YouSaid · the spoken record

Dan Smith

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72
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2022-10-28
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2022-10-28
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  1. “Right. Two of these charts I feel like are a little over my head. Let's actually look at this stablecoin dominance index, which we were looking at earlier, which makes a lot of sense. So this is what percentage of the market cap of crypto is in stablecoins, which are essentially bonds. And yes, bonds as in TradFi, bonds can go to zero in TradFi, stablecoins can go to zero in crypto. But that being said, they are sort of the risk-off thing. Yeah, a year and a half ago, they were less than five percent of the market cap. And now, wow, they're over 15%. So a huge, a huge rush to safety that we're seeing there. That makes sense. All right, Dan, so you just shared a chart with us, and I'm seeing it says bribe revenue. So what is bribe revenue? What are all these terms? What is CVX? What are we talking about here?”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  2. “And even Bitcoin itself, like it has about a 1.75% inflation rate per year right now. And I mean, if you look at that chart, like it's 0.009, and that's during bear market blocks based demand. Like once that activity picks up and it becomes deflationary, you no longer require a new marginal buyer to pick up that extra issuance. So that's really the only asset in crypto that has that quality. So I think it's super valuable.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  3. “Yeah, there's just a huge ecosystem that's built on top of ETH, the L2 scaling solutions are starting to come to life. We're seeing a lot of traction gaining there. And yeah, I think the deflation narrative literally cannot be understated. Once that number goes negative, you're going to see that all over Twitter. That's what people are going to be talking about. That's what's going to get circled around. Every now and then crypto gets its moments on CNBC. And that's what they're going to be talking about is how there's this like new deflationary asset.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  4. “You know, people, if people want to do tons of stuff like flash loans, like NFTs, as you were saying, they burn ETH. Now not a lot of ETH is being burned because it's a bear market, not a lot of on-chain activity. But when that returns, you're saying it will go down. So your outlook, like obviously this is relative to the whole crypto market, but your outlook on ETH, Dan, and Sam is quite positive. And I think most people who to me seem like they know more than crypto sound like they typically agree with it. Would that be fair to say, Dan and Sam, that your outlook on ETH is positive?”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  5. “Good and stable and growing and have a lot of talented people working for them and are launching new protocols that are actually being delivered upon and not just like hype and which are sort of just like BS. So I think that's important. And so what you're saying is that, yeah, this transition from the ETH merge, and I'm not going to pretend that I understand this, but I actually think I interviewed a crypto miner the day of the merge, the day before the merge. So it was like their last day mining Ethereum. And they would have gotten rewarded by that by that 750 million. Now they're not. So the supply is not increasing by as much. And then also the supply is affected when people...”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  6. “Okay, thanks, Dan. Rather than say explain things for the audience, explain it for myself. So on a day when Ethereum's up 6%, like odds are Bitcoin is going to be up as well, like probably a little bit less than that. Cardano is probably going to be up, you know, Polkadot is probably going to be up. And I feel like you see that in Trad Fi2, where realized correlations between stocks, particularly in an index, particularly the biggest ones are high. Like if Apple's up 2%, unless it's an earnings day, which I actually think it is literally today, then you're going to have, you know, Microsoft's kind of going be up as well. So that makes sense. So that's sort of the macro thing, which is what this show is all about. But in traditional finance, I'll be first to admit, like on the long term, it really, you really did get a big difference between like, oh, which company is going to be better? Cisco or Apple. You know, like that's a huge difference. So that is where I feel like a lot of bulk of the Blockworks research comes in is on which protocols are”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  7. “And this is like there's a big takeaway here is like, okay, well, when the bull market returns and on-chain activity gets really hot again and everybody's like, you know, trying to take out leveraged loans through like Ave or Compound, or there's more incentive to try to chase different trades going through Uniswap. There's other DeFi protocols, maybe a new NFT primitive comes to the scene, and now NFTs are hot again, right? There's more reasons to be transacting on chain. The base fees will increase and more Ethereum will get burned. And then the supply chain... Change will likely turn negative and Ethereum will become a deflationary asset. I think that's going to be like a huge narrative we see get pushed throughout the return of the bull market.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  8. “Generally, like selling a portion of this reward that they're earning essentially to cover their costs and to lock into profit. So we've basically removed around $750 million worth of cell pressure from the Ethereum ecosystem right now. And that's pretty crazy because there's been little to no on-chain activity in the depths of this bear market. Gas is generally, like right now it's at 21 Gway. So the base fees are quite low. And we've seen this inflationary, actually, excuse me, like this recent change to deflationary.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  9. “Second block time on Ethereum. So every 12 seconds, a new block gets added. And so one of the biggest changes here is without this need to constantly incentivize miners to be verifying blocks, we now can reduce the supply of Ethereum. We don't have to be playing these massive block rewards to miners to come these math problems for us. And what this has done is created an environment where the Ethereum, the asset, can become deflationary. And so if you see there in the top right, it says supply chain since the merge, and that's a thousand ETH. And so if we hadn't merged and we were still in this proof of work network, we would actually have created about 491,000 ETH, which is roughly about 750 million dollars. And, you know, miners want to take this profit and lock it in because they have electricity costs to run these machines.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  10. “Yeah, so this is a site called ultrasound money or ultrasound.money. And it's a great way to visualize the supply chain for Ethereum post merge. So the merge occurred about a month or so, a month and change ago. And that was a transition from proof of work to proof of stake consensus. So proof of work is, you know, we'll kind of like touch on what these things are. So proof of work is a consensus algorithm that is essentially you have to solve a very complex math problem to basically prove that everything is correct in the block. And once you solve that problem, then you get the reward and that block gets added to the change added to the chain. And proof of stake works a bit differently. So they're no longer miners. They're now just validators. And this changes a couple things. One of the most important takeaways here is we now have like 12 rigid 12.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  11. “And I guess it's all about supply and demand. The reason that stablecoin yields are so low is because everyone wants safety and no one wants to borrow. So that's the demand for the asset, but demand to borrow is very low because no one wants to borrow to buy Bitcoin or far fewer, right? So there's no pressure driving rates upward.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  12. “Right, and just to kind of go on that point, if you're going for the least risky way to earn yield on a stable coin in DeFi, that would be depositing your asset into a lending protocol pretty much only Ave or compound, in my opinion, because those are two very well-respected, very established DeFi protocols, and they have a great teams that built them. They were around and have innovated significantly since their inception. And it's definitely not still a non-zero chance that an exploit occurred on these protocols, but it's quite low, right? There's billions of dollars that have been sitting in these smart contracts for years now, and they've yet to experience an exploit. So that would be like your lowest risk way to earn yield. And as Sam said, like, yeah, the stablecoin rates are not great. They've dropped from the past six months. They've fallen from about 2% to 1%. And so, yeah,”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  13. “Yeah, stablecoin yields right now, or somewhere around one and a half percent, so it's just not really worth the risk, especially for professional money managers, even some people who are crypto native funds, like they're better off parking their capital in bonds and not in stablecoin pools. So liquidity just isn't quite as good as it was during the bull market, of course.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  14. “Yeah, there we go. And Dan, just a point about you in a period of risk off, you're going into stablecoins, stablecoins are like bonds in that they are supposed to be safe asset. You mentioned that deep hagging risk and that deep hagging risk can be quite extreme. But if the stable coin is backed by something and it maintains its peg, you're getting 2%. You're getting 3% and you're not taking that sort of like mark-to-market risk. So that's just a parallel that in traditional finance, when stocks sell off, almost all the time bonds do well because there's a bid to safety. That's why this year has been different because of inflation. So you're saying now, Sam, 10 year yields higher than the stablecoin yield.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  15. “Correct. Yeah. So with all the currency volatility, that was kind of a narrative that if you would have used your macro hat and then also your crypto hat, you probably could have sniffed that one out.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  16. “To Jack, if you don't mind if I butt in. I think two important points to add there too are I think we've lost a lot of institutional like capital just because bond yields are so high right now like it's not really worth taking the smart contract risk, the custody risk to deposit into these stable forms if you're making less than you would on the 10-year. So I think that's really key. And then I also think another key differentiator in a bear market for crypto versus equities, let's say, is there's always a narrative. For example, there's this one perpetuals platform that lets you speculate on Forex and that token has popped off because people are speculating on Forex. If there's something to speculate on in crypto, it will be speculated on. So I think there's always an opportunity to make money. But yeah.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  17. “Six or so percent, and that's like a great way to just kind of be earning Ethereum on Ethereum. So that's kind of where I'm at now currently. I'm adding a little bit more risk. I'm feeling a bit more comfortable with where we are. And, you know, the market's kind of shown us a good run up these past couple days. I think we're up towards the $1,500 range on Ethereum. So yeah, I'm a big fan of trying to always just be earning like passive yield. And for me right now, definitely looking at liquid staking solutions for Ethereum.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  18. “Right, like, you know, when you see something like Dogecoin that does a thousand percent gains, you're like, oh my gosh, like that's where I got to be. And, you know, if you're farming on farming stablecoins on, you know, like protocol like curve in the depths of a bear market, you know, you're kind of sitting around that two to five percent range, but like, you know, I'm pretty comfortable when my assets are there. You know, I'm in like high quality stable coins that I don't really fear about having to go through a DPEG risk or anything of that nature. So that's generally my game plan is to kind of sit and wait. And usually in these stablecoin farms. And then once I think we're kind of heading a little more risk on, then I start buying like the blue chip assets, right? So for me, that's generally Ethereum. And now in the proof of stake post-merge world that we're kind of in right now, the staking reward on staked ETH, so like depositing my Ethereum to help secure the network, that's hovering around like.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  19. “When things are kind of like in this lull, and there's not like these crazy pumps you're seeing, you know, I kind of like, first of all, I'm usually locked into stables and farming on, so when I say farming, that's like, you know, depositing my tokens into liquidity pools and farming the rewards that you get for being an LP and providing your liquidity to those pools. So other traders will use your liquidity to execute trades. And in turn, you generate fee revenue from the transaction fees going through the pool, generally as well as some liquidity incentives. So like the protocol will incentivize you to be in this pool. And so you can do this pretty effectively with stablecoins through the protocol curve. So curve is, you know, it was originally built to facilitate swaps between stablecoins and since expanded to also include like stablecoin pairs alongside like volatile assets like ETH or wrapped Bitcoin. And the returns can be like pretty like they're obviously modest.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  20. “Yeah, it's a great question. And I would kind of echo Sam's remarks. And it's hard to see a world where crypto really in terms of asset prices, like crypto takes off and macro is just like kind of stuck and stalling out and just kind of fighting the uphill battle. So it is definitely something we pay attention to. I'm definitely spending a vast majority of my time kind of like in the weeds and studying tokenomics and things of that nature. So I just kind of like look at macro from like a sentiment gauge. We're like, okay, like are we in an environment that would kind of be favorable to be investing in those high risk assets you mentioned, you know, like the Dogecoins of the world or some of the more Ponzi like investments that exist out there, you know, try to stay away from those for the most part, but there's definitely been some good run-ups that we've seen and some super high risk assets. But in a more of a bear market.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  21. “That are in the space now, and how much those have grown. I think those metrics are even a little bit more skewed compared to previous bull markets or bear markets, sorry. But in general, it's something that we need to pay attention to. And that's actually why I love working at Blockworks so much, because I'm always talking with you, Jack, and Slack or Byron, who writes a newsletter or someone else and trying to like just comprehend as much as I can on this space because I know how important it is to asset prices and the way funds move on chain. But yeah, definitely not my area of expertise. And it's the reason I listen to your podcast every week.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT

  22. “Yeah, I mean, there's no denying how bad macro has been year to date. I mean, the 60-40 portfolio, I'm pretty sure, is off to its worst start in the last 40 years. So crypto is definitely not any different on that front. We definitely suffered drawdowns in line with the macro headlines. I'm honestly surprised, though, that Bitcoin and ETH have been able to hold the levels that they have. We're still hovering above $19,000 on Bitcoin and above $1,300 on ETH. And that's kind of been the floor and where stocks and where bonds have gone has been pretty low. So I'm honestly shocked with how well it's actually held up. In terms of like macro trends that I pay attention to within the crypto space, Bitcoin dominance is often referred to as kind of like a macro metric in our little niche industry. And it still hovering above 42%. And also, if you take into account the amount of stablecoins.”

    2022-10-28 · Forward Guidance · IMPORTANT: Announcing Blockworks’ Latest Podcast, 0xResearch · IDENTIFIED FROM THE TRANSCRIPT