Delphi Podcast Host Tom Shaughnessy hosts an expert panel to discuss their top DeFi/Crypto plays for 2021.
Delphi Podcast Host Tom Shaughnessy hosts an expert panel to discuss their top DeFi/Crypto plays for 2021.
This conversation originally occurred on Clubhouse (recorded with guest permission) and be sure to follow Tom Shaughnessy on Clubhouse for any future rooms!
- Ryan Zurrer – Founder of Dialectic AG.
- Dan Elitzer – Co-Founder of Nascent.
- Andrew Kang – Founder of Mechanism Capital.
- Sasha Fleyshman – Junior PM, Special Situations at Arca.
- Dan Matuszewski – CMS Holdings.
- Hassan Bassiri – VP, Portfolio Management at Arca.
- TM Lee, Co-Founder of Coingecko.
The full interview transcript is available below!
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(4:09) – (First Question) Top plays for 2021.
(4:10) – Sasha’s top plays.
(6:46) – Hassan ’s top plays.
(10:28) – Dan E’s top plays.
(12:53) – Andrew’s top plays.
(15:56) – Ryan’s top plays.
(19:25) – Dan M’s top plays.
(22:12) – TM’s top plays.
(28:20) – Thoughts on buying NFTs that have no utility.
(38:30) – Thoughts on how the Native Crypto Art World will look in the future.
(39:20) – Why is Bancor attracting so much liquidity now?
(42:33) – Thoughts on The SBF trade.
(47:30) – Thoughts on IL vs. Data slippage /Risks of data slippage.
(50:30) – Ember Sword.
(53:22) – Thoughts on Yield Farming explosion.
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Hey everyone. Welcome back to Delphi’s Clubhouse room. Trying to do this every Thursday. And just for reference, this is being recorded. It’s going to go out on our podcast. We’ll give quick 30-second intros. The goal of this is definitely not to be a podcast. So want everyone to talk to each other or tear each other’s plays apart, tell then you love them, whatever you guys are in the mood for. Hassan, let’s start with you. We’ll just go in order. You guys can all give me 30-second intros and then we’ll go from there.
Hi, all. I’m Hassan [Bashiri 00:00:29]. I’m a portfolio manager here at ARCA. I am basically in charge of our derivatives and our [inaudible 00:00:37] and researching, resourcing ideas and thinking about trends in management space. Excited to be here. Thank you.
Sasha, you’re up.
Hey everyone. I also work at ARCA with Hassan. I’m the junior PM and special situations analyst. I basically just do what Hassan tells me to do, and we try to make informed decisions in the space.
And me and you text each other 300 times a day, [inaudible 00:01:07]. CMS, you’re up.
How’s it going? Dan, CMS. So CMS is a private traded chain shop. We do a bunch of different things in the ecosystem. Primarily what I’m focused on is annual liquid active sort of strategies that we have fund to market any time. But obviously, get roped into some of the new insurance side and a lot of my day to day now is DeFi.
Hell yeah. All right, you docked yourself, so I can start calling you Dan. Andrew, you’re up.
Hey guys, this is Andrew from Mechanism. We focus more on long-term venture DeFi plays, but we’ll do a variety of things. So [inaudible 00:01:45] that we trade as well, and we’ll get some traditional equity deals as well.
Awesome man. Great to have you on, Andrew. TM, what about yourself?
Hi, everyone. This is TM, co-founder at CoinGecko. So basically we are a [inaudible 00:02:02] data provider. So if you want to learn about any crypto, any exchange, any sort of market data, get hit with the CoinGecko. We recently added a category section, which categorize coins based on listings. So do check it out, and yeah. Good to be here.
Awesome. Awesome. Yeah. Great to have you on. I’m sure everybody’s going to share their top play and they’re going to want you to listen. Ryan, you’re up.
Hi guys. I’m Ryan. I run my family office, Dialectic. It is an alternative assets-focused family office. I suppose a lot of that focus is crypto. But we do some other things in venture, like Psychedelics, who’ve got very strong pieces around China generally. And that are into a range of other alternative assets like metals and things like that.
Awesome. Dan, TM and Ryan. And Dan, you came late, so I got to say it again, but this is being recorded. But Dan, give your a 30-second intro.
Dan E (03:07):
Hey, thanks for having me. Dan Elitzer. Co-founder of Nascent. We’re a multi-strategy crypto investing firm. We do early stage venture, largely focused on DeFi, but we also … portion that we focus on, or liquid strategies and a lot of on-chain yield farming type activities.
Awesome. It’s great to have everyone. So like I said, I want everyone to talk to each other. We’ll go through each everyone’s top play, everyone’s top miss. We’ll keep it conversational. I kind of like that versus the podcast, just easier. Hassan … Or actually Sasha, let’s start with you, because Hassan wants to fix his AirPods first, but Sasha, you’re on the hot seat first, man. What’s your top play going into 2021? Could be DeFi, could be large cap, anything and we’ll see what everyone thinks about it.
Yeah. So I’m going to … Obviously, there’s very good place in DeFi now, I’m just going to omit that because I know everyone else in this room will bring up some of the names that I could bring up, but I want to make sure that they have that opportunity. At ARCA, we’ve been big believers in HXRO, H-X-R-O. It’s a position that we’ve held for a long time. We’ve made that public a long time ago. They’re tackling decentralized derivatives, whether it be [PERP 00:04:23], whether it be options.
They recently ported over to [Solana 00:04:27], and I just think that the decentralized derivatives as a whole is a sector that is very promising for this year and even beyond, and HXRO is just one of those projects that I think that the main issues right now is that there’s not many ways to get exposed to these projects.
It’s hard with so many derivative protocols and so many DeFi protocols in general. It’s very hard to get that mind space. And I think that with this [inaudible 00:05:01] Gaspe narrative and this [inaudible 00:05:04] DeFi narrative, I think it will at least open people’s eyes to alternatives. And I think that HXRO itself, it can stand on its own two feet. And I think all people need to do is try it out and the rest will speak for itself.
Yeah. That’s fair. Anybody else try here [inaudible 00:05:22]? I mean, we’ve done work for them in the past. Great founders, the parimutuels are cool. Super easy to use. Obviously, Solana would be cool. Dan, what about you? You used HXRO, what’s your take?
Yeah. We’ve obviously had like bets on with it. We’ve used it a bunch, like we’re sort of a buyer of the overall thesis that in some capacity this year, they’ll likely be a real liquid usable [inaudible 00:05:46] platform that’s on chain. I’d say [inaudible 00:05:50] that’s out there right now is not of the caliber that we [inaudible 00:05:52]. That does say not say it can’t get there. Like we even have bets on a lot of things that are sort of out there already.
Just that they’ll be a competitor in the top five or six venues that is a decentralized like option. I think there’s a lot of appetite to like move stuff that way, and it’s really not carved out or won by anybody at this current juncture. So HXRO is somebody that we can clearly spot in there as like a potential like winner that. There’s a lot, it’s a very much like an open field for that. You can see the shift and the desire to move that sort of activity on chain.
Yeah, totally. Hassan. What about you? I mean, you’re at ARCA with Sasha, do you agree with his thesis on HXRO or it’s HXRO?
Yeah.no. I mean, we’re obviously, we’re big HXRO fans. I think I’m a big [inaudible 00:06:41] of HXRO, but I think the distribution and like the usability of the site has to get a little better. It has to be a little more intuitive for retail or user to get in there. And basically use it for what its intense purpose is.
I think right now, mostly the most used thing is like up-down or like high-low, where you’re basically betting whether the market’s going to be higher or lower in like a one, five or 10 minute interval. And … more to HXRO than that. But I think as like the base case, or like the first thing that people go to, it’s a little daunting when you get to the site and you see how there’s a lot of colors, and I just think it needs to be streamlined a little more. But for the most part, I’m a big HXRO fan.
I think one of the best place that has treated us really well this entire year is like the SPF ecosystem play, where the Serum, Solana, FTT and [inaudible 00:07:38] Trades, and now The Radium Trade. And I think, my preference for investing in crypto is to have correlated … Can you hear me by the way? How’s my sound?
Yeah. You sound fine.
Yeah. I prefer correlated, concentrated bets with downside hedges. So basically, SPF ecosystem trade, and then if you need to get on sides quickly, you short-E or something like BNB [inaudible 00:08:07] auto, things like that, where if you’re right and you catch the trend, you catch the narrative, you’re going to do very well for a one, two-month period.
So with that, I would say what’s treated us best is SBF ecosystem trade. And then things like non-EITH AMMS. So we were in the [inaudible 00:08:30] trade, and like obviously [inaudible 00:08:34] BSC manage [inaudible 00:08:37], things like that, where like obviously migration away from EITH because the EITH [inaudible 00:08:43] was high. So people are going to look for the high throughput and rewards on non-EITH ones, if that makes any sense.
Yeah. No. It just makes sense. And one question for Hassan, what’s the sizing that you guys are aping into this? I mean, you guys are a well known professional fund, a lot of like really solid LPs. Are these like foundational positions for you or are these like small kind of flyers? How do you size them up?
Yeah. So the way we think about is like, I could be trading bigger than my book, as long as I get protected on the downside. So right now, we have puts that like 50 and 48. And so like, as it goes lower, I can just find more and more and more [inaudible 00:09:27].
So like for something like where it’s like a trend or a narrative trade, we don’t really get too much bigger than like four to 5%. But that four to 5% is across like two sectors, right? So like if I’m in my SPF trade and that’s five or 6%, and my Binance trade, that’s another five, 6%. Like already you’re trading at 10% of your book right there.
So to answer your question, we do try to limit the exposure to … Because it is so correlated and concentrated, we do try to limit overall max exposure to that position. But I mean, if you have puts, and we generally do have puts, you don’t mind when it falls, because you’re going to buy more. So I would say five to 6% per like trend trade, if that makes any sense.
Yeah. No, it totally does. I like the sizing. Let’s hop around a bit. Dan, you’re up next. What are you thinking on your top play for this year?
So to be clear, we’re talking about top plays we’ve made so far this year or what we’re looking for in the future?
That’s a good question. I mean, you could take it either way you want. So top players you’re looking for, or top players so far is also interesting, but maybe something actionable that people could look forward to would probably be best.
Yeah. So, I mean, we’ve talked a lot about some of these kind of new style stablecoins like ESD and Frax and some of that stuff. And I’m still very bullish there and I think it’s interesting to see how the ecosystem is evolving and some of these projects are really learning from each other very, very rapidly because it feels like we’re re-approaching the stablecoin question, where I’m really … Three years ago, the question was like, is it stablecoin, a decentralized stablecoin even possible?
And I think [inaudible 00:11:19] did a fantastic job proving like, yeah. We can get something that is pretty stable, right? Not as perfect peg, but close enough to be useful for a lot of different applications. And now, we’re sort of saying, “Okay, how do we make these things more capital efficient and scale a lot better, not necessarily in relation to how much demand for leverage there is?”
And so, I’m excited to see how some of those experiments play out. And then it plays into another theme that I’m just looking very closely at, which is where can we make the most efficient use of capital and liquidity? And we’re starting to see some teams do some really interesting stuff. I think the [inaudible 00:12:07] blocks plus architecture from Sushi and the balancer V2 architecture, both lend themselves to making much more efficient use of capital.
And then, there are teams like [RARI 00:12:20] with their [inaudible 00:12:22] that are looking at taking assets that might not be able to be used in lending protocols otherwise, and find a way to make them useful as collateral, taking some of these learnings about having these variable interest rate curves that we’ve seen a lot of lending protocols today.
That’s pretty cool, Dan. No, I know me and you’ve gone back and forth a lot on Frax, [inaudible 00:12:46] and ESD. It’s been pretty cool to see them all play out. Andrew, I’d love to get your thoughts kind of on the algo stablecoins or on other players you’re kind of looking at, because I know you’re pretty active there as well.
Yeah. Yeah, I mean, for us, we’re also really excited about algo staplecoins. It’s huge opportunity area. Stablecoins, I think right now are in the tens of billions of market cap. And I think that could easily reach the hundreds of billions sometime this year. And there’s obviously a need for more decentralized alternatives, given the fact that we really only have a [inaudible 00:13:23] right now, and that’s kind of to pseudo-centralized, decentralized.
There’s a lot of design challenges to work through. Obviously designed for ESD and DSD and a lot of the other earlier algo stables weren’t able to kind of create stability. Although, it seems like Frax, which has been live for a few months now, has done a really great job of keeping that peg.
So we’re seeing the newer algo stables and the older algo stables that are changing their model move more towards Frax-like, fully [inaudible 00:14:01], partially reserved type model. In terms of newer opportunities, something that we’ve been thinking a lot more about recently is [Bancor 00:14:11], and Bancor’s projects because they’ve been around for quite a while, around three years or so. And they’ve kind of struggled for adoption for the time that they’ve been around. And I think generally, that’s because they just haven’t been able to find product market fit, but recently with Bancorp, the 2.1 that’s been out for a few months now, I think they’ve found a really interesting angle, which is that they’re able to offer projects and permanent loss production. And that’s huge because it allows projects to kind of provide liquidity in a very risk-free way.
Where traditionally, it was very expensive to provide liquidity under the market. Either you’re paying market makers a lot of money or you’re incentivizing pool to liquidity, right? So for users in your community to provide liquidity to say [inaudible 00:15:09] or [inaudible 00:15:11], that’s not something that you can do forever, right? You can’t pay hundreds of thousands of dollars every week for perpetuity.
And for [inaudible 00:15:23] protection offered by Bancor, allows projects to just kind of put their own treasury, right? Or to have people in the community put their assets in and kind of retain their long only bias, right? Without the risk of them losing coins if the price goes up.
That’s awesome. Yeah. No. Bancor has gotten a ton of attention. Oh, sorry, Andrew, you went out there. Keep going.
No. I was just saying that’s actually really interesting that take on Bancor. I think we’ll see a lot of resurgence of projects that pivot and find product market fit. So that’s awesome.
Ryan. You’ve been around like longer than anyone here, I think. And that’s a great point. What projects are you kind of laughing at that are now researching that you kind of brushed off earlier in your career?
Well, I mean, they’re certainly lots had been written off. We’re definitely laughing these days on the kind of second semester SaaS of 2017 that are kind of coming home now. So [inaudible 00:16:30], those are excited about just coming to fruition at this point.
DeFi stuff sort of day one and maker compound, DYDEX, [inaudible 00:16:46] idle bond early in synthetics, first week [inaudible 00:16:52], these types of things. I take like a portfolio approach to this space and try to construct a portfolio that has long-tail exposure to a lot of experiments. And so yeah, I just love kind of the experimentation of lots of different things happening. However, this thing that I’m getting most excited about now is how the DeFi yielding and the gameplay in blockchain games are starting to meld and like the yielding is playing the game.
And so you guys were super smart and super early with respect to ACCE, and seeing like just the power of yield guild, and congrats on that announcement today and leading that. That’s a great one. And it’s a great one just from like a storing thesis perspective, right? To think about like, this is the sort of decentralized future that we all hope for, right? Like there’s literally a warehouse of people in Manila by the thousands, like playing this game and earning income, which by the way is better than the income that they lost from COVID.
And so this kind of stuff where the game play starts to yield, and we have to really think about crypto economics in a much more elegant fashion, because you can’t necessarily just have a game where you buy to win, but then you do need to provide adequate incentivization for capital deployers who are buying game assets, like land and in-game items and tokens and things like that to have a relevant economy that produces compelling yield, so that capital flows towards these instead of DeFi projects.
And actually, I wonder what you guys think if the melding of like DeFi and games can be seen by the institutional types that are starting to look at the space as kind of kooky and weird, or if it’s just like all is fair in love and war kind of thing.
Yeah, no. That’s a really good point. I mean, it’s interesting to see so many people in developing nations, like use yield guild to leverage potentially wealthier people’s assets to earn yield and actually gain an income that’s three, four or five X, what they would normally make. And so, that’s pretty cool. And we’re also obviously big fans of NFTZ, or yield generating. So, I mean, the [inaudible 00:19:32] are fantastic. I don’t know any crypto function or anything because there’s some questions around utility, but then again, that might not matter. But I’m definitely going to come back to this. We just have two more to go. Dan, from CMS, you’re up on your top plays.
Sorry. Foot’s on the mute button. So like I said, I’ll give it more of a sematic because we’ve placed a lot of different like sort of bets on it. But really, like I was saying before, like the movement of … Like it’s pretty good robust of spot market sort of decks system there. Like it’s not perfect. It’s not great. It’s going to be iterated upon, but the real big missing piece of the trading world is like all like the [inaudible 00:20:14], right?
I mean, if you look at the volume that trades on like PERPS and like quarterly futures, options not so much though, like there’s a world that gets some of them too, but it dwarfs really like what spot business is like doing. That’s where the action is. And I think, if you really want to move material amount of like the economic from transactional activity that’s like happening, it might be competitive [inaudible 00:20:38] two, three chains, you got to like move that piece over as well. That sort of ecosystem has to be like lifted and shifted.
So there’s a number of people looking to do this. It’s like obviously a huge opportunity that people see. And I think somebody’s going to crack it and I think we’ll have like a real sort of liquid on-chain ribs market that’s like built out over the next, call it, 12 months. I want to see one of them be competitive with a centralized [inaudible 00:21:03] sort of world.
I don’t think they’ll beat out centralized venues really in any short order of time. But I do think there’ll be a reasonable execution platform. And also just like the amount of problems that this market is sort of [inaudible 00:21:17], being a player in the States, I think that there’s real demand for this stuff from that angle, just from like a jurisdictional sort of art, there’s definitely a lot of like volume that’s probably like not even accessing the market on a lot of those type products, just because it’s like really hard, if not impossible, certainly to get access to them.
So that’s really where we think the biggest sort of value-add and like money to be made is going to be on that iteration. I mean, we’re also very excited to trade it, because like these things on-chain in particular, like tend to be really banged up and like priced wrong for like a while. Specifically, like on chain [inaudible 00:21:54], like chain products when it gets started. So we’ll hopefully [inaudible 00:21:57] a lot of that out against the centralized venues. That’s like our big plan for what we think we’re going to deploy a lot of resourcing on in the next like 12 months.
That’s awesome, Dan. No, that’s a really good way to put it. And side note, love your intern account by the way, of-
Dan E (22:12):
Yeah. He’s an actual intern too. So-
Oh, I thought it was you.
Dan E (22:16):
No. No, no. We have an intern who I think will join us. Though he’s got an offer, if he wants to take it when he finishes up. He’s got another semester, but he just did it on his own and he like asked if it was okay, and I was like, go crazy with it.
Imagine starting a parody Twitter account at your first job. My God, I’d get fired in two seconds, but I love it. TM, you’re last up. CoinGecko. Would love to hear. I know this might not be a question totally up your alley, but you see so much on your platform. We’d love to get your take too.
Yeah. So we’re not a fund, so we probably [inaudible 00:22:50] this year. But we will be share like some of the trends that we are seeing and [inaudible 00:22:59]. So I think the multi-chain [inaudible 00:23:03], I think was mentioned at the [inaudible 00:23:06] and whatnot.
I think he’s not so much about that by itself, but it’s also just looking for exchanges so problems can be solved. So as you can see, we’re starting to look into for [inaudible 00:23:19], finance chain incentive, trying to get all the tokens [inaudible 00:23:21], trying to get all their [inaudible 00:23:23], their DeFi products in it as well. And I think it has been quite challenging, I would say, because the data [inaudible 00:23:31] chain, and that sort of segue to the data side of things. So we have seen the graphs putting off pretty well. [inaudible 00:23:38]. And then [inaudible 00:23:39] has been doing a pretty good job as well, they’re launching soon.
And you look at [inaudible 00:23:45], and they’re focusing on multiple chains. Right now, I think they have Avalanche, [inaudible 00:23:50] and then I think also [inaudible 00:23:52], they just recently announced they’re doing something on VSC, if I’m not mistaken. And this would definitely be something that the entire ecosystem would need, because all this data is just so fragmented and difficult to access, and they’re not cheap-built index as well. So [inaudible 00:24:06] system is definitely welcome. And for us, looking at how they’re doing it would definitely help us to learn a thing or two as well.
And the last point I want to make is also [inaudible 00:24:16] protocols. There is a certain interest in potential futures on the DeFi side. So we started integrating them. Some of the problems that we see is that how would they compare with the centralized world? Because if you look at products like [inaudible 00:24:32], it’s an entirely different model than what we are used to seeing on [inaudible 00:24:38] futures, which questions like how are we going to index them and engage them in a way that people can make sense?
So yeah, I think these are the three main trends that I think [inaudible 00:24:46] some features to develop that attract people.
That’s awesome, TM. And one quick question for you, how many people are CoinGecko? It’s got to be an army at this point.
At this point, we have 30 people. And yeah, I think a year ago, was about 15, so we’ve probably doubled in a year.
Wow. Jesus. Now that’s a good way. Is anybody other than Ryan playing the game segment kind of pretty aggressively? I mean, at Delphi, we kind of are. We have a bunch of assessments, like an ACCE, [inaudible 00:25:14], Yield Guild, a bunch of others. Any other funds or people here playing either buying the native token of the games, like [inaudible 00:25:21] or the in-game items like land or the actions themselves? This is obviously getting a lot of buzz beyond just helping out traditional communities.
Yeah. Hassan, do you want to speak to this?
No, you’re the NFTE king.
Yeah. So I mean, Tom, I’m sure you know, but just for everyone else, we invested in the seed round of ACCE. We’ve been speaking to that team for almost a year now. I mean, they’re great people. They’re a very focused team. They run skinny, and they’re playing to their strengths. And I believe Ryan mentioned this, but it’s very true that there is a natural cohesive bond between how gaming works and what digital assets can offer.
There’s a composability factor of your sweat equity in a game where you spend hundreds of hours playing a video game, you collect in-game items, you collect your prestige, and then eventually one day you don’t want to play that game anymore and you want to move on to another game, but you have to start from scratch. And there’s a new found utility to owning your assets in-game, being able to port over your sweat equity to the new game and not having to start from scratch anymore.
So ARCA as a hedge fund, we invested in ACCE, the underlying token because of the path, the economics, of the token itself getting a claim to the transaction piece of the [inaudible 00:26:50]. But personally, I’ve taken quite a fancy to digital land and ACCE themself. And it’s just something that makes sense to people that grew up playing video games, because you started playing Diablo II or CS:GO or RuneScape, and there was marketplaces even back then where you can go to the STEEM marketplace or you can go to more nefarious chat rooms and you could trade in-game assets for physical cash.
Wait, there is more nefarious places than Steemit chat rooms?
There were some very interesting places that bricked a couple of computers as a kid, for sure.
Actually, like in this vein speak, to like what your thoughts are on obviously [inaudible 00:27:40] was first … Or not first, but it was one of the earlier things that like blew up and then [inaudible 00:27:44], and now you have like BinancePunks and Bashmasks. Do you think it’s diluting-
So there’s two arguments there. There’s one argument that copycats breed pedigree, and that if you’re going to copy, that means that you probably did something well. And then there’s the other argument that there’s only so much mind share in this space, and the more copycats that there, the less available that capital and the less available time people have to spend on these things.
I lean towards following the originals. The new one of like waifus and this and that, they’re all playing the same textbook of like RNG rolling unique traits to art. And it’s an interesting use case, but I tend to stick with the originals in both senses. I think that the other ones have a place, but it’s the same as taking a print of the Mona Lisa. I think that-
Is anyone here else though like … Sasha, your point, is anyone else here buying NFTs that have no utility? I’m a huge proponent of like innovation experiments. But I think this is probably going to burst and people are going to be left holding a bag of NFTs that don’t do anything.
Yeah. I mean, I think the real question, right? Is how many multiples do we go from here before that bursts?
That’s a good one. Yeah.
It still feels like just, in some ways, it feels like it’s just getting started, right? We’re not even like fully, fully mainstream celebs and musicians and folks coming on this. So if it can be like you do one little thing, you make a few million bucks and there’s no middle man, like we’re going to start to see more celebs come in and do this. And people are going to bid it up, it’s going to get crazy. So I don’t know. We’re not currently making any plays in there, because it scares me. I feel like there’s other things that I feel much more confident in. But I’m sure that this will be a longterm trend. Like we will see NFTs that don’t have like in-game use or something, will be incredibly valuable in the future. I just don’t know which ones and I don’t know that they’re priced at a reasonable level right now.
Yeah. I’d say that with art definitely has utility. It has utility to the collector and whoever gets to enjoy it in the moment. You’re certainly going to see some like household name artists moving into digital art via NFTs. Or, you’re going to see more and more of it. We’re already seeing like Shepard Fairey just put a NFT in, and so you’re just going to see that evolve.
Generally, as professional capital allocators within the fund structure, you’d want to be super, super careful with those types of things. Like if that’s not a seed stage play as an early stage fund than just buying, say, CryptoPunks at a million dollars, I’m not sure how much upside there is in that for a fund right now, but certainly, for people who enjoy art and are not thinking about it purely in terms of like fund dynamics, alpha producing returns for LPs, it’s great because it’s spurring adoption more than what we’ve seen. And adoption has been the big, like scary elephant in the room for a long, long time. Because it’s been the same group of all of us since like forever. Right? And this is the first moment that we’re starting to see other people, like non-crypto natives get really excited. So I’m kind of all for it in terms of the [inaudible 00:31:47]. I agree with, with Tom’s position that I’m very cautious about deploying capital in FTs that don’t have specific yield characteristics.
I would just like to like really quick, I think that both things can be true. I don’t think it’s mutually exclusive that we’re towards the dangerous zone of where these things are pricing and what’s happening. And also say that within the next five to 10 years, this is a space that is undoubtedly going to grow.
And I would say that right now, like you’re seeing stuff like NBA top shot, where DeFi [inaudible 00:32:28] is obviously unhappy with what’s going on. There’s some issues with the decentralization of that network, but you’re also seeing some things that are pretty obviously getting walked up in the second market. And so an abundance of caution is definitely necessary, but like Tom mentioned, I think that there is an actual way to market an investment in some of these NFTs directly. Maybe not so much art, but there are interest bearing … Not so much interest bearing, but passive revenues of utility NFTs that maybe won’t be able to be modeled out today, but they will definitely be able to be modeled out in the future.
And I think that the game right now is sifting through a generally diluted sector and finding either an art, it would be those with pedigree, or in digital real estate or the other sectors, those with longstanding utility value.
Yeah, that’s what I tend to go for.
And I just want to add a little bit on game items. So Tony, you’re very used to game items utility and that sort of [inaudible 00:33:38] value. But if you look at games like Fortnight, people spend like thousands or maybe hundreds of dollars, just buying [inaudible 00:33:45] that does not give them any utility, but it just basically makes you stand out, like it’s bragging rights.
So I guess if [inaudible 00:33:55] which is basically you buying it because you like it, you want to show it off or you want to see yourself. If you’re looking at [inaudible 00:34:02] a year or two, then most likely your timing is not going to be on your … I mean, may not be on your side because the market is not so liquid and it’s all about trends as well. And right now, it’s just so noisy.
I think most of the funds that invested in some of these non-utility NFT, they got in really, really early. Two years ago, which nobody sees it. And then you just want to … You’re trying to believe in the whole space and you just want to invest in the market place or invest in some NFTs. And then yeah, like finally [inaudible 00:34:32], but it’s just so liquid that the timing may not be on your side, [inaudible 00:34:36].
Andrew and Ben from CMS, you guys play on the active side a bit more than I think the other people here. Do you guys ever think there’ll be a time when you wake up in the morning and start peeping in and out of NFTs just to trade or get exposure? Or is there like that not going to happen?
I won’t. I mean, maybe somebody in CMS does. But I don’t think like … I think it’s the same way that you don’t see like a ton of sort of professional liquid active desks like trading art, right? Like it’s sort of the same like thesis I think as it evolves.
I could be completely wrong on this. I would say like I’m probably one of the most bearish people, most definitely within inside my organization. But maybe even like within like [inaudible 00:35:20] about like the whole like trend. I don’t think it’s like not going to be a thing. I just don’t think it’s going to be a thing that people who are professional allocators of capital are going to be like really concerned with a ton. Like they’ll be niche people that are like sort of involved in it. I just don’t think it’s completely relevant for like a lot of this stuff that we’re sort of involved in working with or sort of putting into an investment.
And that’d being said, like if we see like real liquidity mismatches on things, we’ll buy a slug of these things. Like we bought a bunch of Hashmask when it got hit. Like really just purely for like, all right, this thing is going to have some value. It’s like price low here, and we think it will be like higher on the other end. We’re not involved sort of interacting with any of this stuff or trading it. But I just don’t think it’s going to be a material line of business for us. If we were to do anything in this, it would be backing some sort of infrastructure for it that can like … And even then, it would be like a bit of a leap for us.
Did you just say, I won’t wake up and do this, and then you said, oh, we already did this?
No, me, personally, won’t. I will not be the guy sitting there [crosstalk 00:36:19]. If somebody wants to pitch it and like do it, I’m going to stop that. I just said, this is not where I see like my life going in that regard. And I don’t want to tip it like a slight, I’m not like genuinely interested in it from that side.
Dan E (36:34):
Interesting thing would be when these assets start to have a legitimate price discovery and some stability, and then maybe you can borrow against them. So like if Hashmasks or CryptoPunks kind of find stable pricing among the whole collection of them. And then you could say, borrow … I don’t know, 50% of the market price of an average CryptoPunk against your CryptoPunk and use that capital. Art financing is a really interesting fixed income product in a world of low yields. And so I wouldn’t be surprised to see that come on chain and start to make these assets more productive in a direct fashion.
I don’t know if you guys saw, but recently like crypto on Twitter tweeted that he was borrowing NBA top shots in size. I think presumably the assumption is that he’s going to be shorting those. And from what I understand, there is a decent amount of liquidity in pop shots, I think, in terms of like total market cap, it’s in the hundreds of millions, I think some would put the estimates at almost a billion. And in terms of like what you can find in terms of [inaudible 00:37:56], it’s something along the lines of like 5 million plus like pretty easily.
I have no idea what it takes to kind of like meaningful market impact in that space, but some people have thought about it as like an interesting hedge against alts. And being how liquid these things are, it could be a lot easier for someone to kind of just topple the market right for a specific NFT category than it is for say your favorite alt on Binance. But yeah, I mean, like [inaudible 00:38:34] is getting there. We don’t do any of it, but it’s getting big enough [inaudible 00:38:39].
Dan E (38:40):
Yeah. Tom, I know you guys have the piece where you kind of [inaudible 00:38:43] some issues with it, but FTX feels like the style at least of solutions that would be interesting for what Ryan was talking about. Right? Just getting a way that you can establish a price for like the floor assets within a certain collection.
Yeah. No. I’m with you there. The thing I struggle with is I feel like I’m trying to figure out what the native crypto art world looks like 20 years out. Is [BEople 00:39:12] like the next Picasso? You know what I mean? Like, it’s just very hard for me to contextualize what like a crypto native famous art world kind of looks like. And if that’s actually realistic. Do you guys think that’s going to happen or do you think that’s kind of far out?
Dan E (39:26):
It’s going to be like a lot more kind of meme-driven, right? I mean, not that traditional art isn’t meme-driven in some way, but it just feels like everything that we see in crypto and even like equities markets, just on steroids where people can find ways to like rally around art with a story and then just like pump certain things to insane, insane levels.
Yeah.no. I’m with you there. It’s kind hard to invest in an out. Well, I want to kind of go back to our top plays for a second. Andrew, you mentioned Bancor. Didn’t Bancor get a lot of hate like way back? Why are they attracting so much liquidity now? What’s the difference? Is it just the aisle protection that you mentioned? And if you can kind of go into a little bit like how that works, that’d be awesome.
Yeah. I mean, Bancor was the first project that had a working automated market maker. They were proceeding Uniswap actually. And I guess, in terms of like actual adoption, Uniswap just was kind of able to take all the tension away. V1 of Uniswap, everything was kind of paired up against [inaudible 00:40:42]. And I guess people wanted to provide liquidity against [inaudible 00:40:47] more than they wanted to provide liquidity against VNT. And V2, right? You can provide against any asset.
And so in that sense, Bancor is a little more constraining. V1 and V2 were, and V2.1, which is the current version, you can do single-sided liquidity provisioning, which means that I can just provide liquidity and say, if we’re talking about like a market pair, BNT versus USDC, I can just provide the USDC side or I can just provide the BNT side. Right? Which kind of lets me get a lot more specific about the exposure that I want to take on.
And in terms of how it works, right? Aisle protection, it essentially covers a loss of people that might suffer in permanent loss by minting new BNT. I was a little bit skeptical about this model when I first heard about it, because you’re just kind of printing money out of thin air to kind of cover losses. But when you actually look at the historical data that’s been out, and this has been run on analysis of tens of millions, hundreds of millions of dollars of liquidity, you see that in actuality, the fees that are generated from this system are pretty much on par with both the realized and unrealized losses associated with impermanent loss.
And the reason why they’re able to kind of make this work is that they are very specific about the assets that they wait list for aisle protection. So they’re not going to white list something that is, say, it’s something very new on the market and it’s at risk of moving up 5X in two days, because that would because a lot of impermanent loss. They’re more so white listing blue chip, very stable stuff, stuff that can still three or 5X, but maybe over like a longer timeframe.
It’s awesome Carl Andrew. No, it’s awesome. I agree with you. I was probably a little [inaudible 00:42:42] on just printing money, but to be honest, it works and it’s obviously attracting liquidity because it’s one of the biggest problems for [inaudible 00:42:49] right now. It’s just that aisles, and frankly, irritating and hard to track. So it’s kind of cool that they’re driving in there. And to go back to-
Dan E (42:57):
In an industry that is known for terrible, terrible names from ICOs to NFTs, the worst name of all the names is impermanent loss, I think.
It took me about six months to figure out what exactly it was, I’m not going to lie. It’s hard to figure out and track. But Hassan, Sasha, and probably CMS … I keep saying CMS, but Dan of CMS, because two Dans here. The SPF trade is obviously a big deal. What are your guys’ take on that? Like, are we running out of room there, are there new players, should we just ape into new things? And two, do you think he’s actually building a community beyond money because it feels like Solana is solid, and so are the others, but trying to figure that out.
Yeah. I mean, we particularly, we’ve been very close with [inaudible 00:43:50] sort of out of gate. And Ryan, who ran [inaudible 00:43:54] for me, went there very early on for. So we’ve had a line in them directly. And in general, we’ve just tried to align ourselves economically to like whatever they sort of been working on, which is obviously [inaudible 00:44:08], but even beyond that, the speed and iteration and sort of like their ability to like interact with the market is pretty incredible. I would definitely not bet against them on that sort of side of the things.
In reflection of like Serum and the ecosystem that’s getting built up, like we’ve tried to participate in every level of that as well. And we’re a buyer of … They’re going to force this thing into existence to work, like regardless of what anybody else is thinking. So I’m confident that’ll happen. Whether or not sort of the market comes to it, once it’s like built … I don’t know, I’m getting there. I mean, [inaudible 00:44:46] a big participant in this thing. Like that has a big vote of confidence. They’re probably the largest market maker in all of crypto.
They have a ton of existing clientele from the FTX side that are all like very active [inaudible 00:44:58] very close to that I think they’ll be able to port over. Like I said, it sort of falls back into our original thesis that there’s going to be a performance exchange operating in a completely [inaudible 00:45:08] fashion on [inaudible 00:45:09] that’s competitive with like real venues in the top. But I think that’s our most like probably … It’s probably our most real like true bet that we’ve made, is like that whole ecosystem [inaudible 00:45:22].
It’s, we’ve made others in like other places in this thing, it’s just really that depth of talent and like sort of those folks that are building it are just, they’re kind of a leap ahead of everybody else that’s building stuff right now. [inaudible 00:45:36], that tends to be how we think about it. Like should , into everything? [inaudible 00:45:40] evaluation a lot of these things, and sort of like where your time horizons are and whether you’re being a trader or investor. Like I think we’re living in a world where like everything is just bid up to like those big valuations, and like when there’s momentum on everything, it’s fine. But you really have to … Just because it’s like something they get to a massive evaluation in the utility doesn’t mean you have to pay for it today. So the people really should be cognizant of that when they’re like making risk decisions. We should not … Yeah, I would say.
I mean, it’s a kind of like back it up. I think what traders or investors or capital allocators are noticing, is that everything that you put money into that he puts his name behind, you make money generally. I can’t think of something that … I mean, I’m sure there’s a product out there that we’ve invested in and it has made money. But for the most part, like FTG Serum, even FITA, Radium, I’m sure the [inaudible 00:46:34] IO is going to rip, like when [MangoMarkets 00:46:37] comes, that’s going to rip.
And for the most part, like astute traders follow money. And if you’re in his stuff, you tend not to lose money. And yeah, like to Dan’s point, it’s true that there are these fully diluted evaluations are in the upwards of like five to $10 billion. But right now, I don’t have to worry about that. And I don’t have to worry about that for at least a year. And I believe that you invest in people in this space, you find the right people and you back them and you let them do their thing. And obviously, we’re not as close with them as CMS is.
But for the most part, if you just follow the talent, you’re going to make money because that person’s going to out work everyone else. And I mean, they were the first with products regarding like the exchange token index and things like that. And I think smart traders just follow the money. And I think he’s going to keep making money for people and that will attract more money. And I think through that evolution of just naturally seeing things trade up and establishing a higher and higher floor, it’s going to work eventually.
Now, the time horizon thing’s super important. Like obviously, Serum has a seven-year vest and it starts to vest in like, I think next August. And obviously Serum will calm down, but for the most part, their new product launches work and their products work. Yeah, that’s my thoughts there.
I would not want to … And I think Dan said this, I would not want to bet against someone like SPF.
Oh God, no. I would never. Yeah. No.
This will work by plateau [inaudible 00:48:08], it’s going to work and you just have to accept it.
I just can’t stay awake every day as long as he can, I know I’ll lose. Lisa, I brought you just on stage, if you had a question for the group or wanted to chime in.
Yes, I do. Thank you for bringing me on board. So I’m just going to bring the Delta conversation back a little bit further to what Andrew was speaking just now, where the biggest risk of DMM is actually IL. But if you look at the different kinds of risks involved in EMM, there’s one other risk called data slippage, that is prevalent in any portfolio management mechanisms anyway. And this is quite evident in EMM styled [inaudible 00:48:47] that’s around. And it doesn’t even have to be [inaudible 00:48:49], it’s just any form of EMMs. So what are your thoughts on IL versus data slippage, and how do you justify the risks of data slippage?
So was that a question for me?
Yeah, yeah. Thank you.
Yeah. I mean like … Yeah, that’s a good question, because impermanent loss, in terms of like a beta effect is kind of the opposite of … If you’re familiar with leverage tokens, with leverage tokens, you have like a lot of beta decay and markets that are very reverting. And what I mean by that is so say like the coin goes from like 10K to 11K back to 10K back to 11K back to 10K, like that’s not very good for someone that’s holding a leverage token, because what that leverage token ends up doing is it ends up buying high and selling low continuously. Whereas, for AMMs, it’s kind of the opposite, where if you have that type of price option, you get what’s called like a lot of volatility harvesting and the LPs make quite a bit of money.
On the other side of things, like AMMs or LPs are really batty in trending markets. And so the further away you get from your stock price, the more impermanent loss you have, and that’s the beta factor of it. Right? And so, yeah. I mean, that’s something that like, it’s hard to hedge against with perfectly. You can try to do it with say auctions, or you can try to do it with Delta hedging, but it gets kind of pretty complex and it’s not something that we get into, but I think there are some large scale industrial farmers that will use those mechanisms to hedge.
And I think … Sorry to cut in. I think that’s evident in what you see on the AMM curve. You’re seeing most of the funding going to [inaudible 00:50:52] stables. To Andrew’s point, when you become an LP of a asset of stablecoin pool, you can effectively Delta hedge, if you so chose. Whereas it used to go to assets to asset pools, I mean, you’re going to need a full team to take care of that. So I think that’s why you see it fat at the top and skinny as you go down, because it’s just much easier to play this AMM game and to play the LP game when you only have to worry about one asset relative to the dollar.
Great answer guys. No, that makes sense. Just going to bring somebody else on stage, but I lost Sam, I thought he was still on there. But has anybody else aped into anything this week? I know we’re kind of getting off the professional field and back into like [inaudible 00:51:37] season, but is anybody looking at anything that they thought of and jumped into this week?
On that announcement. Nice, nice.
Before, but yeah.
Dan E (51:59):
I think they have more good news coming too. Don’t quote me on that, [inaudible 00:52:03].
Yeah. We dove into something that has been a while in the making, where part of this thesis around, okay, these in-game assets can start to yield and you can start to treat them like DeFi yielding assets, has kind of led us down a path to, okay but what is the most compelling game? And what is a gain that has sort of a depth of thought in it where you’re literally in this world with advanced economies where you can have Airbnbs and hotels and restaurants and run cities and things like that. And so, we found this amazing team up in Denmark, Brightstar, who has made Ember Sword, which has been a multi-year endeavor for them.
And just to sit down with them and like dive down the rabbit hole of where this goes between the in-game items stacked on the land and within towns. And you’ve got settlement lots versus regular lots, and they have different income profiles and different businesses that you can run on top of them that don’t necessarily take away from like the warrior game play between players, but can kind of make it more epic around there.
So if you’re playing this like MMO RPG, but you’re playing in this like real world of towns filled with people doing things. And then you have these missions within these very complex economies. I think that’s something that we’re getting more and more excited about. And this is a perfect example of just like that next step, of going from really sort of simple like card games. Like my card hits your card. Does it win, does it lose to very complex dynamics between players and actors in the game? And so we’re super excited about that and I’m super excited to have some people in here along the ride for that.
That’s awesome, Ryan. Yeah. No. Super, super excited for Ember’s game. I’m really excited for that. I know=
Ember Sword, sorry. Yeah, I was posturing.
Yeah, yeah. Ember Sword. Yeah, no worries.
No. Great coverage of that. Super exciting. And I want to respect everyone’s time, so we’ll close out in five minutes. Dave, I’ll give you the last question.
Yeah. I just had a question for Dan actually. Dan, there’s been a [inaudible 00:54:41] explosion of BSC yield farms recently. And as an original member of the Yam team, I was just wondering your thoughts on that and what do you think the next six months looks like? And where’s the real value of maybe a [inaudible 00:54:54] type of yield farming, or what were your thoughts on just this explosion of yield farms?
Dan E (55:02):
We’ve started to dig into the BSE ecosystem. I’m not super deep in it yet. I think people want to run yield farms that are really just yield farms and not really trying to ladder up into anything else. Doing a cheap chain seems like a good thing to do. But I’m more interested in seeing how people are evolving the model and making it more thoughtful. It’s really hard. And I’ve worked with a lot of [inaudible 00:55:31] teams. It’s really challenging figuring out the right incentives and right way to distribute tokens out there, because a lot of folks genuinely want to make sure that they’re getting tokens into the hands of community members and creating the right incentives.
Dan E (55:48):
And most of the schemes that I’ve seen to date, just end up with tokens getting into the hands of the people with the most capital. And that’s kind of like the way the world works, and it’s going to keep working, but I’m impressed with the creative solutions beyond just kind of like retroactive airdrops that we’re starting to see some teams come up with. And so I hope people will focus more on what’s the goal and what kind of community do you want to create rather than just like, what’s the best way to create a fun casino.
That’s awesome, Dan. No. That’s a blast. Well, guys, I want to respect everyone’s time. So it was really great to have everyone on. It’s a power group for everyone. For anyone that got here late and wants to re-listen, we’re going to post on the pod channel, but the HXRO gang, loved the SPF trade HXRO. CMS, loved the PERP trade, and a bunch of others.
Andrew talked a lot about Bancor stables. Tim gave a lot good color on CoinGecko and how you guys work. Ryan, you had a great take on just games in general with Ember sword and others and just yield opportunities. Lisa, great questions on IL. Dan, you’re always bringing the heat. I love it. A lot of good discussion on stablecoins, including Frax, CSD. And Fe, if I’m remembering back to the earlier combo as well. So I want to just thank everyone for coming on. I really appreciate your time.
Dan E (57:09):
All right, thanks Tom. Thanks for everything that you do in this space. It’s great. We appreciate you.
Awesome, man. Appreciate you too.
Thanks. Thanks CMS.
Awesome. Have a great night, everyone. And talk soon. Thanks again, Lisa too.