🎙️ 68 - Bull Case for DeFi II | Vance Spencer

welcome to bank list where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity i'm ryan john adams i'm here with david hoffman and we're here to help you become more bankless david i know i say this at the front of every episode how to front run the opportunity it's literally what we say in the intro every single time i feel like this episode truly is front running the opportunity i

know that because if you listen to episode number 28 with our guest vance spencer that was truly a time to front run the opportunity in d5 and eat if you listen to him even earlier it would have been even better and now here again is a fantastic episode and an opportunity for bankless listeners those who are about that life the crypto natives in this space to get ahead of the massive monumental shift that is happening in

the global money system super exciting man i love this episode yeah we are bringing van spencer back onto the podcast more or less because he got things right um we had him on it nine months ago episode 28 the bowl case for defy it was one of bankless's really big first big episodes and the van spencer he held the number one spot for the most downloaded episode for i think the longest time in banquet's podcast history people really really liked that episode and basically because he predicted

everything that he said more or less came true or is in the process of becoming true so we're bringing him on nine months later to get an update as to how his mental models have updated where he's shifted where his focus is now uh because you know if we talk to one person who got it right one time he's probably gonna get it right again uh and overall vance you can tell van spencer comes from a place of first principles and he he has a very thesis driven mentality about the space and that's why he can talk a little bit about everything right we talked about d5 we

talked about dows we talked about l2s we talked about enterprise blockchain and rollups in and mev and he's got a take for everything and every single thing is interesting uh and so we wanted to bring advanced back on the podcast to give him another shot to get an episode back into the number one download episode of the vancouver's podcast that's a little bit has been overtaken by vitalik and justin drake and a few others uh and it is a little bit harder these days but uh i i think he can do it and guys if you like van

spencer and you like talking about defy we are also bringing vance back on to a panel and ask me anything panel this coming wednesday so this podcast is coming out on monday maybe you're listening to it on monday or tuesday we have van spencer spencer noon in santiago santos on a defy eating the banks panel this wednesday at 1 pm at pst so mark that on your calendars we are going to put vance in with the other like big big brain defy thinkers and just talk about what it means to be a part of defy

and do we really even need banks anymore these days and so you know make sure you watch that when it comes time that is on that's going to be on youtube so go to bankless youtube uh and and find that i think you could you should be able to set a reminder for that event we'll have it in the show notes and there'll be an event up yeah so i mean look the big monumental shift this time last time we had vance on it was all about like d5 tokenization and d5 summer i feel like this time it's all about layer two layer two is gonna be absolutely

massive for crypto in this space and so we spent a lot of time unpacking what layer two actually means and and playing that out in real time what it means for other competing ethkiller layer ones what it means for users in the space what it unlocks as far as new applications so the focus is really on on layer two and trying to play that out is where you're gonna find the opportunities and vance said some things that are like kind of contrarian i mean when's the last time you heard someone talk about in d5 enterprise

blockchain right or like the verticalization the fintech layer of d5 like these are some topics that seem controversial at the time and like don't seem to fit at the time but um i remember thinking the fact that they're coming out of left field means that vance is paying attention to them for some reason it's interesting because i remember thinking about that at the time when he was bullish in like 2017 2018 in particular 2018 on chain link right and um you know at a time when all tokens

were kind of dead or dying and uh that turned into a really good call also synthetics you know so anyway listen to this podcast listen to this episode definitely a way to to front run the opportunity that is coming we want to thank the sponsors that made this bankless episode possible before we get into it here they are bankless is proud to be supported by uniswap uniswap is a new paradigm in asset exchange infrastructure instead of a cumbersome order book system where trades are matched with other humans uniswap is an

autonomous piece of software on ethereum which is what ryan and i call a money robot no human counterparties or centralized intermediaries just autonomous code on ethereum input the token you want to sell and receive the token you want to buy something brand new in the unit swap ecosystem is the uniswap grants program is now accepting applications for grants we have been saying this for a while and we'll say it again dows have money and they are in need of labor if you think that you have something to contribute to the uniswap dao apply for a grant to

uniswap just look at the size of the uniswap treasury it's almost 3 billion dollars this mountain of capital is looking for labor do you have something of value to contribute to the uniswap dal no matter how big or small your idea is you can apply for a uni grant at unigrants.org and help steer unit swap in the direction that you think it should go that's exactly what we did to get uniswop to be a sponsor for bankless and you can do the same for your project thank you uniswap for sponsoring bankless ave is a borrowing and lending

protocol on ethereum and just recently released ave version 2 which has a ton of cool new features that makes using ave even more powerful with ave you can leverage the full power of d5 money legos yield and composability all in one application on ave there are a ton of assets that you can deposit in order to gain yield and all of those same assets can also be borrowed from the protocol if you have deposited collateral here you can see me getting a 200 usdc loan

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at ave dot com that's aave.com okay bankless nation we are super excited to have vance spencer back on the program vance is the co-founder of framework ventures framework and vance have been really pioneers in establishing a crypto native venture fund that's why we had him on the first time back in august he's got these incredible methods of discovering alpha particularly in d5 and applying a really unique investment

thesis i think the thesis is getting active in protocols actually using them investing in crypto native founders we did this monster episode with vance back in august of 2020. it's episode number 28. if you want to go back and listen to it i recently listened to it well worth it holds up guys it's one of the episodes it was our number one episode for a really long time it was our first gangbuster episode and i remember saying after this episode like just tweeting is like 90 minutes of listening but you

got one million dollars worth of value at least depending on what you did with the knowledge uh so we've got to bring vance back for an update it's been nine months later vance welcome back to bankless how you doing sir doing great yeah it's been too long thanks for having me back what have you been up to man i know you haven't been busy at all just chilling what have i been up to um you know raised the second fund for framework kind of saw the thesis gradually play out in the first fund um have kind of doubled down on being

super active you know just being kind of on chain in all shapes and forms um and uh and just being good stewards of the protocols that we support and just trying to push the space forward but you know through the pandemic defect really didn't take a break or stop at all and so it's been you know non-stop for you know almost since we last spoke are you feeling like things have accelerated even more since we last spoke because we were just coming off of uh d5 summer we're at like the tail end of it we didn't know at the time but august 2020 was sort of the tail end of what we now call d5 summer have things

accelerated since then definitely i would say the progress and define crypto is not super linear we kind of like kind of progress to the point where we kind of bump up against the limitations of you know the base layers or kind of the infrastructure or the tooling or even kind of the level of developer talent in the space but um it feels like you know we've had kind of that expansion from d by summer we had like a little bit of a defy winter we kind of even led the way forward with you know more tbl things like derivatives things like

um you know layer twos that are now kind of coming to fruition and it feels like we're now kind of about to realize that max step change um in terms of just usability and functionality and just usefulness um as these things launch like arbitrarium and optimism and you know zk saying so it's it feels like we're about to enter another exponential period of growth of the space okay van so we're going to ask you about that second exponential period of growth because at the end of the august 2020 episode we asked for your predictions uh and uh you're one of the

few guests who's just like yep here are my predictions like no hedging like these are the numbers anyway i i want to just recap for folks who haven't listened to that um but basically at the time this was august 2020 at the time we asked hey vance during the next bull cycle which we think we're entering into the next 24 months what's the total locked value of d5 going to look like at the time it was 8 billion something like that total octavian you said it was going to hit 100 to five hundred billion total locked

value and i think uh david and mai's head almost exploded when you said that but here we are less than a year later and we're at 88 billion total locked value so like creeping up to your bottom bound uh a hundred billion and you also said ethan bitcoin might get into the trillions trillions plural uh eth was at 40 billion when we recorded that it's now at four it's gotten as high as 480 billion so a nice little 10x there not quite the trillions uh bitcoin did hit

trillion dollar bitcoin so we had like 1.1 trillion or so at the time bitcoin was 200 billion so we're getting close to your estimates vance uh which like seemed pretty heady i would say seemed pretty incredible uh nine months ago maybe not so incredible now and i say all this to like i guess maybe tee up your credibility that that that you're not afraid to make big bold predictions and uh to invest with conviction on those

on those predictions but i also say this because i want you to be ready vance at the end of this episode we're gonna ask you those same questions we want more predictions give us more predictions so i want you to be ready for the predictions at the end don't give them now you know let's build the suspense let's talk about some deeper topics but be ready sir you gonna be ready i'm ready of course all right well let's talk first about this drawdown because uh recently there have been 11 days in maine in may where we saw 60 percent some odd drawdown 70

plus in some uh d5 assets um 66 i think maybe more uh down in eth bitcoin's been slumping some people are saying this is the end of the bull run so we might not hit those heady predictions uh that that that you're thinking of um earlier so like what's your take on that is this the end of the bull run is this a pause are we doing something else here um i i don't think it's the end of the bull run at all and and like i kind of have

trouble defining what like a bull run is in crypto i think there's a bull run kind of at any given time in any place um you know bitcoin has probably a 10 or 20 year adoption cycle that it's going to live through but it's already you know a good way through that story um ethereum is just the beginning and there's going to be these periods of volatility and drawdowns but the story on a longer time frame is it's just that adoption is is increasing institutional financial uh you know places are able to actually use in custody this stuff and wall street and and you know basically all institutional

allocators are now considering this a real asset class and so you know saying that the bull run over doesn't really take those things you know into kind of mind and the thing that we learned kind of going out and raising um for our second fun was that there's probably you know we're underestimating by one to two orders of magnitude the amount of capital that's on the sidelines that's waiting to come off and into some productive and interesting assets and it kind of just depends on um you know how far away are they from from being convinced of you know your given asset or whatever you prefer

um you know to allocate to and and i think the reality is that bitcoin is amazing in times where things are really pessimistic and and uh you know when the world seems to be going to but you know not that many people own gold um you know that are institutional investors they're the people who have gotten rich over the past 20 years have gotten rich allocating to venture funds buying the dip on technology stocks you know looking at productive assets that have a high growth rate and a large tam and you know those things just look and feel like ethereum and they look and feel

like defy and so you know when people say the bull runs over it's like i just kind of feel like they spend too much time on twitter and not talking to people and i'm fully aware that people don't have the privilege of talking to these large institutional allocators but you know those people are very bullish and it's just about kind of form-fitting the story of ethereum and the form-fitting of the story of defy to kind of what they want would you say that people have gotten rich on like wealthy on optimism rather than peptide pessimism historically and do you draw that distinction between sort of the bitcoin

investment thesis and maybe the ethereum defy investment thesis one is optimistic the other is pessimistic i think it would have been very hard to analyze ethereum through a cynical lens same with d5 you just have to be optimistic when you look towards the future and i think that's you know one of the principles that we have a framework is just like you know being a perpetual optimist believing in what you're doing you know that is a force multiplier when you kind of you know extend that across multiple projects or investments or even things that you're doing generally and so we always kind of strive to take

that forward-looking optimistic approach but uh i think the converse can be said about you know bitcoin in a lot of ways you know it's a hedge for you know the worst of times um you know it's largely a finished product that has no endogenous catalysts on the road map um really everything that's happening to bitcoin right now in my view and this is a little bit biased is you know people waiting for exogenous catalysts you know people coming off the sidelines and allocating to bitcoin and and for us it's just a little bit difficult uh to kind of you know see something as a road map and a future and catalyst

uh and and pick bitcoin over that um and i think a lot of institutional allocators are realizing the same and you know if you look at the btc ratio it's it's almost tripled you know in the past i think six months um and it's it's easy to kind of be in the space and to think that you know because bitcoin is consensus within the space you know other people will realize that but not everyone else is coming in with the same set of shared values and context as those early kind of you know libertarian leaning people like a lot of people want to see something that looks and feels like traditional technology

and i think that's very much where the world is heading see david it's okay that we're optimistic permeables it's fine bad sets it's fine yeah vance i want to actually dig in on this subject and this is actually something that not something that we had in the agenda but it's intrinsically interesting to me and and i think for the listeners as well because we've had a little bit we've had some back and forth with uh some bitcoiners lately about just you know about the whole you know eth btc debate right uh and uh i i couldn't can't remember who said this but they said something along the lines of like it's really in baked into your genetics

what side you fall on do you fall on like the ethereum defy side or do you fall on the bitcoin side and some people just they find the resonance with one side or the other and that's where they call home uh and so how do you see with you and when how you invest framework and like the culture that you've created at framework uh how how does your personal disposition uh direct what you choose to focus on and what and and how you choose to invest and how do you think that becomes also true for other you know venture

investments and speculators in this space as well yeah so you know framework has has never invested in in bitcoin and and you know i just don't think that's in our mandate um you know we're a venture fund that invests in founders at the earliest stages and and that's really kind of what we like to do at the end of the day is is invest in people and and you know there's a lot of meat on the bone when you look at d5 whether it's the kind of primitives or the aggregators or just the different kind of you know consumer applications that people are building on top of it um

and it's inspiring to work with those people and and you know there is an ecosystem around bitcoin albeit a lot smaller you know it's concentrated around the lightning network it's concentrated around um you know basically different forms of hyper bitcoinization for developing countries and i think kind of what i've been seeing is that stable coins are really taking a lot of wind out of that sale you know it depending on how you think of the us dollar or the or you know bitcoins kind of feed store value properties um the evidence is relatively clear in these developing countries that people are choosing stable coins over bitcoin

just because it's a little bit more functional um and things trend towards utility over time and and you know that's kind of where we kind of seek to play um you know and and i think any potential flipping will be bullish long-term for both bitcoin and ethereum i think you know bitcoin is is burdened by the expectations of having to carry the entire space which you know props to bitcoin it's it's fulfilled over time you know there there were times where we needed the the the coherent you know narrative of bitcoin to tie the space together through the bear market even

though ethereum was building like you know it was kind of an open question as to what whether eth would be a real project you know a couple years down the road but bitcoin really did hold the space together and now it feels like you know just as this number one asset it has the burden of expectation of doing basically everything being technology being money being all these things to everyone um and you know if there is a flipping and eth proves to be just this massive technology layer bitcoin can settle into you know a bit of a more comfortable albeit smaller tam as as just being digital gold and i think that's a perfectly amazing outcome

for all the bitcoiners out there because it's still a gigantic market and there's still probably 10 to 100x upside but it's not going to be the the end all be all and that that's totally fine um and getting past that event horizon i think getting past the fear will be really bullish for bitcoin itself i think the community will become a lot less um striking that would that be how i put it angry let's uh let's get back to the the conversation of market dynamics and i want to get your take on this as as well vance uh people have speculated that as

we quote unquote go mainstream as an industry uh the way that these markets are structured and the way that these markets play out is also going to change no no longer will we have four year long boom and bust cycles where the peaks are really high and the troughs are really low there are so some speculate about the nature of a super cycle where we never actually get a deep prolonged bear market and instead we kind of just rebound over and over and over again and stair step our way up to the top there's other speculations that we just have the same boom and bust cycles but

they're smaller and quicker uh where you know we we hit blow off top sooner uh we do it do a bounce quicker and then we just also keep on going and what how do you expect these market dynamics to change from what people are expecting or previously expecting which is these four year long mega cycles versus where do you think this is going now that we've kind of hit like this mainstream adoption how do you see these markets changing so i mean generally i'm i have the pleasure of of thinking on longer time skills just

because you know we run 10-year funds so you know my perspective is basically like you know we're going to invest in these things and you know i'll call you in a decade i'll let you know how we did um and you know fortunately with a lot of asset class you can tell early um you know there is liquidity you can you can understand how the markets are working if the technology is valuable um but i think over the longest time horizon the math is just very clear and on our side you know there's a generational preference for digital versus physical um you know largely digital assets in

and of themselves are a phenomenon that is you know in the under 30 cohort which will become the majority population cohort in the next five years um you know those types of statistics just mean that you know the financial gravity of these generations maturing is just on our side and and their preference will manifest and you know the prices of assets that they like going up um and you know it's both because they like them and it's also because you know on a lot of them they're fundamentally productive and so while i still do see the case for boom and bust cycles for things that are more store value-esque

because they trend to trade tend to trade around these kind of credit cycles um things that are productive it just feels like there's really kind of no stopping the growth because the you know it's a lot of reflectivity there's more tbl there's more fees the things are more productive they're more useful there's more capital to bootstrap projects in the ecosystem like that will really never go away once that flywheel is spinning fast enough and i think we've now kind of reached that escape velocity um does that mean you know there won't be 60 or 70 drawdowns like

i i don't really know i mean there was one you know two weeks ago uh but i i think the thing about drawdowns is like you know when when you lose money and things aren't going exactly how you planned you know you can kind of dig the whole as arbitrarily deep as you want it kind of emotionally or you know you're kind of choosing to respond to the situation but as long as you kind of have good assets and you understand the thesis and you're willing to wait long enough there really is no cause for concern and i think the amazing thing about this space specifically defy is that you're

able to delay things like tax liabilities you're able to borrow against your assets like you know the actual functionality and utility is baked into this asset class which doesn't put a lot of the same pressure on things like you know traditional stocks or commodities or even bitcoin um so you know when in doubt zoom out is is kind of you know my my personal mantra and i think good advice it is so funny like once you cross the bridge from the legacy bank system to this new defy ecosystem you don't tend to cross it back the other way right so like even if

you sell your crypto native assets what are you selling to staple coins right like what like am i gonna sell back to my wells fargo bucks and earn like point zero one percent in a savings account no of course not so it's it's to your point it's staying in the defy economy in the crypto economy for the utility of things but like so part of me is optimistic on everything you just said vance but like also part of me feels like my god though um it does feel like crypto investors maybe

i'll just name retail haven't actually gotten smarter versus 2017 maybe it's a new crop because like we're still pumping doggy coins aren't we like what's up with that is that a counter argument to you are defy is going mainstream people are understanding this asset class argument or like what would you say i i i mean i'm very much a fan of of of people doing what they want with their money

and and i don't think ethereums get to have it both ways or frankly anybody in crypto where you know they preach you know economic freedom but only in the subset of assets or things that they like and consider valuable um that doesn't mean that i don't think that dogecoin is you know basically financial napalm and that a lot of these guys will get torched but you know i came from you know a technology job where i was just speculating on these assets in my free time and if anybody had told me that i couldn't do that i kind of would have just laughed at them and i think you know that's kind of the

same response that we get from a lot of people that want to trade things like dogecoin or sheba or really whatever the coin is is that they're just kind of expressing their own personal preference and they're using things like unit swap to do it and so anything that gets them on board and interested you know is a win in my book um do i think these things are really good long-term investments like you know i don't but everyone has a right to speculate and i think you know generally i am i am on board with things like accredited investor rules and and things like that but you know the history of the us at least is is is rife

with we're really good at speculation that is one of the core tenets of what we do economically other than just kind of labor um and you know i like to see that that is back in the markets albeit it's a little bit frothy but you know it's a step in the right direction towards getting people another kind of economic leg to hold up their their stool um so i'm actually you know pretty bullish on the fact that that's happening and it just brings more attention to crypto as well so you know it's not all bad fans i want to hang on the 60 drawdown that we had recently uh because i think

there's some some lessons that we could parse out from there defy kind of took it like a champ uh we had the cascading liquidations like left and right we had us arguably the spike all the way down from like below 2200 ether down to 1700 ether was really just liquidity just drying up as people uh had to get liquidated uh but then buyers did step in now stablecoin stayed relatively close to their peg you know what lessons can we draw from this 60 drawdown about like

where defy is in its uh level of maturity yeah i would probably give i would give i would give different grades to different parts of d5 i think base layer d5 did really well um the you know gas prices uh you know increased as the volatility got worse and worse and that primarily acted as a decelerant to the moves um you know anyone with you know under x or y amount of ether capital really couldn't do anything and and we run a lot of kind of market making you know

operations to just basically keep markets in line um both across spot and derivatives exchanges and deep and you know that allowed us to really kind of have some room to maneuver and stabilize the markets that we were in um so that was you know really positive the things that i didn't really like seeing were um you know people who had uh you know created a loan on layer one on maker ave withdrawn it to polygon and you know we're getting closer to their collateralization ratio uh you know being liquidated um and they couldn't get back over the polygon bridge you

know that that was kind of like a just something that happened that that didn't really uh feel right um and so i think the the learning there is that you know things like the virtual dive bridge and things like you know the polygon bridge just need to be you know just less idiosyncratic they need to be more generalized people need to understand them better and they can't just go down for three hours and then collapse um so i think that was was a negative um you know at the same time finance features went down uh i think ftx was down for a little bit as well so i think those exchanges actually fared worse

than d5 um but yeah i mean overall you know a 70 60 drawdown in you know a period of two days is about as bad as you will get like almost by any you know measure the amount of liquidations you know the total amount of capital that was uh you know we didn't d5 as well like you really don't get much worse than that and to see d5 you know actually thrive actually you know during the incident compared to last year where pretty much everyone just got worked um you know it was definitely positive to

see the other concern that i have is like it's great that defy held up and everything continued to chug on as normal especially when we have the uh covid march crash that happened uh maybe a year and a couple months beforehand to really compare and contrast like what dfi was like then versus what d5 was like now uh and so that's a great learning lesson but at some point uh institutions or just people at large don't like assets that fall 60 in a day

it doesn't really matter how fast it climbed falling 60 percent no one wants to see that uh did this did that event like spook people and scare people away are we is this something that we have to like come to terms with as an asset class that you know we are just going to have these just massive periods of volatility where the numbers next to our assets are could be any different number the next day like did we spook institutions away uh did this scare etfs away like what are your opinions about just like how the world is going to be able to stomach these massive drawdowns

and if it's actually headwinds to this asset class i mean i think that institutions who started down this path you know call it six months ago with with the elon purchase or even the kind of later sailor purchases you know they've now um you know gone through investment committee they've gone to their board you know they've maybe you know edited their mandate to allow them to invest in crypto assets like because this is such a an esoteric asset class that has you know implications across custody across

um you know is it taxed as property or is it taxes stock like there's so many different things people had to do like work uh to get into this asset class and so that work has just compounded over time and now those institutions are kind of finally on the finishing you know line and ready to allocate and things like this don't really dissuade them if anything it makes them more bullish like it's hard to buy an asset that's up 5x uh you know 6x like bitcoin was um at the very top because just the chance it goes down is pretty high and you know these are all just people working at