12 - The Protocol Sink Thesis

Welcome to Bankless, 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. This is Ryan Sean Adams. I am here with David Hoffman, and we're here to help you become more bankless. Hey David, how how how's things?

Things have been absolutely crazy. Ethereal Conference just wrapped up, which was a great conference. Uh, and this is actually going to be the subject matter of this podcast. Um

the the talk I gave at the Ethereal Conference called uh the Proto uh Settlement Assurances and the Protocol Sync Thesis. Uh, I really want to dive deeper with that with you, Ryan. And so we're gonna we're gonna focus on that this podcast. So it's gonna be a good one.

Yeah, I can't wait. I I watched that live, by the way, David, and somebody I think in the YouTube comments said, Get this man another Red Bull because you were talking so fast and you compressed so much awesome information in 18 minutes. Uh it was fantastic. We'll include that in the show notes, right? That's out now, isn't it?

That is out. That's out on YouTube, yeah. Uh, and that's definitely the benefit of uh being a podcaster and also uh really prepping and and practicing your talk. Uh

I could just burn through I I talk it m Mariano Conti said that David talks at 1.5x. Um they got no time for ums, man. Got no time for ums.

It's great. Yeah, absolutely. People probably don't have to speed up our podcast. Maybe, maybe the portions where I speak, they speed it up and but then they drop it back for you. Um

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David, let's talk about some big picture stuff today. So the the first is this this has been

prophesied in the Ethereum community for a long time, and it finally happened. ETH now has a CFTC regulated futures market in the US through an exchange.

called Eris X. That's super exciting. What are your thoughts on this?

Yeah, so this is a really important uh area of progress that Ethereum needs to go through in order for it to grow into what we want it to in the future, which is this global financial system.

Uh I I view these two worlds as you know Ethereum has its own world and it's becoming financialized inside of it. And that's just DeFi apps that we all know and love. But then there's the old world, uh the legacy world where

You buy Bitcoin, Ether, crypto assets inside of your brokerage account, like inside of your Charles Schwab, inside of your TD Ameritrade account, which you can't do yet. But these two worlds each take steps towards each other. And this is a really big step for the legacy financial world taking a big step towards towards Ethereum. Having physically settled futures where, like when the contract closes, you are actually delivered Ether the asset, not just some synthetic asset that gives you price exposure is really important. And so this is the old legacy world taking a big step towards Ethereum and just the financialization of Ether the asset in general.

Yeah, I totally agree. I mean, we've talked in uh episode three about economic bandwidth, and economic bandwidth being basically the rate limiter, the capacity limiter for the open financial system. And of course, economic bandwidth is basically price of ETH, market cap of ETH, the liquidity of ETH. So this adds sort of a third engine to an economic bandwidth accelerator. So the first is, of course, ETH gets liquidity and value through crypto banks like exchanges, like Coinbase. The second is all of the DeFi protocols that we talk about so much in the Bankless program. And now this third engine of traditional finance means means folks like Paul Tudor Jones, the hedge fund manager, who just announced he bought Bitcoin options, can now buy ETH options. They're regulated by the CFTC. And that's a pretty big deal for that third engine, the traditional finance engine, because there are only two crypto assets that the CFTC has deemed as commodities. And the first is Bitcoin. They did that a couple of years ago. And the second is Ether.

And now we see US regulated futures

of Ether. I think it'll be a long time before we see any other crypto assets get over the hurdle and be uh approved by the CFTC as commodities. So it seems to me Bitcoin and Ether have a fairly significant lead in that respect. What's your take?

Yeah, a hundred percent. And and even more so on that on that same note. It took Bitcoin eight years, nine years to get futures. It got futures at the in like January of 2018, if I if I recall correctly, which means that Bitcoin, you know, got got futures at eight years old. And Ethereum seems to be following Bitcoin's same path, but like sped up at double the speed because it it's following in Bitcoin's wake, where

Bitcoin is really the thing that people think of when they think of crypto, at least from the outside world.

But it's really just carving a path and making it really easy for Ethereum to do all the same things that are necessary for financialization, but at a faster rate. And so Ethereum got its futures in in five years, where it took Bitcoin eight years. And so

thank thanks Bitcoin for making this easy on us.

Wait, didn't you didn't you say something about that

earlier this this week, David, about Ether being like Bitcoin in 2015?

Yeah, I wrote a tweet that uh that said uh Ether is Ethereum is where Bitcoin was in 2015, except if Bitcoin had an abusive older brother that kept telling it that it's worthless. Uh I I I thought that was pretty it sums up the relationship between these two communities pretty well.

Yeah, there's definitely a a contingent in the Bitcoin maximalist community that likes to tell Ether it's w it's worthless all of the time. And they mean that literally, by the way.

Going to zero.

Um

Let's talk about something else too that happened this week. I I tweeted this out, David, because it was so cool. Like every week it feels like something magical happens in the bankless space, in the DeFi space, in the crypto uh space. For me,

last week, that was RAC repping the bankless t-shirt on a live stream.

Yeah, that that was really cool to see. RAC. I I listened to him a ton in college. Uh and then uh since college my my music taste has gotten really old, like Beatles type stuff. But

uh having him circle around, he's he's coming on to the e into the ether podcast, so I'm excited to listen to that.

But um

He was on yeah, he was on a live stream just being a DJ, repping the bankless tee, and then people were in the live stream like talking about asking him questions about like what what are you into in the DeFi world

and and what are you up to? Like what uh what do you like about crypto? Uh and so he was talking about the uh tape token that he issued, uh, which are a hundred there are a hundred tokens and they're redeemable for a cassette tape, a unique cassette tape. And it's kind of just a way for fans to show their their

Their appreciation. It's a way for fans to signal that, hey, I'm I'm I'm a big fan of RIC. I really like your music.

Uh and so and so on the live stream, RAC was talking about his tape token, right? And he said, like, yeah, so I issued these tape tokens and and now I put them all into the open market with this thing called Uniswap. And it's all about price discovery, right? This this is what really resonated with me. He says it's all about price discovery, right? Like you let the market decide how much it's worth.

Right. And so the and so I don't I'll I'll just issue the tokens and and my fans will decide to buy or sell those things according to how much they value it. And and the guy I I listened to that and it was music to my ears, man. I was like, this guy gets it.

This guy gets it. And I think it's just a really great way for artists to connect directly with their fans. And this is the entire revolution of peer-to-peer finance, right? Like no intermediary finance. The the world of music and artists has been so insanely captured by legacy companies that act as just the most rent-seeking middlemen that stuff like this, I really think, has great product market fit on Ethereum where artists can just go directly to their fans uh in order to um in order to reward them for their fanhood and and then also benefit financially so they don't need some uh record label or issuer or anything. I'm I'm a big fan.

Yeah, so here's a Grammy Award winning artist who's saying stuff like, I've been super into Ethereum for a while. He is a liquidity provider on Uniswap, which we talked about in episode 10. He's also into compound and maker, which, you know, that that completes our the bookends in our DeFi series. Like this guy is one of us. He's he's legit going bankless, and he issued his own artist token on Ethereum. So there are only a hundred tape tokens in existence. Uh, and the the price on this went crazy. I was watching while he was live streaming. Uh it started at 20 earlier that morning, and they got all the way up to $929 per cassette tape. So these are scarce digital assets, redeemable for a cassette tape. They're all issued on Ethereum. It totally feels like

Like we might see, you know, Kanye West issuing Yeezy tokens on on Ethereum at some point down the road. I just got like chills of like what the future could bring in terms of bringing mainstream to Ethereum and bringing to to Bankless. So I totally agree with you. Super exciting. There was one criticism I saw of it though,

and that was a the criticism that basically uh speculators.

Not true fans are the ones snapping up these deals. So, you know, addresses that purchase more than one tape token in order to sell them back to the fan base. What's your take on that?

Yeah, yeah, I can see how that would be an issue. Um, and and we are at the bleeding edge of this, right? And so I don't expect, you know, when when if this if and when this gets adopted by hundreds of different artists across the world that we're using the same infrastructure that we are today. Like the RAC is a bankless pioneer just like the rest of us, so he's experimenting too.

Um, but I do think the fact that uh these tape tokens just skyrocketed in value, what that means, and and and the fact that people are gonna make money off of this.

To me, it's an indication that there is untapped value to for artists to get into, right? Like that that just means there's more room for artists to do more of this stuff.

Um, I I don't think that we can really say that the price run from from wherever it started at, which was below $100 all the way up to $900, was perhaps logical. Uh, there definitely might have been traders in there for sure. Um, but it's doing the thing that it was supposed to do, which is to reward the artist for their for their work, right? For their product, for for connecting to their fans. Uh, and so I think that that is just a signal that there's plenty of room for more artists to do more stuff like this.

And the thing is, like,

this really works out for both parties really well. Both parties being the artists and then also Ethereum, right? So the artists want to they want to shill Ethereum because that's a new financial platform for them that where a record label doesn't take 60 or 70 or 80% of the profits, right? The artist gets to retain 100% of the profits minus whatever the costs of the cassette tape are.

And then the fans, uh, you know, get to connect right into their into their um into their favorite artists, but also Ethereum can chill these people too, right? And so,

you know, Ryan, you and me are shilling RAC right now.

Like we're shilling, we're shilling him, and maybe see some people are gonna go listen to his music. And so it's really a symbiotic uh relationship between like the artist that's trying to chill Ethereum and then Ethereum people trying to shill the artists because they're using Ethereum.

Uh and so I think that this, because of this mechanism, uh, this is just going to kind of turn into a self-fulfilling prophecy of success.

Yeah, totally. It reminds me a little bit of uh like early YouTube, right? Um, the idea behind YouTube is we don't need big media conglomerates to produce and and distribute our media, right? Individuals can do that. Well, with Ethereum, you can do the same thing with assets. And it reminds me of what we've talked about so many times uh in Bankless, particularly episode seven, where we talked about all of Ethereum's scarcity game games. This is just another scarcity game, right? So the the entire crypto revolution.

Basically the big discovery in, you know, 2009 when Satoshi s Satoshi r

Releases white paper was digital scarcity, right? And Bitcoin is just one manifestation of a digital scarcity game. And on Ethereum, you have all of these digital scarcity mini games that can be played. This is just one of them, but I think it's going to be an absolutely massive use case. Uh, excited about it, and we'll see which uh which artist goes next. Hey, if you had if you had a vote, David, who who would what artist, what celebrity would you like to see, or like sports figure would you like to see start issuing stuff on Ethereum?

Oh man, I think Jack White would be a great candidate. Uh Jack Wright White is a great blues rock artist who uh is also spinning up the the like bootstrapping the world of vinyl records again after it's kind of died. And so he's made some limited edition vinyl records, and so he's kind of already one foot into the world of quote unquote NFTs, just not through Ethereum.

Uh and and Jack White has been one of my favorite artists for a while. So I think he could come next.