YouSaid · the spoken record

Doug Colkitt

lines on the record: 72
first: 2021-12-14
most recent: 2021-12-14
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Don't know if I point to one particular thing, but my dad was always an entrepreneur growing up, and I think he's always kind of encouraged me to go out and build something, don't necessarily go along a path or, you know, just go along where someone else has built something and don't be afraid to try new stuff, take a risk. So I definitely credit him for a lot of my journey. I don't notice necessarily been better, but it's definitely been a lot of fun.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Right, right. I think you'll see more and more assets live on the blockchain or something similar will live on the blockchain. And if you don't give people some avenue to access those, they'll figure out another avenue and might not necessarily be a great way or riskier, I guess.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“To keep it and why people are kind of getting into all kinds of crazy mechanisms to just get as many stable coins out there as possible and under collateralized things and things that might behave riskier. So the biggest thing in the ecosystem is somehow just getting more stable coins out there. I don't even know maybe that's central bank digital currency, but there's huge demand for it. And I think, right, if that demand stops satisfied, people are going to keep doing riskier and riskier things to generate synthetic stablecoins.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Biggest thing in DeFi that's where the demand exists is there's huge demand for stable coins. At the end of the day, right, people want dollar-backed. People want some sort of something that behaves like a crypto asset, very easy to transfer, very easy to hold, right? You can secure in a wall, but is pegged to one US dollar, right? Isn't going to fluctuate up and down, especially middle-income countries, right? People want dollar assets in Brazil or Turkey or Nigeria, right? don't necessarily have access to the dollar banking system. So some of the more wild DeFi protocols basically exist to kind of fill this demand for stablecoin. They're custodial state coins like Tether or USDC, right, where somebody is depositing money in a bank account and they issue a coin that backs it, but then there's also this concept of like algorithmic stable coins. And we have Dai, which is you deposit over collateralized and you deposit more whatever collateral and then you get back a dollar back to stable coin. There's a mechanism.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Or whatever you put in, you don't exactly care about the precise, you want to get a good fill, but exact details don't matter. So I think of them both as like strategies where people who invest a lot in very, very high precision of how their trades or their transactions are executed earn these outsized profits. One of the problems I think in terms of why kind of so much MEV exists in the first place is people come up with all kinds of crazy algorithms to prevent it, but to be honest, the user experience hasn't been great in preventing it. It's fairly easy for a lot of these DEXs to prevent people from getting front run or getting attacked, especially the type of MEV where they're losing value, but they're not really built into the front end or the application level, the interface level of the system. So I think a lot of the way to fix it is build better systems on the front end is stop users from making bad decisions that can be exploited in the first place.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Gas cost thing first, and then if there's a tie, we include whatever we see first, how I got into it where, okay, I'm a trader and I can put out a trade and I know the miner will include it a certain way and then I can get a profit advantage. And, you know, that might be something, okay, a big trade's coming in and I want to trade in front of that. Someone's going to buy a ton of Bitcoin, right? Obviously, I want to trade at the lower price before he pushes the price up. Or it might also be something like, oh, the price is going to dislocate on this one DEX. So I know, okay, this guy's going to push up the price at this DEX and the other dex is going to have a cheap price. So let me go buy a DEX B and sell it Dex A and kind of lock in a risk-free profit. So there are a number of strategies, but it's the idea of if I'm very good at getting my trade in in the right way, then that's a profit opportunity. That actually, it ties in pretty nicely with HFT. HFTs are really specializing in, oh, I got to be very fast, execute with very, very high precision. And when we think of if you go to Robin.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“There's a blockchain, right? And traditionally in the network, I created a transaction, propagate that transaction now to everyone in the network. And then miners or validators are actually building the chain, building the blocks on the chain. And they kind of have leeway to decide how do I want to construct the next blocks. And traditionally, when you think back, okay, this is like Bitcoin. I'm sending money from Doug to Patrick. And that doesn't necessarily matter too much. if the next transfer is reinserted but with d5 right we started building more complex systems where minor changes in the order of how transactions are included in the history have huge effects on the profit or trading strategies or anything else so it's funny MEV actually stands for minor extractive wealth value the miners themselves weren't actually participating in it for a while as basically traders who would they know the miners are kind of very predictable all wheels include the highest”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“NASDAQ, there's this whole system in the US called Reg NMS, where kind of already this exists where, okay, if there's a better quote at NISE and NASDAQ's trading it than Nasdaq has to route your quote to NISE and that kind of makes sure everyone gets like the best quote available. There's no reason, right? You can't have a DeFi exchange that's also eligible for protected quote status talking about the future”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's very transparent over time. This is how much you're earning, this is how much finance is giving you. This is whether finance is pushing you over or not. Binance knows, okay, we can access that liquidity in a permissioned way so we can show those quotes on the finance exchange. So if somebody wants to trade, they don't necessarily have to go to Crocswap. They don't even necessarily have to have their own wallet. They can go to Binance and then access that liquidity and then Binance transparently accesses that liquidity on the back end. So cool thing about DeFi is people call it Lego blocks for money. So it's very composable and I think that's kind of been one of the biggest advantages of the ecosystem is people focused how do we compose systems rather than one system trying to take over, exclude everything else. So I think the centralized exchanges will find that the technology for them to interface into kind of those liquidity pools on different ways will keep expanding. And I mean, it'll be an opportunity for those that are open to it.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Don't think necessarily they have to survive or diet. I think you're going to start seeing a lot more technology where DeFi markets can integrate on centralized markets. So another thing I didn't, we didn't talk about what the CROC swap is. We have technology in place where we can create sponsored pools where it would be some pool that can be created with arbitrary permissions to use the pool, but we'll always have the permissionless pools, but we can also create theoretically sponsored pools where, okay, some let's say Binance comes in, right? And Binance says we want to access DeFi liquidity, but obviously that's kind of hard to do in the current context because they can put out in a quote, but they can go to trade against Uniswap and the price might move, right? But CrucSwap has concept of sponsored pools where Binance can create a Binance pool subject to the approve all of the Cruxwap token holders and they can say, okay, if you want to provide liquidity in the Binance pool, you can do that. And because it's on the block.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Minute market and run the Borsa Istanbul and deal with all the headaches there? Does it make sense? Let's just tokenize our assets and access global capital markets. So one thing I think blockchains are like any technology you can look back, but the scalability doubles, I don't know, 12 months, 18 months, 24 months. The scalability keeps a lot like Moore's law that way every computer capacity keeps doubling. A few months bandwidth, stuff like that often seems like a toy, like at the beginning there's like a stupid little toy. We can't run anything with that kind of exponential improvement. It's not very long until it starts replacing legacy systems.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Be honest, I think right now it's obviously just crypto assets. We're talking about Bitcoin, Ethereum, but to be honest, I think five, ten years, there's going to start being real assets start trading on DeFi. And there's no reason to stop, right? There's no reason a stock can't tokenize or at least a portion of its stock and make that into a Tesla. There's no reason we can have a Tesla token that could trade on Croc swap the same as any other token. I think it has a number of advantages. The most basic one is just being it's globally integrated. Anyone who has a blockchain can access it. There's not barriers across the globe. So it makes it very easy to access global capital markets. So, you know, I think of something like Turkey, right? If I told you, oh, this stock in Turkey is like really hot. Everyone I know there says like, oh, it's going to explode. Would you go to Turkey and open a brokerage account? No, you never do that. You never do that in a million years. So especially like for middle-income countries like that, kind of assets that are out of the way hard to access, does it necessarily make sense for them to have their own set?”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Because there are a lot of specialized traders who are doing, they might use a lot of leverage, but it's not that risky because they're shorting one asset and going long another asset, but they're very correlated. They might be using a lot of capital to bring those two things back in line, but they not taking that much risk, so it makes sense to the market to enable them to lever up those positions and increase efficiency that way.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Way I see the single contract decks this is the beginning, but I see it as a foundation for improving the technology over time. It really unlocks a lot of things, a lot of potential that is a lot harder to do in kind of the older architecture. For example, once you have a single contract dex, all the collateral in the exchanges at a single point. So one thing that DeFi has not caught up to on the centralized exchanges is trading on margin, trading with leverage, perpetuals. And I think there's obviously the centralized exchanges have shown there's huge demand to trade with margin. That's kind of hard to do in a DeFi context, largely because the capital is all over the place and 10,000 different contracts. But once you have a single contract decks, all the capital is at a single place. So I think it becomes a lot easier to kind of add that technology on top and margin people. And more importantly, cross margin people between markets. And that becomes pretty critical for price efficiency.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think the token is definitely the right model. Market's a network, the value of a network scales with the size of a network. So let's say like something like Facebook, why is Facebook wall? It has good technology, but it's valuable because I go to Facebook. All my friends are on Facebook. So going back, how much value did the first participants in Facebook add to that company? Well, probably pretty substantial when you think about it because the fact is they got them from zero to 10,000 a million whatever. That's a huge increase. So I think native token rewards for your early users kind of align incentives because they are building that network. And I think that's the right approach to take.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's been a problem in terms of just because it's so expensive to move once you put these orders in, it's so expensive to move them around that people have had a pretty bad user experience and no one's using it in the act of price discovery way that I think people were originally hoping that they wouldn't. I think this kind of reduces those frictions on them.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Everybody's really a customer. One of the things about building a market is an ecosystem, right? And you can't just say, oh, I'm only going to deliver on this part of the ecosystem because am I going to do institutions? Am I going to do retail trading? Well, the reality is if you only have retail trading, you're not going to have any liquidity because retail people aren't great at providing liquidity if you don't have institutions. two trading firms don't want to trade against each other all day. They want to trade against retail. So you really need both sides of it. I do think there will be a pretty substantial change in behavior. One of the problems with Univ3 is that people aren't moving these positions around. And what happens is the positions go out of range and then they forget about and a week later and actually that people think about, oh, okay, the position's out of range, I can just forget about a book. Well, really, you can't because you're still exposed to that toxicity effect we talked about before, right? If I put in a limit order, even if it's a way, right, market moves through me, I can get filled in the wrong direction.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“For the trader side, in terms of the gas cost 10 to 20 percent lower, and actually we can get up to 25% lower fees on that, a lot of because with a single contract deck is also the cool thing you can do is you can hold your collateral directly.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“The limits of Ethereum engineering. So used a number of trips from there. And even actually, in general, in high frequency trading. So one thing that employed on CrocSwap is this concept of the hot path and the cold path, and that actually comes from high frequency trading because when you're engineering things to be very low latency, you want to think very carefully about, okay, this is what I do 99% of the time. If I can make this 10% faster at the cost of making the 1% case two times slower, that's a great trade-off to make. So I think you kind of just have to understand the entire stack from bottom to top to know what are the trade-offs I can make and whether these trade-offs are worth it or not.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot of pain and suffering, basically in engineering, to get it there. Ethereum basically imposes a limit on how big any single contract can be. And that's to keep the blockchain healthy. There's all kinds of reasons. You can talk about, but long story short, Ethereum imposes kind of this limit on a smart contract is basically a program that exists on the blockchain. So you can't make the program, you can't make the smart contract bigger than this size. So it says like 24 kilobytes. So I always want to say there's a story like the original developers Super Mario on the original Nintendo and they were like trying to fit all their code in and actually some of the level code apparently was also program code. So they're trying to make their program code also like appear as like blocks or turtles or whatever. But I always want to say I want to find those guys and hire them because I'm sure they'd be great Ethereum developers. Just a lot of engineering. That's where it's kind of going back when I was doing MEV trading because that's obviously you kind of compete on gas usage there and you're kind of trying to push.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“You were holding Ethan your investment account somewhere else, you have to realize the profit on that if you're using Burst in FIFO accounting. So that creates all of these deleterious tax effects and has more institutions get into it, that's obviously going to be a bigger issue. So in terms of avoiding frictions on that side is also undervalued.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Every time you do any of these transactions, another example is talking about the food provider stuff, but let's even just say, you're going on that side, right? Every time you do one of those things, that creates a tax full event because technically the tokens go from the pool back to you and then back to another pool and you technically have to realize that creates taxable event and then that potentially creates all kinds of downstream tax effects if you were holding the token somewhere else. Another example I always use is oftentimes when you're trading from say X to Y, there's not pool between X and Y. There's usually a pool between X and ETH and ETH and Y. So in anything, you may say, okay, trade token X, give me ETH, I'll send the ETH back, and then give me token Y. Okay, but now you're receiving ETH from the pool, which has nothing to do with your trade. You just want to convert X to Y. I'm sending ETH back. You have a taxable event and ETH because there's an up and down transfer to your address.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“The spread, widen the spread. You do that a hundred times a second. That's a very heavyweight operation for something that should be a lightweight operation. With a single contract X, you don't need to do that because pools themselves live on the same contract. So there's still internal data structures that track those pools, but luckily the single contract dex can just say, okay, this is how much net out of the position. So you can execute this long string arbitrarily long string of actions and net out the positions at the end that significantly lowers the frictions to kind of that active liquidity provided.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“To do it, there's all kinds of frictions that exist at kind of this act of liquidity provider, CruxWap is basically taking those frictions away from a number of different angles. But first and foremost, go into this idea of a single contract dex, I think is very important because taking a step back, as far as I know, every DEX, every pool is a different smart contract. The problem with that is if I want to move anything from and say going back to the example, I want to move from the Bitcoin ETH but instead of being at 0.3% fee tier, I want to be at 0.05% feed. To change my quote, I actually have to take my liquidity out of the higher pool, burn my position, take it out, all those tokens come back to me. That constitutes a lot of gas cost to transfer those tokens. Then I have to go and transfer those tokens to the other pool, and I'm paying a bunch of gas to move there, right? And high frequency world, that'd just be very simple.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“So that's incongruous with High Gas fees. So, one thing we're trying to build Cruc swap is to make it much easier for what a high frequency trader would look when they're polling something like this. And you might look at, okay, I do want to put in a range order. I do have some view on the price. But I want to be able to change that pretty quickly. And so I need to be able to change the price and also maybe I need to be able to change my fee tier. And that's almost like widening the spread or narrowing the spread because when you look at the pools have different fee tiers, you might say, okay, I want the lowest fee tier when I think the price isn't going to move a bunch because I'm just going to be collecting a bunch, but I want a higher fee tier because I want to get paid more because I think the price might move a lot more in the next 30 minutes or whatever. So I need to be compensated more for my liquidity. High frequency trader would be looking at something like this and saying, how can I make this active? How can I move things around a lot? And unfortunately, the current DEX is either don't support concentrated liquidity, or if they do and you try to...”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, exactly. It's like a database. And to do action on the database, like same as AWS, you pay to take action. So as demand for Ethereum has gone up, unfortunately, the gas fees have gone up and people are working on scaling solutions, but they're never going to be free. It's always going to cost money to take any action. One of the issues with concentrated liquidity is the gas fees, unfortunately, have been pretty high. And I think that's kind of hurt this idea of active price discovery. AMMs have kind of worked in this very high-cost gas environment because you put in your liquidity, you set it, you forget it, you come back a year later, and maybe the gas fees aren't too bad because you're only doing it once, right? But let's think of like what a high frequency trader looks like in a traditional market. Literally, you might cancel 99% of your orders. So that means to do one trade, I have to do 100 different actions, 100 different transactions, if something looks like that. I have to do 100 different transactions on the blockchain if I want like something that really looks like I frequently.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“You and I have actually not technically turned on their protocol fee yet that's built into the code and they won't turn it on, but they technically haven't turned it on yet. So you go back, there's a 0.3% pull. So let's say you come in as a trader and you want to convert to make the math simple. One eth equals one Bitcoin. So here's 100 ETH. Give me my Bitcoin and I'll pay the fee on Bitcoin. So you put in 100 ETH, you get 100 Bitcoin back, but you're going to also pay a fee in Bitcoin. So really you get 99.7 Bitcoin back. So the pool keeps 0.3% 0.3 Bitcoin for itself. So of that, some fraction goes to the liquidity providers in the pool. So usually one sixth is the take rate. Bitcoin will go to reward the people in the pool and 0.05 Bitcoin will go to quote unquote protocol fees. And those protocol fees are basically profits for the unique stakeholders. And then that will accumulate to a treasury.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“These pools actually give you the option I can pay in Ethereum or I can pay in Bitcoin so the pools will accumulate rewards on both sides depending how the traders. That might also be a different thing, right? It would almost be like if you were trading Microsoft on Nasdaq and Nasdaq you obviously pay your fees in dollars but it'd almost be like if I could pay my fees in Microsoft shares, trade a million Microsoft shares I pay my here's five Microsoft shares so you can accumulate rewards on both sides of the pairs and then every liquidity mining program is different, but it will say something if you were providing liquidity over this period you'll get X number of Uniswap tokens for every X units of liquidity you provide it forever long and then you just multiply that out and they say okay you put in here you took out here we also owe you these number of Uniswap tokens for contributing to the pool”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Providing capital in that pool, and then that pool is collecting the trading fees, it depends, the old V2 is slightly different than the V3. But basically there's a pot of trading fees that accumulate over time. And then the mechanism will say, okay, you entered the pool, whatever today, and you exited it a week later. And this was like the accumulative rewards rate. When you started, and this was the accumulated rewards rate, when you end it, so here's the net rewards over the time that you were active. And so here's your pro routed share from contributing that.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Almost be like if I was a market maker at Nasdaq and every day I made a market Nasdaq gave me X number of Nasdaq shares for making the market that day I guess would be the closest analogy another fun example in this space was something called a vampire attack that sushi swap so sushi swap is kind of a competitor to Uniswap and they got very big very quick because they did something called a vampire attack and this was last fall they cloned Uniswap so I said we're the same functionality as Uniswap come use us If you move your liquidity from Uniswap to SushiSwap on this date, you'll get a huge number of sushi swap tokens. And overnight they still almost 50% of Uniswiswap's market share with that scheme. That's actually what Uniswap didn't have a token before then. That's actually kind of what kicked them into high gear and did the airdrops of all kinds of politics there.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“See all the addresses they've used Uniswap they went through before and said, okay, these are all our users up to this date without previously announcing it, all of a sudden everyone of those users had so many Uniswap airdrop tokens in their address when they woke up the next morning. And I think you can look up over 10,000. A lot of money because some of these people are just small traders and then got these big airdrops. So it's kind of a nice benefit for them. So there's airdrops and that's, I think the most classical way. Most protocols, Uniswap did not, but most protocols now do something called liquidity mining rewards. And that's basically where they have a special incentive program where, okay, somebody is staking liquidity or using the protocol somewhere, contributing capital protocol, contributing liquidity. And going back, we were talking about fees. And not only are you receiving fees generated from the exchange itself, but you're also receiving native tokens for providing liquidity.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“When people create these tokens, whatever the original team, the original investors, some are allocated to them so that like any starter, Mark Zuckerberg has a certain percent of Facebook shares or whatever. Generally, Reich's tokens are community. So you don't want to understake how important community is in the DeFi space. People like using protocols that they culturally associate with. Generally, these protocols try to decentralize, which means getting their tokens out to a community of people who really believe in the project and want to be attached to it and have some sense of ownership over it. So talking about Uniswap specifically, the way they got their community-owned tokens out to the market was they did something called an airdrop. So basically they didn't actually have a token up until last fall. But anyone who used Uniswap prior to that or in a certain way, they basically looked up. The nice thing about the blockchain, right? Everything's transparent.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if you're a token and you want to get a lot of liquidity, obviously it helps it curve boost your rewards on top of that. Now there's this whole market where people stripped out voting rights on curve token and they're selling those and then new tokens are buying those to get their tokens supported on curve, but then you're still getting the income on it. So there's all kinds of iterations of that game being played in DeFi world, which is kind of interesting, kind of fun.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“A pool with a 0.05% fee and just the other day they voted on a pool with a 0.01% fee. That was a vote by the token holder. So somebody created a proposal. And then anyone who held Uniswap tokens could vote on the proposal and then it was approved. Now the protocol supports 0.01% fee. So you can also think those are like governance rights in stock. You can vote for board members. Where that gets interesting though is DeFi is takes finance and then does a bunch of crazy stuff on top. Where it gets interesting is sometimes certain cases people have created tokens that strip the voting rights away from the cash flow rights and people will sell those. And Curve is an example of this. So curve will give out.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Native token is almost shares in the company. Just go back, Nasdaq. There's Nasdaq the exchange, but there's also Nasdaq, the stock. The stock itself trades on Nasdaq, the exchange. So same thing, there's Uniswap, the protocol, and then there's Uniswap, the token. Uniswap the token also trades on Uniswap the DEX protocol. So basically these native tokens behave almost the same way that stock and a company would behave. They're almost like equity in the protocol. Number one, they entitle you to revenue generate it by the protocol. Most of them do some on my revenue list, but most of these protocols, a certain percent of the fees generated go to the token owners. And like any other company that's a cash flow, that's a cash flow series discounted cash flow. You can model that. The other thing is they give you governance. A lot of these tokens will have certain parameters that you can change around. For example, Uniswap has different fee cars. So you're allowed to create a pool with a 0.3% fee.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Translating, better communicating, maybe coming up with more of a common language than just, oh, the yield is here, the yield is that, but papering over some of the IL issues, I think this space could improve on a lot.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Guess I preface it that there's probably a huge range when you say that it could be anyone from someone from 500 bucks that they want to earn some money onto multibillion dollar hedge funds and the whole range is actually in the space now for sure. I think most people are probably approaching it as a income yield product and you're thinking, okay, I'm in crypto. I have these assets and I want to generate a yield on them. And most of it's understanding the risk factors to staking and kind of what we talked about before with IL and what are you exposed to and what are your cash flows look like. So I think that's probably the first thing because a lot of people take the simplistic view okay here let me just look at my APYs my yields on like every single pool but some of the pools come with more risk on different sides than other pools so I think ultimately there's going to be better tooling and better frameworks but that's probably a major room for improvement in the space is just kind of”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Actually, run full order books in a DeFi context that will work as well. I'd state Uniswap V3 itself, Uniswap kind of innovated on themselves, so you got to give them a lot of credit for that. What is pretty revolutionary? And Uniswap v3 isn't necessarily an automated market maker anymore because there's a lot more complexity and this concentrated liquidity idea where instead of providing liquidity from zero to infinity, I'm going to pick my price. So I'm going to provide liquidity from 80 cents to $1.20 or whatever, right? And I only have to contribute capital to cover that range. And then theoretically, I'll gain all the fees in that range. But if it goes outside that range, I think people are still trying to figure out that model. I think we have to build better tooling, but I'm pretty bullish on the concentrated liquidity in terms of, I think price discovery is better, and I think ultimately liquidity will be better than the classical AMF for a lot of cases, maybe not necessarily for the less liquid cases, but for a lot of the more liquid cases.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“One dollar putting the full curve on that doesn't really make much sense. So curve use is kind of a different mechanism. So it's much more efficient in terms of you don't need as much capital to support trading. So curve has been very successful in the space. I think they kind of showed that there's ways to iterate on this core idea. Obviously, in the Solana space, it's kind of a different blockchain. So people have innovated there and give them a lot of credit in terms of Solana blockchain itself is a lot higher throughput than Ethereum. So in Solana, you can stand up full limit order books and they actually have full limit order books running on that blockchain. But the problem is you're not interfacing with Ethereum where maybe 90, 95% of the organic user activity is. But I think they innovated a lot in showing, hey, you can.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Exactly, because traditionally you came up with a token, right? You have to get listed by Coinbase or Binance or whatever. And until you do, you actually have very little liquidity and it's hard to buy it. It's hard to sell it. So I was kind of revolutionary in the sense that Uniswap did and this whole space did is permissionless. So you don't have to go to Uniswap and get approved to list your token. You can just go create your own pool. You just interact with the protocol and nobody's going to stop you. So I think that was pretty revolutionary and drove a lot of growth. And then in 2020, the space kind of starts exploding number of protocols that came along. But one of the big ones is curve and going back to it. They were, I think, the first people to tackle this capital inefficiency problem. And curve very narrowly focuses on, I won't say narrow, but this is obviously a huge segment of the market. They focus on pairs where the price is stable. So like, for example, you have USDT and USDC, which are both pegged.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“After Vitalik threw out the idea, the first AMM was Uniswap, Hayden Adams from Uniswap. I think the legend is he kind of read that blog post today. Let me just put that together. And then Uniswap was born. It's really hard to overstate the growth rate in this category. So even like a year ago, the whole space has grown probably more than 1,000% just the past year. So going back to like the beginning of 2020, this was a very, very niche field. So you had a lot of different protocols, but to be honest, right, it wasn't a huge amount of volume. So have Uniswap and they pioneered and a lot of people said, ah, this will never work. Nobody will use it. And they kind of showed, yeah, actually people will use it. There's actually a lot of demand, especially what we talked about, that long tail of”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“LPs are betting that the price won't deviate too much between the two because the LPs are sitting there and as long as the price, some people call it what I described before, how you can move and then you're always kind of moving on the wrong side. Some people call that impermanent loss because in an AMM context, as long as the price comes back to the original price, you won't lose anything. And some people think maybe that's not a great marketing term because maybe it hides the fact that, yeah, you could lose out on that if it doesn't move back. We'll call it impermanent loss or IL. In some sense, if I'm a liquidity provider in AMM, I'm short IL. I'm betting that the price isn't going to deviate too much or the ratio between these assets. So Bitcoin won't deviate too much from Ethereum in terms of the ratio of their price. So being an IL is kind of expressing a view in that sense. I think this price is stable. I'm betting on it being stable, at least relative to how many other people are betting on.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, that's definitely a component of it because obviously if I'm trading Bitcoin to get Ethereum rate, there has to be Ethereum there for me to get. Part of what you're getting compensated for is exactly what you said. I have this. I'm providing it to people. It's inventory to people who are willing to get it. But I don't want to overlook the price discovery impact here because if you go to market, most of the trades, crypto markets or traditional markets, most of the trading at any given time isn't trading because people actually need that asset. We could look at the CME people trading oil. Most of those people trading oil futures are not actually going to be taking delivery of oil in 30 days. They're there basically to express a view on the price. Crypto markets, you can kind of see these perpetuals, which are kind of analogous to futures have taken over a lot of the market share. And there's no delivery there. There's no way to express view on the price. So the other way to think about it, I think, is that the”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Buying Bitcoin out of the pool, putting Ether into the pool so the pools always rebalancing in the wrong direction. So people have kind of worked out the math with this, but the function instead of having a linear exposure to the underlying assets, it's a square root exposure. So the price of Bitcoin quadruples, right, you might only get 2x that return. But in exchange, you're getting this yield on your capital in the pool.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, you can think of one as doing on your behalf. It would probably be easier conceptual way is that you contribute to the pool and then you have some pro radish share of the pool. And then that pool is going to accumulate. Like you mentioned, I actually forgot to mention the original example, right? The AMMs charge a fixed, usually a fixed percent. So they have some fee. So when someone comes into trade, they get that, but they also pay a percentage fee on top of that. That might be somewhere. Let's just say 0.1%. So you also pay a fee to trade. That's exactly what you're alluding to, right? You earn a yield because as a contributor of capital to that pool, you receive your pro ratish share of the fees that the pool generates. Now, on the other side, it's the same problem a traditional market maker faces. You're always trading in the direction that people don't want to trade on. Going back to that Bitcoin ether thing, if the price of Bitcoin is rising relative to Ether, that means traders are going to be coming in.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Very classical AMM, and this was actually Vitalik, the founder of Ethereum. He just kind of made a blog post and came up with this whole mechanism, just brilliant guy. Okay, here's just the mechanism. Someone go build it. And then they did and was successful. So the mechanics are classical system, very simple. It's what's called a constant product curve. It's a pair. So, you know, let's just think euros and dollars. So they grow, okay, Microsoft trades, but really Microsoft trades is a pair against dollars. So sometimes it's easier to think in terms of”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Is pretty useful in certain cases and something to be thought of, and maybe the problem with limit order books is they kind of lock out somebody who just wants to come and say, I want to provide liquidity. I'm willing to buy when people want to sell. I'm willing to sell when people want to buy, but I don't have $10 million to go set up a trading firm in Chicago. I want to put $10,000 instead. And maybe I don't want 30 sharp returns, but maybe one sharp returns to do that, right? Because I'm willing to step in. So there's really no kind of on-ramp for somebody who wants to do something like that. Even in very liquid markets, you can see this because the problems we have with modern systems is flash crashes where things work very, very well until going back all these HFT firms, they don't hold huge inventory. So when they get completely filled in one direction, there's no quotes left and nobody's invested in the infrastructure to automatically. So there are huge profit opportunities, but nobody's stepping in and putting prices back in line just because.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Less liquid, longer tail of assets. So we were talking about HFT firms, and it's very high touch operation. So you look at the stock market today, most of the volumes in, the very, very biggest names and small caps are very thinly traded just because nobody wants to deal with the headache of running a strategy in some name that might only trade like a few times a day. It's just too much to kind of maintain. The limit order book there, maintain all your quotes, adjust them. So one of the nice things about AMZ, it made it very automatic. So you don't have to have professional liquidity providers. People can kind of just put their money in. And there's this mechanism that automatically balances things and fourth things that might only trade a couple times a day. I think it's been a very successful mechanism. Now, I think limit order books are still better for things that are liquid, but there's kind of a lesson there where liquidity that isn't professional democratic access to liquidity provided.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“A lot less. It's always a lot more expensive to trade. Prices move, so people debated 24 7 markets or not. In terms of the limit order book, I think it's been a very successful technology and it's been very good before it, just her context, it used to be this dealer system. You call up some guy at Nisey and he has the whole thing just on his book or whatever. It depends on the market. But it wasn't very transparent and I think there was a lot of opportunities for not necessarily shenanigans, but people didn't necessarily see what was going on. One of the biggest advances of the limit order book is very transparent. Here are all the orders. Everyone can see them. If you put it in, you'll get matched against in this priority. We define it ahead of time. And obviously it's a very elegant technology. It matches people in real time. It's easily solvable. The biggest challenge to it today is going back to these automated market maker systems and they're not perfect. But one thing they've done very, very well on is”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source
“Liquidity is important because I have some security and I want to go to sell it going back to it. If I want to sell it to you, right? And there's not agreed upon price. It's pretty hard for us to do that deal if there's no kind of market because you don't know, okay, what does this guy know that I don't know what's like a normal size? Is this like a weird trade? If somebody calls you at 2 p.m. and wants to sell you million shares at Microsoft, you say, okay, somebody calls you at 2 in the morning and wants to sell you a million shares of Microsoft. You say, okay, I don't know. That seems kind of sketchy. I don't know if I want to be on the other side of that function because there is no market open and kind of doing something weird. Liquidity is important, right? Because it kind of generates this continuous price over time. And even if you're not using it, it's important to have it so that like anyone can just look at the market and say, okay, this is the fair price. There's kind of this ongoing price discovery that happens. When that breaks, that's kind of a hard thing to restore, which is actually you look at the markets in the morning when they open, liquidity is always.”
2021-12-14 · Invest Like the Best · Doug Colkitt - The Evolution of Markets - [Invest Like the Best, EP. 255] · IDENTIFIED FROM THE TRANSCRIPT · source