform easy”.

But what does that mean?

First I’d like to take a step back and a quick look at what a graph is in the context of a blockchain.

Graphs & Indexing

A graph at it’s core is simply an indexing protocol. This means it brings order to blockchain transactions and makes them easier to search.

If you want to search a blockchain for information, before graphs were used, you had to essentially search every block and every transaction till you found what you needed. This is fine if your data set is small, but you can imagine how time intensive it becomes when your blockchain has a lot of transactions stored!

So indexing these transactions is helpful in the same way a book has an index, or Google indexes websites. You can shorten the time needed to get information as you know where to search.

This creates improvements in efficiency everywhere. Imagine if a developer is building a protocol on top of a blockchain and there is no graph indexing information, everytime they need information it could take a long time to find what is needed- slowing down the whole process. When information is properly indexed it reduces search times significantly allowing dApps to run quicker.

We won’t go into a full description of how graphs work here. Perhaps the most well-known and important one so far is The Graph (GRT) for those who may want to do some extra reading. A subject for another article :)

Here is a tremendous introduction to The Graph and the principles behind it in a nice video from Finematics (subscribe to them if you aren’t already!).

TLDR: The concept is simple at its core though, you bring order, structure, and connection to data in a way that makes it easier & quicker to query and find specific information you need.

So what is Lens then!?

As quoted before Lens is “a permissionless, composable, and decentralized social graph that makes building a Web3 social platform easy”.

A social graph in the sense it is creating all these social links between accounts and creating some helpful order and structure in the world of decentralised social media. Builders don’t have to worry about the users then, they have to worry about the user experience!

Lens is NOT the social platform itself. My understanding is that it is more of a developer layer. They are giving developers the tools needed to build social media platforms on top of Lens. Conceptually it might be helpful to think about this in the same way that Ethereum is a layer that decentralised applications can build on.

In this sense, Lens could also be considered a back-end tool. Developers can build on it and create their own front-ends/interactions with the modules.

You can mint a ‘profileNFT’ which would then be usable across the different front ends built on top of Lens. Much in the same way that you can use your crypto wallet on different dApps.

Lens has been built with modularity in mind. They have built a set of modules that are ready to use, but equally, they expect the community will continue to expand and add to these. The project is open source so it is free for people to use and improve.

The initial modules they have built out will be familiar to most social media users:

• Profile

• Follow

• Publish/post

• Comment

• Share/Mirror

• Collect

I think the main key to understanding why this is different to traditional social media companies comes in the structuring of ownership.

I have made some crude diagrams to explain how I am thinking about it:

Traditional social media

Above we have a generalisation of the current social media setups. Yes, both your Instagram account and Twitter account have the ability to; post, like, follow, share etc. However your account on Twitter is controlled by Twitter, and the same for Instagram, and Youtube…etc etc.

These social media companies do not communicate with each other (unless owned by the same company). Your content on each is stored on their centralised databases, your relationship with your audience is controlled by them, if you want to monetise on these platforms they can extract significant rent. If Twitter deletes your account tomorrow, that is it, you lose all your followers, your brand, your history/identity on that platform.

Now, how is Lens different? This is how I am thinking about it:

You build on Lens Protocol modules

Forgive the lazy platform examples, but it is easier to draw these analogies. Lens is different because you own your profileNFT, it is in your wallet, you then subsequently will own the content you produce. When people ‘follow’ your profile it is creating a direct link with you. These links create this social graph. The content is stored on IPFS which adds another layer of decentralised ownership and censorship resistance.

These new platforms will be built ontop of Lens modules, and can add more to the base protocol but when you interact with them, they do not have a siloed profile of you, each platform would draw from your profileNFT in your wallet. In some ways your wallet becomes the centralised database, that you control but all the platforms pull from.

These platforms become different front ends, in the same way that Twitter and Instagram have many of the same features on paper (like, follow, post) yet they implement them in different ways and so capture different audiences.

This also feeds back to the idea of a social graph. Lens is creating direct links between users, as more come into the network these links widen and expand. It can create an extremely powerful tool of interconnectedness while still giving the power to the users.

On the module front a few points that are interesting to discuss:

• The follow module has governance built-in. When you follow someone, you get a unique followNFT, this NFT can come with or later be given governance abilities. The example Lens uses is in a DAO the first 100 token ID’s could be allowed a vote or the longer you have followed for the more voting power you get.

One thing I thought of, was much like social tokens (which we discussed here) you could create curated benefits for followers. I.e. if you own a first 1000 followerNFT of my account you get access to a gated Discord, to vote on my future content production etc. These followIDs will be tradeable too as they are NFTs.

• Similarly, the mirror/share module has the potential for monetisation built-in. Since you are able to post any type of content — videos, blogs, short posts, photos, whatever… you are able to become a broadcaster of popular content. This can lead to referral fees if you are a follower sharing content, and equally creates opportunities for original creators to monetise their work in new ways.

One other point I would like to touch on quickly. If you are familiar with blockchains, then you know by design every transaction has an associated fee. So, won’t Lens/ the social media apps built on top of it be energy-intensive, expensive and slow?

The short answer is no because Lens is being built on Polygon, which is a Level 2 scaling solution for Ethereum. Polygon is a Proof Of Stake blockchain which makes it significantly more energy-efficient and eco-friendly. Transaction fees are also far lower to allow for these microtransactions.

Lens Protocol is a very interesting project. As it is currently on testnet, we are yet to see the full power and potential of what can be built. I am excited and intrigued to see what comes out of it. I do not know whether the next mass-adopted social media platform will come from a project built on Lens, but I certainly expect to see some novel experiments and innovation.

One last detail I liked, the name Lens comes from:

a tall, branched plant with pods of lens-shaped, small lentils. It has a symbiotic relationship with certain soil bacteria. If the roots are left in the ground, they will provide a source of nitrogen for its neighbor.

A wonderful analogy for what they are attempting to build with Lens protocol.

Hop in their discord to learn more :)

There are certainly questions around decentralised social media that I do not have the answer to- such as how you deal with people posting inappropriate, illegal or offensive content. But these are topics for another post.

However, overall I think Lens is an important step forward in the experimentation around ownership and digital identity.

Cheers

Kieran :)

P.S

You can find out more about Lens here in their documentation:

https://docs.lens.dev/docs/what-is-lens

I want to start doing some dives into Defi protocols and products. This can be as much a learning opportunity for me as you dear reader. It gives me a chance to break down topics into concepts easier to understand and examine for those of us who aren’t far right on the IQ bell curve (I know where I am located…hint it’s not right and it’s not middle).

So what is Ribbon? Ribbon.finance is a DeFi protocol offering automated vaults of structured products…wait what? Ok, we will get into what that is. Initially built on Ethereum, it is now operating on Solana and Avalanche thanks to a team of bright buildooooors (Julian, Ken and many more).

Structured Products

Let's start with Structured products- what are they? To quote Ribbon’s website:

Structured products are packaged financial instruments that use a combination of derivatives to achieve some specific risk-return objective, such as betting on volatility, enhancing yields or principal protection.

I am trying to break things down to their base level so we will take another step back.

What are derivatives?

Derivatives are essentially a contract between two parties about another asset (it could be gold, oil, or Bitcoin for eg) where the value of this contract is derived (see) from the underlying asset. For example, you want to bet on the price of Bitcoin on a date 2 months into the future. You and a counterparty agree this bet and there is a price. You have just created a derivative.

There are many types of derivatives we won’t go into here, but they can be useful tools for hedging positions or for speculation.

In the trad fi world larger players (generally) have access to things called structured products- this is where different derivatives are combined into a package. In principle, you could combine these assets yourself, but it would take time, maintenance and effort most retail investors don’t have available.

The appeal of structured products is they can give appealing risk-adjust returns and can be customized to reduce or increase risk depending on the participant's appetites.

Ribbon uses derivatives known as ‘options’ to create structured products that generate yield for its users.

Yet again, I hear you ask, what is an option?

Options are a derivative that “give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date”.

When you have the option to buy the underlying asset it is called a Call Option.

When you have the option to sell the underlying asset it is called a Put Option.

Quick example: ETH is trading at $2700 today and you are bullish, you believe ETH price is UpOnly. So you buy an ETH Call option with a strike price of $2900. (You will pay a premium for this purchase depending on market rates, but it is significantly less than just market buying ETH). For example on Hegic right now it costs me $100 USDC to buy a 1 ETH call option that expires in 27 days.

My breakeven is now if ETH reaches $3000(strike price + premium). If ETH goes higher than this I can exercise the option and profit the difference. E.g Eth goes to $3100, I have made $100.

If ETH decreases in price you just let the option expire, you lose your premium, in this case $100, but that is a lot cheaper than having bought 1 ETH at $2900.

And how about Ribbon?

Ribbon offers a variety of different vaults for users to deposit their crypto. Currently they offer a suite of vaults across Ethereum, Solana and Avalanche:

• Solana Covered Call Vault

• Eth Covered Call Vault

• stETH Covered Call Vault

• wBTC Covered Call Vault

• Avax Covered Call Vault

• AAVE Covered Call Vault

• USDC/ETH Put Selling Vault

• YVUSDC/ETH Put Selling Vault

These vaults are the ‘structured products’.

They take a derivatives based investment strategy like we discussed earlier and they automate it. The user simply deposits their assets into the vault and Ribbon runs the process from there.

Each week the vaults will deploy the strategy and auto-compound the yeild made from the week before.

By doing this, Ribbon is able to offer some impressive yields.

The wBTC vault is currently offering an 18.66% APY currently, and then YVUSDC/ETH vault is at 37.77% APY.

A ‘Covered Call Vault’ sells out-of-the-money call options weekly to generate income.

A ‘Put Selling Vault’ means you sell the right (not obligation) for someone to make you buy an asset at a certain price. Ribbon does this weekly. For this, they pay you a premium (the yield). If you expect the price of the asset to continue going up, you earn yeld for holding it, while also giving you some downside protection.

Why would degens, sorry I mean people, use Ribbon rather than structuring these strategies and running them themselves? As Ribbon puts it:

The complexity of structuring this strategy in a perpetual way (strike selection, expiry selection, rolling over positions) make it difficult for the average retail investor to participate. Furthermore, structuring a strategy for yourself on-chain will be an extremely gas-intensive endeavour, making it a non-starter for most.

It is appealing as you get to pool funds with others, making it more gas efficient, and the protocol automates all the heavy-lifting while you get to sit back and collect yield.

Ribbon takes a performance fee of a 2% annualised management fee and a 10% performance fee. Worth noting this is only charged when the vault is profitable too.

Risks

What are the risks with using Ribbon?

As with everything in defi and crypto you have smart-contract risk. For the actual strategies the risks are different in the different vaults.

In the Covered Call Vaults the main risks are a swift rise in the price of the assets i.e ETH/USD. I can put it no better than Ribbon here, so I will quote from their FAQ again:

depositors could potentially give up upside in exchange for guaranteed yield. By selling a call option, users are basically promising to sell the asset at the strike price, even if it goes above it (a.k.a selling early). Because of this, if the price of the asset moves up significantly in a short period of time, it is possible for depositors to have “negative yield” on their ETH.

However, this only happens if ETH/USD appreciates significantly, so depositors will still be up in USD terms. The vault also sells call options that are very out of the money, which means there is a relatively low chance of the options getting exercised.

In the Put Selling Vaults the main risks are that the asset price e.g ETH/USD plummets and you are forced to buy the asset for the underlying price. However if you are long-term bullish the asset you are simply buying it at a discount. The more nuclear scenario is that the asset goes to 0 and you have to have to buy at the strike price and lose your investment. (This really is the nuclear scenario…hopefully).

Ribbon is a fascinating protocol that is backed by a great team and continues to build, in my opinion, a really strong brand and product. They recently rolled out V2 of their vaults which increased the decentralisation of the strike selection and options sales, brings improved capital efficiency, and no more withdrawal fees.

As mentioned there are risks involved, both smart contract risk and underlying asset price risk. Ribbon is trying to build for the long haul and to create sustainble yields. There are already other copycats coming a long, and whilst it is fair to say the strategies themeselves are not necessarily novel, picking effective strike prices, selling the options and create a trusted brand with recognised performace all accrue value in my opinion.

This is not an exhaustive exploration of options or Ribbon for the matter, but an introduction for the curious reader or those new to Defi.

Then today I saw a debate between two very intelligent people in the space, whose opinions I have grown to respect.

I wanted to share my thoughts (some of which are borrowed from them).

I don’t currently have a conclusion but this is how I am viewing the different options and issues facing the NFT Marketplace space.

Problem - There are SO many marketplaces

The buzz around NFTs has been awesome, but that has meant there is a proliferation of marketplaces, some are similar (i.e Opensea and LooksRare) and others offer more specialised services such as curated content, ‘fine’ art, liquidity pools or fractionalised pieces: SuperRare, Rarible, Foundation, NFTX and Fractional come to mind.

Speaking of, as I type this, I just found out at x2y2.io…

Then you also have L2 marketplaces emerging on Arbitrum (i.e. Agora)and Optimism (Quixotic) and other L2’s such as Immutable X.

Don’t forget to go cross-chain if you are a real collectooooor- maybe you are looking on Solana at: Solsea, Magic Eden, Metaplex etc or Avalanche with YetiSwap or Tezos with OBJKT & Hic Et Nunc. Oh and NEAR with… well you get the point.

So the question is what happens? Does it all move to aggregators? Does it all become centralised or do we have individuation and different platforms compete in the open market and offer different benefits.

Let’s examine a few of the options and some pros/cons:

Aggregators:

We haven’t seen much in this space yet for NFT Marketplaces, there are some but they haven’t captured meaningful volume yet. Gem.xyz is one I was just introduced to.

The basic premise is they plugin to different marketplaces and show you a fuller picture of the marketplace.

In the Defi world we have already seen the popularity of these DEX aggregators like 1inch and Matcha, with rising volume.

Why could aggregators become popular?:

• With an easy UX people will get access to the widest market options, if you provide depth of liqudity

• NFTs aren’t physical products and so the moat around stock is not the same as physical products

• There are so many exchanges now, it is extremely challenging to keep up with where the best buy/sell price is available.

• You could incentivise use with tokenomics and partnerships beneficial to the platforms too.

And why wouldn’t this work? :

• Network effects, if someone like Opensea builds up a meaningful moat if can be extremely hard to displace them. The example I saw used in the debate was Ebay. Ebay isn’t a great experience for buyers/sellers but people know it is where the most buyers/sellers are which reinforces their advantage.
  We have seen a few failed attempts to take volume from OS for example Infinity.xyz which didn’t make a dent. The closest so far has been LooksRare and I will be interested to see how this unfolds

• Security issues — we have already seen issues and exploits on Opensea and other platforms on other chains. If you can’t guarantee the safety of an individual platform, would you want to expose your wallet and sign approvals to an aggregator connected to multiple platforms?

• Technical issues like sorting royalty payments, transaction fees, allowing cross-chain purchases etc

I have been thinking about aggregators in Web 2 as an anology. Propety is non-fungible, and agents all have their own websites and listings, but they also all list on aggregators like Zoopla and OnTheMarket, or Zillow in the US.

What are some other ways I could see this playing out?

1. Centralisation wins

‘Nooooooooo’ to centralisation, that is against out ethos right? Well it could happen. Opensea is the easy example, but look at platforms like Coinbase launching its NFT market. They have access to millions of users, your average retail user ‘trusts’ them and doesn’t care about decentralisation.

If they end up having the most buyers and sellers, we are back to the marketplace issue- why would you go anywhere else? You can get the best price and sell or buy quickly.

I’d argue, on ETH at least, right now that the NFT market is largely centralised around Opensea anyway and we can see how hard it has been to unseat them. So perhaps they, or someone like Coinbase, becomes the leviathan that dominates like eBay and is nigh-on impossible to beat.

Generally it is a lot easier to build a really quality UI on a centralised platform too, which makes the user experience so much cleaner and them less likely to use other platforms. (Opensea isn’t doing much to make this case convincing though…)

Bear in mind here, centralistion doesn’t necessrily mean a centralised platform it can also just mean a decentralised platform that dominates the market. for example Universe.xyz launches and takes 95% of the market.

2. Individuation

One thing that is intersting in the NFT space is the variation, both in the offerings of NFTs and also in how they can be packaged.

I wonder whether you will end up with ‘niche’ markets and marketplaces. The opposite of ‘the everything store’.

We have seen a bit of this already with platforms alluded to earlier. You could see platforms appealing to smaller markets such as: 1/1 pieces, small editions, gaming NFTs, curated artists, decentralised platforms, fractionalisation, liquidity providers, index investments etc.

People can go to different places to service their specific goals and each platform can incentivise users to use them individually (different reward systems).

Platforms here include one previously aluded to: Foundation, Superare, Rarible, Universe.xyz, NFTX, Immutable X.

I don’t have a conclusion on how this battle with play out right now but interested to hear other peoples thoughts or if there are options that I have missed here.

Well at New Finance, we are experimenting with some new formats to bring you guys info. We have the podcast here & obviously all our blog posts on Medium.

But now…(drumroll)...

We’d like to introduce This Week In New Finance

Here is our pilot!

Each week, either Mike Kelly, I, or BOTH of us (lucky you!) will bring you a short video highlighting and summarising a few of the most interesting stories happening in the Crypto & DeFi space.

We are making it sub-5 minutes so at the end of each week you can digest a few interesting things and stop your brain from exploding.

The thinking is this- there are so many great newsletters, long-form articles, podcasts, Twitter threads and more- but unless you are full-time in this space (and even if you are) it is completely overwhelming and impossible to keep up. We want to give people an easily digestible clip to keep them abreast of what's happening.

Enjoy and feel free to send in any stories you think worth covering. We will be tweaking this format as we go along and having some fun with it.

:)

So Mike Kelly and I put out our first podcast series at the end of last year and season 1 just finished.

We had some amazing guests, but first I want to thank Nasos, Shaaz and Meg for making this possible. Their work on the production and graphics was amazing.

Back to the guests, I thought it would be great to look at each episode with brief highlights, issues, or learning points I took from the interviews:

#Ep 1- Alex Dunsdon — VC, Shaman & General Wizard

This episode was a lot of fun. Alex tends to approach things and think in a way most people don’t, he always has an interesting perspective. I had a few key takeaways from this conversation which included:

• the importance of options versus our current old, creaking, broken institutions

• Decentralisation is a spectrum, people draw their own line and different points along this spectrum as to what is ‘ok’

• Social tokens are a super interesting part of the future. I wrote more about what they are here :)

• There is a ton of hype and greed in the space, so you have to be thoughtful about what you are looking at and why you think it is interesting.

• He thinks most people don’t care about decentralisation and that a lot of centralised companies will win — i.e Coinbase, FTX, Binance

• Narratives and story-telling and mimetics rule the world

This was a fascinating episode and more a philosophical dive into some of the issues facing crypto.

#Ep 2- Dr. Will Robinson, PhD- AllianceDAO

Will Robinson is a brilliant guest and has a great resume including a PhD in Game Design, previous work as an auditor focused on crypto and now a Core Contributor at AllianceDAO and their web3 leading accelerator programs.

Will shared some serious alpha during this podcast. Some key takeaways for me were:

• Guilds are a huge part, if not the biggest, of crypto gaming! If you don’t know what a guild is, I wrote an intro here to whet the appetite.

• He likens DeFi to Cthulhu once it is out of the box you can’t get it back in. We have summoned money-gods in a sense. I loved this analogy.

• A lot of what we are doing here is toying around with different or new incentive mechanisms to try to shape human behaviour, whether that is in gaming or DeFi.

• Smart-contracts/decentralisation can offer greater transparency in gaming and confidence that you are getting treated fairly.

• Decentralisation offers a chance to reward users and supporters in novel ways i.e ownership in protocols, transferrable assets, community engagement.

• Disintermediation can be a powerful tool, and the lack of regulatory clarity can give projects the chance to experiment in ways public or more traditional companies currently can’t

• Regulation is coming, but we would love for the role of the regulator to be more of an educational one — present warnings and options for users.

Will shared a lot more so make sure to give the episode a listen :)

#Ep 3- Ioana Surpateanu- Chief of Strategy- DIA Labs

DIA Labs are an oracle provider and part of the key infrastructure of Defi. Oracles provide data into different protocols in a robust and decentralised way (I wrote more about oracles here). So we were really pleased to have Ioana on the show. Not only that but she has a long history of engagement with government bodies and understands the practical workings of bureaucracies in a way most people rarely get to see.

Ioana provided some great insights:

• DAOs can be powerful social coordination tools and part of the future of how many crypto protocols will be run

• You can crowdsource the wisdom of crowds, such as the way DIA is structured for pricing data

• Regulators find it hard to keep up with the space, but that doesn’t mean it will continue and regulation is on the way.

• There are many new areas that pop-up such within Defi or NFTs that don’t have easy or neat analogies in the traditional world and this can be tricky for regulators.

• Stablecoins are something regulators view with a great deal of interest and suspicion.

• DeFi wasn’t/still isn’t recognised as an existential threat by regulators in the same way that perhaps Bitcoin or projects like Meta (prev Facebook) Libra is. This is reflected in the swift reaction by regulators when Meta initially proposed it.

• On/Off ramps for fiat into crypto are the obvious areas that continue to get regulated.

• The metaverse is interesting from the perspective of self-sovereign identities

• The successful DAO’s so far have started centralised and moved towards decentralisation- the most successful to date being MakerDAO.

• The lack of regulatory clarity is also stopping some people from building and the uncertainty is an issue. We want to engage with regulators in a positive way to prevent heavy-handed decisions.

#Ep 4- Alex Amsel, AKA SillyTuna- The OG of NFTs and Gaming

SillyTuna is, as Andrew Steinwold said, ‘an OG’s OG’. Alex has been in this space for a LONG time. (as an aside also check out his great interview with him here). With his background in running a game studio, discovering Bitcoin when it was $49 and being early to NFTs. Not only that, he is thoughtful and passionate about gaming and the realities of crypto- so when he talks you should listen!

Some of the key takeaways (hard to narrow it down):

• NFTs are in essence certificates of authenticity

• There is value in digital scarcity and in provenance and provable ownership.

• Value is a combination of factors, including; provenance, scarcity, skill, the message behind the work, the creator

• Crypto has a UX problem, particularly with wallets. We must improve options for people so they don’t have to rely on private keys, seed phrases.

• Being your own bank is NOT a great idea for most people.

• Centralisation is not inherently bad, especially if there is interoperability with decentralised protocols/the option to withdraw into a decentralised world.

• Utility and rewards are key aspects of NFTs and they can help build active communities

• Cross-chain interoperability is the future.

• Open standards are incredibly valuable and something that open blockchains bring to the world. It makes it easier for everything to talk to everything.

• Regulation is not inherently bad and in fact a significant part of the market would probably like to see it.

Alex is such a great guest and we cannot wait to have him on for round 2.

#Ep 5- Ajit Tripathi- Head of Institutional Business- AAVE

Ajit brings such a unique perspective to the crypto space with a background in traditional finance (ex- Goldmans, PWC and more). He has a practical mindset that is really refreshing and we can all learn a lot from his insights.

Some highlights!:

• The backend of the tradfi world has not changed for a LONG time

• The innovators dilemma is something to consider when understanding the issues incumbents face

• The tech is still maturing and the comfort levels from many enterprise clients isn’t quite there yet.

• The lack of regulation/creation of this new industry has given innovators the opportunity to experiment in ways they couldn’t in the traditonal system.

• Regulation is often blamed for the lack of innovation in finance, but Ajit proposes that legacy institutions are just incapable of innovation. I wrote a bit about the question ‘Does regulation hurt crypto?’ here.

• Some of the targets for regulators are the wrong ones- don’t go after Uniswap or Compound, look at Shiba Inu or other meme coins.

• The current rules aren’t equipped to deal with what is being produced. The danger is regulators and founders end up talking past eachother. The 70 year olds vs the 17 year olds!

• Education is an important piece for DeFi. We want to avoid making the same mistakes of the past.

• They have recieved an extraordinary amount of inbound interest from instutions at AAVE, which has led to them creating AAVE Ark to expirement with KYC’s pools.

• Community and culture is absolutely key for successful protocol building.

• DeFi offers the chance for people anywhere in the world with internet access to contribute- it reduces credentialism, you have a good idea, you can ship it.

#Ep 6- Xavier Lavassiere- Regulatory and CBDC Researcher & CEO of ECAN.

Xavier finished off season 1 in great style. He has spent a huge amount of time researching the relationship between regulation and crypto and the mindset regulators adopt. He is well-positioned to discuss the future of regulation and the challenges the space may face.

• The four quarters of crypto:1) fully permissionless/anarchist & opaque, 2) crypto related centralised exchanges, 3) regulated version of existing protocols, 4) private or permissioned blockchains

• The relationship between progress, regulation and innovation is a complex one. I explored that more here!

• One outcome could be financial institutions getting involved in the space but using blockchains on the backend- so many won’t even realise they are interacting with a blockchain.

• European perspective on private versus public goods will also shape regulation and how private companies can particpate in the space

• There are useful concepts and innovations from crypto that could be borrowed and applied eslewhere- cryptography and message signing for example doesn’t only have to apply to public/permissionless blockchains

• Many of the questions around regulation and strucutre are legal and economic rather than technological.

• Understanding regulators and banking compliance mindset is key- some overzealous action doesn’t come from bad intentions but the opposite- either they don’t want to lose their licences or they are erring on the side of caution. This isn’t justification just important to understand.

• One advantage of crypto is that is is global and distrubuted, so it can take advantage of different jurisictions.

• The future is multi-chain and he thinks its likely that chain-specilisation happens (i.e chains targeted for specific uses)

• Bitcoin has benefited from its simplicity in many ways, clarity of how the protocol works.

• Governance is messy and the current strucutres don’t work, he expects to see a lot of change here.

• CBDC’s are likely coming, but the risks and systems are not fully understood yet. It is not as simple as just rolling out a whole new financial system that hasn’t been stress-tested.

We hope you enjoy season 1 and found it as educational as we did.
We can’t wait to bring you more great guests for season 2 and other forms of content in the meantime. Watch this space! :)

The past few weeks my articles have focused on regulation and UX, which overlap more than you’d think. This week is no different.

Naturally, when the conversation returns to regulation in the crypto space, things can get heated, quickly. This week on the New Finance Pod, we were lucky to have Xavier Lavayssière on the pod to discuss such topics with a cool head! For more of his insights go check out the pod here :)

An interesting point of conversation that came up a few times during the pod was how regulation affects innovation. Usually, these arguments are presented as simple- “regulation kills innovation!”.

The reality, as usual, is more complex.

The line of thinking is that people need absolute freedom and no restrictions to be able to innovate.

This is false.

People need constraints, even if they are self-imposed, otherwise, you have too many options and nothing gets done. Self-regulation or regulation can be helpful BUT it needs moderation. Too much is stifling and does restrict creativity. We need balance. Check out here from the Havard Business Review how constraints can be a positive for innovation or another great article here by Louis Shulman.

It is often assumed that regulators are inherently evil or are trying to restrict or block innovation. This is a mischaracterization and oversimplification. Are there people who seek to overreach or have nefarious motives, absolutely?

But I believe that most regulators think they are doing an important and meaningful job trying to protect consumers, control risk in financial markets and just generally make markets safer.

They do not always get it right, but this does not make them all evil.

What this does mean is we need to challenge assumptions and educate them on the technology, to help shape policy.

My view, perhaps unsurprisingly, is that balance is needed. For crypto to continue to grow and be adopted by the mainstream consumers will need to feel protected. Right now there is little that offers this feeling, I have discussed that here & here.

Whilst operations like Coinbase or FTX are regulated, outside of that you are operating in a grey area that is unrealistic to expect most of the population to feel comfortable with. The same issues apply for institutions. They have fiduciary responsibilities and regulatory uncertainty is not viewed as an opportunity but rather as a risk, especially for those who wish to stay employed. Yes, it is ass-covering, but that is the reality they are faced with.

Xavier also made a great point during the podcast, discussing a model of ‘the 4 quarters of crypto’:

• Full anarchist, alternative, opaque

• Crypto-related centralized exchanges

• Crypto as a backend like AAVE Ark, regulated version of existing defi protocols

• Private or permissioned blockchains

Whether you agree with the model or the definitions is beside the point for this discussion. Approaching this with realism, some of the sectors want regulation and the job is to try to engage with regulators so that what does inevitably come isn’t heavy-handed. MiCA is already here with implementation on the way. FATF has been issuing guidance on the space with feedback from the industry.

I read this from Yuri Kurat, he argues that regulation doesn’t hurt innovation. He also points to positive constraints unleashing creativity. He quotes from Fred Brooks’ ‘Mythical Man Month’:

There are many examples from other arts and crafts that lead one to believe that discipline is good for art. Indeed, an artist’s aphorism asserts, “Form is liberating.” The worst buildings are those whose budget was too great for the purposes to be served. Bach’s creative output hardly seems to have been squelched by the necessity of producing a limited-form cantata each week.

I agree with most of this. However, I think this misses a point about regulation that is often not discussed. It is not just the regulation that matters, but the penalties and incentives. Bach would not face jail for experimenting outside of what was considered a norm, but a CEO may face criminal penalties or bankruptcy if certain regulations aren’t followed.

A point to consider when shaping regulations or thinking about them is the penalties, allowing slack in the system for people to push boundaries with the understanding they may get a slap on the wrist but not the death penalty in cases is important. Regulations should be graded on a spectrum, the penalty for trying to create a new company structure like a DAO and arguably/accidentally issuing a security should not be the same as selling drugs yet to be approved by the FDA.

Equally on the incentives side, we have to try to avoid regulatory capture. This means that we don’t want the regulatory bodies only serving to protect the incumbents from challenges and protect the status quo. Banks, payment providers and other incumbents cannot be the only side participating in the shaping of crypto regulation or this is what we risk.

Ideally, we want lots of communication and good-faith discussions because a lot of regulations are legacy creations that are outdated. Both sides need to come to the table willing to discuss what they want to achieve and then trying to shape agreements and build towards that.

I have been thinking about power structures and regulation a lot more recently. Especially since reading the book Dominion by Tom Holland. It makes you realise how deep-rooted many beliefs are but also how outdated many things are that continue to shape our society.

Here is a great discussion with Kevin Werbach from Wharton on How to regulate innovation without killing it’. A quote I felt was especially relevant:

A lot of what we are seeing in these markets is the need for legislative change, for governments to change the structure of the rules, because the rules use terms that no longer make sense, or they have categories that no longer make sense.

With a proactive attitude and engagement, I would hope we can limit regulatory overreach not stifle innovation or creativity while still providing assurances to participants that they are covered and to government agencies that we as an industry are building and behaving in good faith.

It is clear to me that regulation is on the way in some shape or form. It is also clear to me that regulation done wrong does kill innovation, but when balanced we can create a safer place for people to create and participate. I believe this is part of our responsibility and role.

For more discussions follow Mike & I on twitter! :)

Kieran

Mike

This is something I have been thinking about, rather naively, since I started becoming interested in the space in 2015/16. My light-touch thinking back then was… ‘it will just get integrated into the current system if it goes mainstream I guess’. I missed some of the fundamental and philosophical issues back then.

Our podcast with Ajit Tripathi of AAVE this week has made me start thinking about this again. He is a great thinker with a ton of knowledge in the space and a lot of regulatory alpha even just in listening to the way he thinks.

https://kite.link/nf5-ajit-tripathi

Many people now argue that crypto is completely antithetical to regulation and/or regulation would hurt it. They are right & wrong and it is an oversimplification.

Are there areas of crypto where regulation is antithetical? Yes. There are also many that aren’t. I don’t see disintermediation and regulation as incompatible- but perhaps we need to rethink how regulation is implemented.

The reality is if we want to onboard billions of retail users to crypto most of them are going to need assurances, checks & balances, and safety nets and with this comes some form of regulation. Similarly, for institutions to keep participating they need assurances, KYC, and AML steps or other protections to meet their fiduciary responsibilities.

Maybe this is similar to how newspapers looked the same as their physical counterparts when they first moved online. People coming from web2 will need some sense of familiarity and comfort to move over i.e consumer protection.

Most people (outside of crypto) do not want to be their own bank, it is a ton of pressure. As I mentioned in my last article this is demonstrated by offerings like Trustology or Fireblocks, easy multi-sig options like Casa Hodl for your BTC, and by the popularity of custodial options and exchange wallets like Coinbase, Etoro, Kraken etc. There is an appetite to not, in the purest sense, ‘be your own bank’.

On the institutional side, you look at AAVE Arc or MakerDAO and SocGen and the beginning of onboarding institutional users and also real-world assets. Do you think that their corporate governance structures will allow them to participate without the confidence they aren’t breaking laws or that if something goes wrong they can demonstrate they had adequate steps for ass-covering (this is the technical term)…

Ajit made a great point on the podcast also:

crypto is not unregulated. I think there is a lot, a lot of lack of regulatory clarity around crypto, but you know, crypto is definitely not unregulated.

People think the space is unregulated, but regulation is already here. Clarity is not. There is a strong argument to be made that it is not necessarily regulation that will hurt crypto but a lack of clarity around regulation that will hurt crypto. These issues are part of what can stop innovation. Builders don’t want to go to jail…

They may be unsure on their tax liabilities, their KYC and AML responsibilities, do their advertisements meet trading standards, does their token qualify as a security, can they get access to reliable banking, what is their NFT collection classified as, etc etc.

The opportunity here works both ways. I think the crypto industry should be proactive in self-regulation and in proposals, engage with governments and regulators to understand what their concerns are and how we might be able to mitigate them. Secondly, jurisdictions should see this as a great opportunity to be forward-thinking and to entice these businesses to operate and base themselves in their areas. They will benefit from higher tax revenues, an influx of talented individuals with discretionary income.

Where regulation does perhaps hurt crypto is the current monopoly the banks and other financial businesses have on the sector. If we apply the current laws then yet again the banks will largely remain unchallenged and uncompetitive. As Mike Kelly has pointed out, one of the great benefits of the ‘unregulated’ markets has been the emergence of competitive pressure on the banks, payment providers and the financial sector in general that we have never seen before. This should force change. If we are to hamstring innovation and experimentation with onerous regulation then there is a danger that this pressure goes away and we are left with the status quo.

What would be naive would be to imagine that regulators are going to sit around and leave this space unchallenged. Whether they can keep up with the innovations or not is almost a moot point, they will try. Their reason for existing is to try to control risk in the financial markets People can question their motives, but the reality remains there are still many good people on both sides of the table trying to make things fairer and safer for everyone. I feel proactively engaging while not laying all your cards on the table is a perfectly acceptable way to approach things. You may not be here to make friends but you don’t have to make enemies needlessly.

The right kinds of regulation and perceived protection may in fact help crypto as it would give builders the confidence to build, experiment, innovate and create in jurisdictions while also giving retail participants at scale the confidence and comfort that they have some levels of protection in what can appear a technically intimidating space.

This is a space with a million different caveats and a lot of nuance. What do you think strikes the right balance on regulation? Are there any jurisdictions getting it right already?

For more discussions follow Mike & I on twitter! :

Kieran

Mike

We had the brilliant and prescient Alex Amsel (aka Sillytuna) on the New Finance Pod this week. Check it out here if you haven’t already!

It was a varied discussion around NFTs, crypto & blockchain gaming, multi-chain future and interoperability, user experiences, and a lot more.

One area (of many) that caught my attention was our discussion around the user experience in crypto and how poor it generally is. So yes, in my humble opinion, and Alex’s & many others, crypto does have a UX problem- predominantly with the wallet, but across the board.

As Alex said:

The biggest issue for me is actually not the cost and is not the time because both of those like there’s loads of platforms that are dealing with that in particular ways. The biggest issue is the wallet. The wallet needs to be something that’s super simple ands native to my phone, I don’t think about it…

But I need one wallet that covers all the chains and just does it nice and easy.

UX here involves: how easy the wallet is to install and to use, how intuitive it is, how simple and clear the security practices are.

At the moment the most popular crypto wallet is Metamask. Boasting 21 million active monthly users (disclaimer I don’t know how this is measured and it feels high, knowing that everyone I know who uses Metamask has multiple wallets).

It is ‘fine’ for crypto native users, but let's be honest the UX is horrible. When I am onboarding friends into the space and I have to set them up with Metamask to send funds from an exchange, it is confusing and nerve-wracking — for them (and me at points!). The first few times they conduct a tx? Forget about it…

Some standard questions I get:

‘what is gas?’ , ‘how do I adjust the gas?, ‘how long will it take for a tx to process and how do I see its status’, ‘Metamask isn’t showing any of my NFTs!?’, ‘this new token I bought isn’t showing up?’, ‘how do I add a new token?’…. etc etc.

None of these are stupid questions either. I went through the same process myself.

My favorite is how to fix a stuck transaction. I still remember the first time I had to deal with that, thank god for Youtube and helpful people like DeFi Dad.

Metamask does operate across chains, but only EVM compatible ones (e.g Polygon, BSC, Arbitrum, Fantom) and again, it can be intimidating or confusing for many people to set up these new chains. As Ric Burton says:

Today, wallets need to switch between networks. You have to manually add the details of the network and then opt into each one every single time. It is ridiculous. We need wallets that smoothly communicate with every Ethereum-secured and EVM-based protocol. You should be able to get the job done and the wallet can figure out the complexities on the backend. Just like you do when you interact with top quality web applications today.

Not to pick on a community, but the amount of Bored Apes that have been ‘stolen’ in phishing attacks also points to this UX issue. I know it is easy to make fun of many of these people for giving away their seed phrases or giving easy access to scammers, but the reality is a lot of these new users have been onboarded into the space directly from NFTs. They aren’t typically DeFi degens, they aren’t people who were deeply interested in cryptography and exploring blockchains previously, they have come from web2 and are used to the experiences and assurances they have there. Whether we like it or not, that is where the majority of people lay. We can continue to educate, I touch on some great resources below, but we also need to improve the experience if we want to onboard more people.

I don’t subscribe to the idea that being your own bank is always a great idea. It is a huge amount of responsibility. If things go wrong they go really wrong. Most people will not want that responsibility and would prefer some level of abstraction and protection from that, like Trustology offers. I would not expect future average users to set up a multi-sig or use Gnosis Safes to do this either, from a cost or technical perspective.

We try and implement good practices like checking wallet addresses, using hardware wallets, but asking your average user to check the 42 characters each time seems…ambitious. AND it’s not perfect, look at the hack that affected Hugh Karp.

Harry, Taylor Monahan at Mycrypto also do an amazing job with their security write-ups that everyone should read, they really are doing a public service (incidentally they were my first wallet!) :

Using Metamask on mobile sucks too, for anyone that has tried this you can relate. Ric Burton & others are working on this with Safari Wallet and Balance. Check it out:

There are other wallet options too, and many are seeing to improve the UX. Rainbow Wallet is one that's mission is super focused on improving the user's enjoyment and accessibility. It is on iOS and Android has a beta version, but it's just on Ethereum, currently.

On Solana you have Phantom, Solflare and others. NEAR has NEAR Wallet amongst others.

You can also see the problem, if you operate across a few chains or you don’t want to depend on a single provider, it is easy to have 10 different extensions & apps to manage, with multiple wallets and phrases/passwords. And this is without even mentioning hardware wallets!!!!

Argent is one of my favorite Ethereum wallets, it is mobile-based, it has password entry and a guardian system rather than a seed phrase for recovery and protection, I think it is way more accessible for most people we’d like to onboard. You can also use a lot of dApps directly in the wallet. They have done a TON for UX and they have just onboarded L2 zksync wallets so things are cheaper and faster :) However it isn’t immediately integrated with a lot of protocols, so to interact with others you have to have a hot wallet (probably a metamask) to send funds to or use walletconnect…

You also have xDefi wallet. This may be the closest to what Alex has previously described. It is cross-chain, it displays NFTs, and has a clean UX. It operates across Ethereum, EVM compatible chains, and also Terra and Thorchain which goes a lot further than any other wallet I have seen. However, there is no mobile app currently.

Ideally features I’d love to see more of, dreamily combined into one wallet:

• passwords

• seed phrase/security abstraction

• cross-chain compatibility

• easy access to multi-sig setups

• easy access to account limits (i.e, any tx over $X requires multi-sig approval)

• mobile based

• mixed-custodial options

• beautiful design

• open-source

What else have I missed?

I touched on wallets here mainly because it is the best example of where crypto UX is intimidating. If you are a regular user it can be easy to forget just how daunting it all is to new & potential users.

If you are building something in the wallet space OR something just to make crypto UX generally better, than please get in touch, we want to talk to you :)

For more discussions follow Mike & I on twitter! :

Kieran

Mike

Happy New Year from New Finance VC.

Before we kick off Season 1: Part 2 of the New Finance Podcast I wanted to do a quick recap of the brilliant first 3 guests we’ve had on, some of the takeaways we’ve had & what to look forward to with our final 3 guests of the season!

If you haven’t listened to any of the first 3 episodes yet, just click on the titles below and we’ve got every platform you could possibly need as an option!

Ep 1- Alex Dunsdon

Alex is one of the deepest thinkers we know and very passionate about the crypto space. Social coordination and tokenization is an area he is particularly fascinated by.

One of the big takeaways from our interview with Alex was his interest in social tokens and their potential as a tool for social coordination and direct relationships with audiences/groups.

We explored what social tokens are in more depth here.

Ep 2- Will Robinson, DeFi Alliance

Will gave us a TON of alpha. DeFi Alliance are one of the leading accelerators in the crypto space and run two separate programs covering different areas of the space: Gaming & DeFi. With this, they have an incredible venture partner & start-up network.

So with that being said, what was the big takeaway from Wills interview? It’s hard to pick just one, but we chose his answer on guilds and the huge impact they will have on crypto gaming.

Again, if you are wondering what is a guild…? Here is an introduction we wrote, we think you will quickly see why they are so interesting.

Ep 3- Ioana Supateanu, DIA Data

Ioana is just a badass. Her background in governmental agencies, working across regulatory jurisdictions and then experience in crypto put her in a unique position to shed light on the challenges crypto faces and how we might be able to navigate some of these.

Ioana works as Chief Of Strategy from DIA Data, an oracle data provider for the space. Whilst we were tempted to expand on some of the regulatory conversations we had, the most interesting part of the interview is around DIA itself and what oracles are.

Oracles are forming a key part of the bridge between RWA (real world assets) and crypto. Their applications are huge, but 99% of people have never heard of them or how they work.

Don’t worry…we’ve got you. Check out our introduction to oracles here :)

What's next?:

Well, we don’t want to give too much away yet, that is all part of the fun, right?

But what we can tell you is our final 3 guests for Season 1 are more heavyweights. We cover NFTs, Gaming, Institutional adoption, regulatory & governmental challenges and threats & a lot more.

Stay tuned frens, lots more content on the way :)

No, I am afraid not. They do some interesting things though.

This week's episode of The New Finance Pod features **Ioana Surpateanu **of DIA Data. One of the leading oracle providers in the space.

So just what is an oracle?

An oracle is a way for smart-contracts and protocols in the blockchain space to take information that is off-chain and in a trustless way reliably bring it on-chain. A well-designed oracle is decentralized in its design and also takes in data from multiple sources rather than one source of truth.

Oracles are able to present key information such as;

• prices of assets (financial markets, real-world assets, insurance, gaming & NFTs)

• results/outcomes of events (such as elections, sporting events), for betting markets

A simple example would be for the price of Eth.

An on-chain decentralized trading platform (e.g DYDX) needs to present the price of ETH. An oracle would take the price from multiple off-chain sources, such as Coinbase, Kraken, Etoro, Robinhood, etc. They would then collate all these prices and take the average. This price is then presented to DYDX as the price of ETH.

How Oracles Work

The main oracle protocols follow broadly the same tokenomics at different scales. Three examples are Chainlink ($LINK), DIA ($DIA) & Band Protocol ($BAND). Chainlink is currently the industry leader.

An overview of the typical mechanics of oracle tokens (for the sake of simplicity I have kept this high-level):

The oracle protocol will issue a native token, such as $LINK for Chainlink. A portion of the tokens are kept back for team members, early backers, community incentives, and protocol development.

Once distributed, nodes will use the token as collateral to be part of the network securing data. By staking these tokens, a node operator is essentially guaranteeing the data they are providing. The greater the value staked by a node the more trustworthy that node is deemed by the network. This is because if the data is consistently wrong the node is punished, having a penalty issued against their collateral, known as ‘slashing’. This is logical because if you are providing data for contracts with large values, the nodes providing this data must have sufficiently large collateral staked to incentivize them to provide accurate data & not collude to provide false information. The punishment has to be worse than the crime.

On the other side of this equation, protocols needing data feeds will use the native oracle token to pay for data requests.

E.g Synthetix want the price of $Tesla. They will send a data request with a payment of $LINK to smart contract, this request will be serviced by multiple nodes who collect the data. They can collect this data either from one source, or multiple, using API access. In the Synthetix example used earlier, the price of Tesla may be aggregated from Bloomberg, Reuters, and exchange APIs. This data is then aggregated off-chain, agreed upon, and cryptographically signed and submitted to a smart contract on-chain. This price feed is then submitted to the protocol who can be confident that the data has not been tampered with. Node operators will be paid in $LINK and so create income from staking the token and then sourcing data.

These tokens can also operate as governance tokens, with the exception of Chainlink. Chainlink has no inbuilt governance. BAND and DIA allow the holders to vote on proposals to change/improve the protocol, as well as to propose these changes themselves. Usually 1 token = 1 vote.

Here is a diagram of how this process may look:

You can also check out some of Chainlinks data feeds here:

https://data.chain.link/

Here is the ETH price feed for example:

https://data.chain.link/ethereum/mainnet/crypto-usd/eth-usd

Oracles, wider use cases, and their place in the ecosystem

Oracles play a vital role in the developing DeFi and wider-crypto ecosystem. They allow smart-contracts and protocols a much wider range of possible applications by bringing access to external asset data.

Platforms like Nexus Mutual can use them for insurance protocols, Augur for betting markets. Other options included lending/collateral platforms such as AAVE or Alchemix. You would be able to deposit new assets to generate yield or borrow against it as collateral and the oracle is able to provide a decentralised price feed for these assets.

If you are able to tokenize CRE data, for example, you hold an index token or partial ownership of a property you could deposit this token on AAVE and then be able to borrow against it. Initially, you would expect LTV to be low, say 25%, but as the concept is proven out and time passes, the platform would be able to extend greater lines of credit.

For Alchemix there could be the angle of bespoke solutions where you borrow against the future yield from a rental portfolio.

Insurance protocols such as Nexus Mutual and Armor make for interesting partnerships. The initial obvious use is to provide insurance against smart-contract risk but equally, there are new interesting use-cases such as providing insurance against a CRE portfolio, where the oracle supplies regular price updates against the portfolio for the insurance contract.

Many other Real World Assets (RWA) could benefit from being accessible to DeFi. Part of DeFi’s primary goal is to improve accessibility, liquidity and decentralization to products. Many collectibles would fit the bill, and both high-net-worth and ‘average’ people would benefit from increased liquidity in these markets.

Some products that come to mind are; art (not NFTs), collectible cars & investment wine. Most people go to the use case of fractionalization, however that has its issues. Price indices and also collateralization opportunities would be interesting. If you were able to go ‘long’ on a price index of Ferrari F355s or particular wines, as an example. Or post the deed/title of ownership and use this as collateral to borrow against the asset, such as 25% against the value of the wine.

Another area yet to be solved would be mortgages & home equity loans. If you are able to provide accurate and trusted data, this is a large step forward in making lenders comfortable with dealing on-chain. However, there are questions around securing the assets in the event of a default that are yet to be answered. Oracle pricing can provide one part of the answer by providing trusted price updates for these RWA.

These bridges of information are not perfect and there are weaknesses. They are only as good as the information being presented to them, so if collusion happened across major exchanges for example then the prices being reported would be inaccurate. Depending on the incentives and the costs, sybill resistance is not guaranteed and anonymous actors could take control of multiple nodes and submit faulty data.

This is an introduction to oracles and demonstrates how they currently work in principle and how they are an essential part of the crypto ecosystem.

Oracles can continue to unlock value and open up new opportunities in the space, but they are not without complexity or challenges!

What are we most of us afraid of? Looking stupid.

This is especially true when writing something and looking to publish it, to put it out there in front of public eyes.

At least I was.

In reality, unless you are a public figure already, no one cares what you have to say…yet.

This relationship with an ‘audience’ only gets built through consistent touch-points and output.

We all hold back in search of perfection, that no one could critique our article or writing. Again, the reality? Almost no one cares what you have to say yet. Prove you deserve it. Interact with them, ask questions, demonstrate a willingness to learn, question, have an opinion. Give them as many opportunities as possible to interact with your thoughts.

People don’t expect ‘perfection, and any less than that I will lose respect for you’. If they do…avoid them anyway.

With time, what we publish can spark conversation and debate. It can be a tool, but this doesn’t often happen overnight.

You have to write something really shitty to have people dogpile on you, whereas the upsides of publishing are limitless. People reach out to you, new connections happen, educational resources get shared with you, companies want to talk with you.

Over time you can build up a pile of assets. Resources to point people to; to help them and answer questions, to spark debate or simply to show you care about a particular topic and you spent time thinking & writing about it.

It builds your credibility and helps you develop. Writing allows you to be in 1000 places at once. Your personality scales.

It's great to have some documentation of past opinions & reasonings and how your thinking has developed since then.

But you have to start somewhere. So start at word 1 and get publishing. Build an audience over time, build credibility one word at a time.

This week's podcast** **featured the brilliant Will Robinson PHD from Defi Alliance.

Defi Alliance is one of the most well-known and respected accelerators in the crypto ecosystem. They run two programmes: one for DeFi and one for Gaming.

So it was no surprise when Will dropped some alpha on the podcast about what he finds exciting going forward. It’s probably worth listening to.

What did he say? He is particularly excited about guilds. They are an underappreciated and not well-understood part of the burgeoning crypto gaming ecosystem.

What is a guild? A guild, at it’s most simple, is an organization (usually a DAO) full of individuals who are passionate about gaming. They play video games together.

Perhaps the most well-know is YGG (Yield Guild Games) and of course, they have a governance token (would this be crypto otherwise?).

Others include Merit Circle & Good Games Guild

Here’s the thing, web 3 video games are currently quite expensive to play, even games like Axie Infinity costing anywhere from $500–1500 to field a decent starting team.

Why do people pay that much to play these games? Because they can earn money doing it. This is the Play-2-Earn (P2E) world. In some cases, so much money they are able to do it as a full-time job. Places such as the Phillipines, Brazil & Indonesia are making the most of this opportunity, and many are earning more than they could earn at a traditional job.

These games can be expensive, you may not have the money to start, but you have the time, ability and willingness. Where do you go? To a guild.

Guilds will lend you the assets needed to play these games, for a cut of your earnings of course. You get to take these assets, go play, make money and keep X% or earn in the guilds native token.

This is interesting for a few of reasons:

• it allows people who couldn’t afford to play to get involved

• these guilds start to build treasuries and communities.

• they have to manage these communities

• these communities gain a collective bargaining/purchasing power for new games

Guilds represent a fascinating development in the P2E space.

Building good games is really hard. No I mean it, really hard.

Then you have to find an audience. Why would they come to play your game over Axie Infinity or other options? To quote Will Robinson:

“Well, what if you gave them some of your equity? What if you give this guild a piece of your company in exchange for player liquidity”

You have Players As A Service (PaaS). I was going to call it Audience as a…nevermind.

You can see the power a guild can hold, they can help bootstrap games while also accruing value to both the guild and players creating the success of these games.

Guilds begin to build up treasuries full of in-game assets across multiple platforms and equity or tokens in games the form relationships with. This value can begin to accrue to the guilds governance token.

All of this allows the guild to sponsor more players and increase their reach, impact and power.

It can be a powerful flywheel effect.

Wangarian from Defiance Capital shared a great thread on twitter with some thoughts around gaming and guilds:

The birth of these guilds is also creating opportunities for new projects to help manage them. Tools like BlockchainSpace have emerged to help guilds with: accounting & CRM, tracking assets, management, financial solutions, educational content & more.

Traditional DAO management tools are useful but as the sector continues to specialise and guilds grow larger, custom tools like BlockchainSpace will become essential.

Another example is GuildFi which, in their own words is: “ a Web3 infrastructure that connects games, NFTs, guilds and communities”. We are already seeing aggregation layers emerging like this to create more cohesion amongst these different players in the space. Guilds can use this platform to recruit new scholars, to find new games and relationships.

Guilds are a fascinating development with the potential to heavily influence to future development of blockchain gaming.

This isn’t an exhaustive exploration of guilds, we have more to come on that. It’s an introduction to some of the important concepts around them, whet the appetite of those curious.

Will also shared a great thread on the value proposition of web3 gaming for those looking to learn more:

If you are thinking of building in this space, talk to Mike Kelly & I, and also to Will Robinson at Defi Alliance!

They’re right that there is a huge hype surrounding them &I don’t expect many pieces to hold the value they are sold for, but the conversation almost inevitably ends in a dismissal of the premise of NFTs altogether.

This misses the point. To dismiss the premise of NFTs because of the current execution seems incredibly shortsighted to me. Yes, IP and copyright issues need to be sorted. Yes, there need to be sets of standards agreed upon or at least widely used (such as where the image is stored if not on-chain, my vote is Arweave from my current understanding). See why that last point is important here.

But people often confuse the execution with the idea.

The ability to look past the current execution and at the core of an idea is a superpower.

Do not reject NFTs because you hate cartoon animal drawings and think they are valueless.

NFTs can address or help:

• Royalties/resale rights

• Creator ownership

• IP/copyright rights

• Gaming utility and ownership

• Creator/fan relationships

• Ownership & provenance

• & more…

This applies to everything though. When looking at something new I think it is always helpful to ask: what is the core of the idea here?

The current implementation can be stupid but maybe the idea isn’t.

Rejection of the premise ≠ rejection of the execution

Balajis proposes that courts can become better via smart-contracts.

Balajis shared some thoughts below:

So in a sense it’s a violation of equal protection, every time somebody with the same facts walks into a Wyoming court and gets different justice, for example, than a Milwaukee court or a Minnesota court, whatever. Every time that happens on something that’s supposed to be uniform, the same input should give the same output. That’s what rule of law should mean

Judicial discretion in many ways is actually often bad because you have things where people start going jurisdiction shopping. Not because the law is different, which is fine, but because the judge likes this or likes that, and has a certain attitude towards this.

It’s like, there’s an apocryphal Israeli study where people get lighter sentences after the judges have eaten something, and their blood sugar is up. So they’re more merciful. That’s bad. Instead you should have this alternative.

Do we want code as law?

I am a blockchain/crypto enthusiast as many of you know. I question the rigidity of code as law though.

Humans don’t actually like perfection.

A perverse question, do we need some flexibility and uncertainty in the judicial system to make it acceptable to our minds. Is the idea that you could get away with something, or get a lighter sentence because the judge is happy that day, a good thing?

It is kind of like the ‘flaw’ in the Matrix. Humans need some level of imperfection and uncertainty.

Can you programme in flexibility or an element of randomness. I think this is what is known as ‘noise’ in AI?

Something to think about as we move ever closer to making code = law :)