The Easy Money Era of Crypto is Over: Alexander Cutler, Cofounder, Aerodrome

[00:00:00]Hey guys, welcome back.

[00:00:01]To today's episode of Rock Labs. I'm your host DJ Naughty C. Off late, one of the biggest and most controversial discussions is around fundamentals of a token.

[00:00:13]Do they really accrue any value? Is it all memetics that drives attention and attention leads to liquidity? And liquidity leads to prices. Like that's one camp. And there is another camp which is now quoting projects like hyperliquid. You know, quoting projects like AERO and and talking about how fundamentals are extremely important for a project. And more and more more and more they're looking to evaluate these projects just like you would evaluate a real world company in the first place.

[00:00:48]So, the genesis really for this show today came from Alexander. And he essentially, you know, identifies net token value flows as a critical framework to evaluate tokens, right? It's built on the same thesis that yes, tokens are have value and tokens that have do capture that financial upside from strong foundational economics, meaning they have a business which is working.

[00:01:21]That business generates revenues. And net of all payments to outsider in any way, shape or form, you know, we capture it with token emissions. What goes net is what what a token holder actually benefits from. So, that's that was the premise for today's episode. But, you know, there there is this drama drama around this thought because the first thing and you know, I've been around in the industry now for almost like five years. I've seen many tokens come and go. And one question remains, right? And I I just went to Google. I asked Gemini, right? Okay, so do token holders even have any legal rights to claim the underlying, you know, value?

[00:02:03]And so the challenge here is there is no legal or regulatory framework today, unlike the equity markets, right? We have like a 100-year history of stock markets. We know how they are also driven by fundamentals. While yes, you know, the the technical sides of side of things, the market euphoria obviously exists on stocks. But there is a whole class of investors, you know, led by Warren Buffett Buffett and Charlie Munger, who only invested in companies for the last 70 years fundamentally driven by their cash flows, right?

[00:02:38]And so when you contrast those an equity against a token, today the legal reality is that almost no token, with the exception of a few primitives that are now emerging, and we'll talk about that later in the show, present no legal ownership, right? They offer no contractual rights or any binding contracts in terms of distribution, right? The the project owner or the protocol DAO can decide not to issue any distributions, right? And there is no recourse because there is no legal framework existing. Yes, clarity is on the way, but it's on the way, it's not a reality today. And even after clarity is live live, we yet to see how it's implemented, what would be the rules and frameworks around which it operates.

[00:03:27]Then there is the question of, you know, global access of tokens versus geo-locked access to certain stakeholders, and that kind of breaks decentralization and permissionless qualities of blockchains as well. So there's a lot of like areas which are tough to make sense of right now. Now another thing is do our fundamentals really driving the driving force of what's happening in the markets today. So, what I did was I looked at the top 10 tokens which are listed on this net token value flows. You know, you have GMX, Cake, and a and a bunch of others. I looked at the last 30 days if I'm not wrong, and you will see a bunch of different names. And what I did was I merely just pull out pulled out their charts on TradingView. And you can already see that almost all of them are perpetually down. So, you know, you talk about GMX, perpetually down.

[00:04:26]LINK, one of the strongest projects in the space, perpetually down, right?

[00:04:30]PUMP, one of the strongest value accrual tokens things in the space, and despite that, perpetually down. Same is the case with Cake, UNI, JUP, many others. And the only exception here is Hyperliquid, which doesn't even rate that high on the on the podium. You can see it's on number five, yet it dominates it comes to real world market return. So, one could argue that at least for now, the reality is that token things, even if they are strong, particularly doesn't lead to strong market performance today.

[00:05:04]And my thinking here is it's because everything is tied to Bitcoin, and as and because Bitcoin right now is a is in a secular bear market. Until that reverses, no matter how good a project is, it's going to dump. It's similar to how things happen in equities as well, which is why, you know, investors like Warren Buffett today are hoarding cash, waiting for that moment when they have an opportunity to again come in with size and build out their positions. So, that's the thesis, that's the you know, background behind today's conversation. And to take this further, I have with me the creator of the net token value flows dashboard himself, and that's Alexander. So, hi Alex, and welcome to the show.

[00:05:52]>> Good morning. Good to be here.

[00:05:54]>> Thank you for listening to me patiently.

[00:05:57]But Alex, I want to start start at the very top, right? I ended with the actually, you know, what's the precursor to the whole dashboard, which is the foundational existence of a token right now is in a is in a question mark in the sense that why do I as an investor hold a token?

[00:06:14]Because there is no legal recourse, right? Clearly, it's on you and your quality as a founder, meaning not you, anybody who's running a protocol, who is deciding whether or not I get the distributions, the buybacks, the burns.

[00:06:26]Um it's it's it's all fishy right now, and we are now in the 15th year of blockchains or 16th year, something like that, and we yet to figure this out. So, I'm curious to hear your thoughts on that.

[00:06:38]>> Yeah, I mean, I would take it even a step back further, right? And And what I would say is >> [clears throat] >> let's think about what tokens are for.

[00:06:50]Um and I think our point of view is that tokens are the single biggest revolution to coordination like since the very invention of the firm, right? This is an unbelievable technology that allows you to or that at least has the capability to align incentives across stakeholder groups all over the world um around, you know, different purposes, incentivize certain behaviors. So, it is it is unbelievable, you know, just like the firm brought together all these various stakeholder groups in order to create um you know, these incredible businesses and and things like that. Um but has the token been used that way? Uh no, it is not. Again, I don't think it's remotely controversial to say it. So, what have tokens been uh used for?

[00:07:43]Um I think it is increasingly clear that the primary use of tokens has not been as a uh you know, revolutionary coordination tool. It has been a value extraction tool, right?

[00:07:58]Um because if you look at, you know, like 90% at least as of like late last year, 90% of the top 100 tokens did not return any value whatsoever to token holders.

[00:08:11]Um but does that mean that they uh returned any value? Well, no, because they were primarily uh value extraction vehicles for teams and insiders, right? To come in um ask a bunch of people to to buy their token, invest in their token, and things like that. While they sold their token, right? It was they had team unlocks, they had investor unlocks. And so, like that is the kind of motivation behind the dashboard, right? Is that um uh tokens have pretty much throughout their entire lifetime been infinite ratios of teams taking value out of it because every value every dollar, you know, you sell is sort of an extraction moment.

[00:09:01]You are as a token holder subsidizing something. Um and uh that should at least be contrasted against the value that flows back to the token. Um and you know, I don't think that this is like meant to be the comprehensive view, right? There are many other things that you can look at, right? To understand the value of a particular token or project or things like that, but I think that this is a critical one because again, as we said, if you scroll down, it's like, you know, most of the tokens are infinitely um taking value out while adding no value back, right? And that is something that uh has made a lot of people very, very rich at the expense of people um you know, who who supported them. And um you know, there are still far too many cases of tokens that I think uh look like this. And there are projects long dead, you know, with with uh team members who bought mansions and sports cars because the ratio was infinitely value to them and uh infinitely value out from anybody supporting it.

[00:10:21]>> Mhm. And um you know, you you speak about tokens as value extraction primitives and yet we have we have a signal from you and your team um on certain projects that are actually trying to, you know, try at least try to return that value back. So, uh walk us through, like is this like do I use this as a signal as an investor? Like, okay, hey, uh what in in this whole universe of um you know, pump and dump mania tokens, there are actually hidden gems that you can find. Is that the angle or is this to a first step at mhm you know, trying to build legitimacy for crypto for the outside world because, you know, retail burned their hands so many times, especially after the meme mania and Solana last year. And now we have unfortunately seeing that repeat again in the for the last couple of days on Robinhood as well. I'm curious, like what's the intention behind building this?

[00:11:22]>> Yeah, um you know, I would say I do think that uh you know, in this new emergent industry, we do need better tools, right? For evaluating tokens. And um I think this is a an attempt to give token holders a very, very simple view, right? Um through the lens of just the token. What is the token's direct claim on the value that the protocol creates, right? So, that could be fees that are redistributed to token holders, that could be buybacks, it could be burns, but it is literally the direct claim, right? And as you said, uh tokens don't have these sort of legal recourses, um and things like that. So, the only thing you can actually evaluate them on on chain is the direct claim. Like, what has been passed through back to the token. Um and then on the other side of it, uh you have token emissions. And token emissions are just uh fundamentally the full cost that a token holder would subsidize, right? And that could be through inflation, unlocks, you know, like on-chain rewards and things like that. It's like new tokens entering circulation.

[00:12:39]And when you take those two things together, I think you get a much better idea than the types of uh statistics I think projects have used for a long time to sell their tokens. Statistics that had actually no relationship back to the actual token. That would be everything from TVL, from fees to uh you know, like uh borrowing rates or things like that.

[00:13:05]Because um those were totally disconnected from from the token. And to your point, right? Um people would say things like, "Well, some of those fees are going to a treasury that I as a token holder have a DAO governance, you know, over."

[00:13:23]Um that has almost never actually been.

[00:13:28]Um a recourse thing, right? Like think about what it would mean if a if a project team um uh you know, took all of that revenue, gave it to themselves, and and bought mansions. Your only recourse would be to hope that you could find them and their names and their identities and that they would be in a jurisdiction and you could pay enough lawyers to go find them and maybe sue them and then win that case and like get that that sort of value out. So, I don't think that is real like value back to the token holder um in any sort of meaningful way. And so, yeah, I think this is just one of many ways in which you can look at tokens.

[00:14:12]>> But >> um evaluate them and and the the you know, you know, that is complemented by other things, but it's a good check on if you ever see a post that says project did a billion dollars in fees, you go, well, where did those fees go? Should that should that matter to me at all?

[00:14:30]And in most cases, the answer will be no, it shouldn't.

[00:14:33]>> Yeah. You know, one of the things I was reading through the comment section of that post. And I think somebody mentioned that what's the difference like why would you not include um you you specifically exclude tokens which are locked in the VEE arrow game, right? And so, that's kind of out of circulation. And hype does I think hype's calculation is also kind of similar, but those are not burned tokens, right? So, technically, they're not out of the game.

[00:15:02]So, do you think like a more fairer cleaner evaluation would be um like net token burns, like stuff that's locked will eventually find its way back into the system. So, I'm just curious what was your thought process around that? Is it more >> Oh, and to To yeah, these this this view of things does not include it does not remove like net tokens or like block tokens, right? I think what what probably somebody was saying is like I think there are ways like for instance if you are a user of of our token, right? And our token basically represents 100% claim on the protocol's revenue. Now if you are a liquid token holder, you probably care more about tokens that enter circulation. Um and that means if those tokens are being removed from circulation via a burn or via a four-year actual lock or something like that, then you don't need to really worry about them. And so that the claim value can go way up higher than you know the number of new tokens entering circulation. But this is actually completely agnostic of that. This is just saying value in, value out. It's not accounting for tokens that are like being locked or staked or or anything like that exactly because of the complexities that that introduces. Like those are I think interesting additional deep cuts in that you can look at, but just to keep things as consistent as possible within this dashboard. It should just be as you know how much is this token been worth in terms of the claim versus how much you know emissions have I had to eat.

[00:16:48]>> Okay.

[00:16:50]Um another question and I think this is a good segue as well because a new primitive that is coming out Alec these days is uh um equity back tokens or equity linked tokens in some way shape or form. So these are you know pump gate is a good example. I think they did it recently where a part of your supply is swapped at some ratio predetermined ratio for the underlying equity. So it is clear to me that not all projects who are operating on-chain businesses are looking at pure token things. We saw what happened with BBB recently when they raised their 65 million round and then there was so much ruckus around, hey, you've broken the promise to token holders and you've diluted them, blah, blah, blah.

[00:17:31]Yeah. I'm cu- curious now that you know, despite like great teams trying to build strong token things, it's very clear to me that as soon as that it's it it does not have like industry-wide acknowledgement in the sense that this is the standard way of doing things. Partly because maybe tokens don't have legal clarity.

[00:17:55]I guess and so no matter how how well you structure an on chain distribution mechanism and have a clear cut um you know, token net flow, um you still have folks who are interested in those new primitives. So, I'm curious your thoughts on equity versus token debate versus having you know, pump gate style setups versus pure token sync models like Arrow, Hive and others.

[00:18:22]>> Yeah.

[00:18:23]>> [clears throat] >> I mean, it's a really good question and you know, I've been kind of following this debate for for quite some time. I mean, I would take it back to um tokens, smart contracts, blockchain [clears throat] technology, this should allow us to build things that cannot be built through traditional systems.

[00:18:50]Um it should allow us to like invent, you know, these radically efficient on chain firms completely free of intermediaries um without needing to like recreate the same wheel that exists in traditional businesses and traditional firms.

[00:19:09]Um Now, our approach has been to orient everything around the token from day one, right? Uh so, you know, our token had a 100% claim on the the value of the protocol from the first day, from the first, you know, fee collected by the protocol.

[00:19:30]And we as a team only make money, you know, by virtue of being users of our token, right? We hold locked tokens same as anybody else who holds locked tokens, and we have to vote and participate each week and earn a share of the total protocol's revenue.

[00:19:49]So, that puts us in complete incentive alignment with anybody else um who uses our token.

[00:19:58]Um and beyond just the the raw uh incentive alignment portion, um is is the fact that like we have no exit, right? Like we have never sold tokens, we have never raised, we have definitely never like sold any equity, and so, you know, everybody who participates in our system can understand that we're not trying to get folks excited about a token so that in some way we can like sell our share of that or sell equity and and, you know, make ourselves wealthy. We only succeed if the protocol succeeds, and we succeed via the same mechanisms any other participant can uh go. So, >> Is that a Is that a criticism of uh teams who are taking that route?

[00:20:45]>> Well, I mean, I was This is where I was going to get to. Um I would say from a principles basis, I do think that this should be the state that uh every on-chain builder is working towards aggressively, right?

[00:21:04]And you know, over the years, we've had many many moments, right? Where we've, you know, had opportunities to raise or to sell tokens or or any of these number of things.

[00:21:18]And we've had to go back and think again about the first principles and and reorient around them and believe in the opportunity that in not taking those, we will build something much bigger, much more successful than if we were to say raise a hundred million dollars, right?

[00:21:37]And through equity or or through selling tokens and suddenly like that. So, what I would say is it will be a little bit different, I think, depending on what the nature of the on-chain business is, right? So, obviously with Venice that is something pretty unique.

[00:21:57]Um you know, they are building something that intersects between, you know, this world very fast-moving of AI and these on-chain privacy-oriented systems. And there might be a case that they need to do things, you know, that differently than how we've done things, right? And certainly if you look at them in this list, the fact that they are returning any value puts them in the, you know, the rarest exception. So, you know, I will be reluctant to criticize anybody who is returning value because most projects, and I think where of our where most of our consternation should continue to be directed at is all the projects that continue to be just insider exit and enrichment vehicles.

[00:22:48]Um but you know, it's just hard because like unless I'm in your shoes, like you know, I have not run you know, something like what Eric is running, you know, I've not run something like what the Morfo team is running.

[00:23:04]Um but I can say this is how we've done it. Um I think there is a million reasons and temptations to skew back towards traditional models.

[00:23:16]Um and I think the industry as a whole will do a lot better if uh in so far as humanly possible protocols resist this temptation. They orient everything, all the value, all the utility around the token. They make that bet and then they build a better system because that is not something a traditional business can do in the same way. Traditional businesses can raise, you know, like we we have things like what we did uh that would have been impossible in a traditional system.

[00:23:49]>> Why why do you say that? Because you can also raise by doing an ICO or issuing tokens to investors in rounds or whatever. What's the what's the foundational difference that like that would have been a like a chain to your chain to your you know, feet that you cannot move ahead if you didn't follow this model and had a more Yeah. You know, quasi CD5 model.

[00:24:15]>> Yeah.

[00:24:16]I mean think think about our story here.

[00:24:18]We were five guys who met in a Discord, right? Um four of the five completely anonymous. And uh we launched a protocol and began earning revenue on day one as well as did every other single person who used our token. So we created something um via immutable code that had global distribution on day one. Uh revenue redistribution back to users of the token on day one including the team. And uh we did this and have continued to scale up without VC funding.

[00:25:00]Uh, such that on most days, you know, we are the second largest decentralized exchange in the world. And, uh, how many companies would you know that the original founding team members would not have a large stake in that business that they could exit to make themselves rich.

[00:25:19]That their only way for them to succeed would be uh, the system's continued growth and sustainability and revenue creation, right? Um, usually somebody would have to go and exit their portion of that, uh, thing in order to basically, uh, make it, right? Our team has no exit. Our exit is the continual ongoing, like, success of the protocol. And I think the most important thing in this is like we are merely users of our own product and this is what on-chain systems can do. They can boil that entire firm down and make everybody users of the same shared system. And I do think that that is the most disruptive aspect of this technology.

[00:26:07]Um, you can be a user that is no different than me, that is no different than, you know, uh, just a random degen in a Discord, that's no different than Coinbase Ventures who when they wanted a greater share of, uh, Aerodrome, they went on-chain, uh, T locked the token, locked it, and participate each week. You know, there was no special access, uh, for them. There was no revenue that they they get no price that they got that not any other person could get. And I think that is a radical reconfiguration of what, um, an on-chain firm looks like relative to traditional models.

[00:26:48]>> Mhm. It's interesting you bring that up because my next question to you was around uh, on-chain businesses and how there are these corporate interests now which are dominating. So, I'll talk about two and this is relevant because now we have Robinhood come in with a bank.

[00:27:05]So, so let's contrast. And you have experience with Base so much. So, Base is going going to be my second company, right? So, there's Coinbase and you have their on-chain presence with Base. And now you have Robinhood who have their on-chain presence with the Robinhood chain. None of them have a token. Both of them have a stock. So, there is a stakeholder whose interests exist outside of the on-chain world.

[00:27:29]And yet here we have all of them both of them trying to double down on tokenization. Both Base has try tried to do that competing with Solana in the first leg, launched a [ __ ] ton of AI agent slop tokens there.

[00:27:45]And now I'm seeing Robinhood trying to pretty much have the same playbook.

[00:27:50]And they weren't even imaginative in how they went back to Solana and [laughter] tried to do the exact same thing they did in 2024.

[00:27:58]When you look at them and you realize, "Hey, wait a wait a sec. There are two participants who dominate the on-chain economy when it comes to real value."

[00:28:07]And yet none of them pass that value back to the folks who are participants of that economy. And in fact, it's all flowing outside the system. How do you reconcile that? What do you see their role is?

[00:28:20]Because in your structure, the way I I see Alex as this pure play on-chain dude who who really cares about building the on-chain economy and staying fully on-chain. So, is there like a struggle to kind of meet both ends? How do you reconcile this?

[00:28:36]>> Yeah, I mean I as of right now I I don't see it as a struggle, right? Like if you are building around like crypto, blockchain, decentralized finance, all of this sort of stuff.

[00:28:55]All of our eyes are not on each other, right? We are we are not competing really with one another. At least that is not the the larger battle, right?

[00:29:05]There might be various like Venn diagrams of like, you know, some overlap and competition, but there is a lot of cooperation in that as well. And that's really no different than traditional like finance where, you know, you'll have these large firms that do have some businesses, right? That um certainly are competitors to some degree, but they are uh aligned and partnered in a number of different ways. Um but if you think about what Robinhood is doing, what uh Coinbase is doing, and what we're doing, our uh our eyes are on TradFi. Our eyes are on the trillions of dollars of assets under management. Our eyes are on these slow, expensive, extractive, traditional systems. And uh Brian Armstrong I think said it well um on their uh earnings call uh late last year where Coinbase's vision is that 10% of global GDP moves on chain, right? In the next 5 years. And that would be such a massive expansion in order to in order of magnitude expansion of the size and scale of the on-chain economy today.

[00:30:19]So, overall, we all have the same goal, right? We want to take share from the the J.P. Morgans, uh from some of these major firms. Uh you know, we want to be the on-chain New York Stock Exchange, you know, uh where all of these different assets trade and things like that. Um and both sides of this have a role to play. So, Coinbase and Robinhood are amazing because they are bringing distribution, right? They have hundreds of millions of customers. They have amazing products that they have built. And they are beginning to integrate DeFi protocols directly into their product. So, this is a win-win, right? So, right now today, um you can go to Coinbase, you can borrow against your Bitcoin, right? How are you doing that? You are borrowing via Morpho. Um how do those liquidations happen? If they do happen, it goes through Aerodromes liquidity.

[00:31:16]Um right now, if you launch a token on Aerodrome, you trade on Coinbase within, you know, a few hours. Your your token is distributed via Coinbase. So, Coinbase wins cuz they can own the customer. They can wrap these products, right, into really compelling things.

[00:31:32]And they can charge some additional fees on top of it by virtue of uh their customers having access to the on-chain economy. And we win on-chain because our products, our services, which are cheaper, faster, real-time, globally accessible, get distributed to the customers. So, overall right now, I think it is a very, very positive thing.

[00:31:54]Like, I think questions that will happen, right, is like, when it comes to an on-chain business that Coinbase is um running. So, like, the chain itself in Base. Will they need to decentralize it via a token and then redistribute that value to users of that token. And I have told them, because they've announced that they are exploring a token, that [clears throat] I believe that they should. Um and I think, you know, there's concerns when people have talked about this, I'm not saying from Coinbase, just generally, it's like, well, you know, then what's the split between the token and the equity holders? Well, I think the equity holders would love to hold 20% of the most valuable blockchain in the world in base, right? Uh but I think that's the same thing Robinhood will probably have to eventually consider, right? Um with with their chain. And so, overall, all of us together have a whole lot more of this trillion-dollar pie, you know, to to go eat, right? And uh bring on chain. And I think we are arm in arm in that, and we can support one another in that. And I think yeah, but I mean, like even when you talk to people at Coinbase, sometimes they talk about what would be a future of Coinbase where Coinbase is entirely on chain. And that's awesome to think about, right? But obviously, you know, there'll be a lot of steps between here and there.

[00:33:17]>> You know, there is this uh challenge here that I always think about, like when when blockchains initially emerged, 2008, 2009, when we had the financial crisis, there was this idea that you need an alternate financial system which is devoid of all of that craziness. And so, that was the foundational philosophical um you know, idea. And so, cut to 15 years, now we're looking at like fully regulated organizations. We have Larry Fink talking about tokenization. It's like it seems like um I don't know if it's if it's um net negative to the whole idea or we're just looking at more and more um emergence of this reality that you can't exist in the real world without following the rules of the real world.

[00:34:04]And the whole concept of of cypherpunk values around um global access, permissionlessness, they're just means for for people to talk about and continue to buy the tokens that sell that dream.

[00:34:20]>> Yeah.

[00:34:21]I don't think they're dreams.

[00:34:24]Um so, I I would put it like the the the fundamental thing that these on-chain systems provide is this is just better technology. These are better tools, right? No different than, you know, computers were were better than, you know, all these manual spreadsheets.

[00:34:42]No better than Yeah, the internet, you know, is better than snail mail and and the newspaper or any number of those things. Like, if you can make something faster, cheaper, more globally accessible, it's only a matter of time before it wins, right? And um this allows us, right, to build products and services that do have global scale, to build basically an institution on-chain, free of intermediaries, free of value extraction, you know. We started as five people. We've returned to to token holders half a billion dollars, you know, in value. It is in insane what what you can do.

[00:35:23]And those values sustain. And there will be intersections with the real world, but um I don't think those intersections come with, like especially with, you know, what we're looking at with clarity and with developer protections in that act, I don't think they're going to come with necessarily, well, we're going to put the same burdens on technology that we we have to on businesses.

[00:35:47]Um but there there will be some degree of um you know, checks and balances in it. But I think that is good because So I said this thing like in a and it does tie back to the the net token value flows. Like, you know, on-chain trading volumes have gone way down, you know, over the last year. And this is traditional um bear market kind of stuff. But I find it more surprising that on-chain trading ever was at that scale given the quality of the assets were terrible.

[00:36:23]That most of them were scams or grifts or or, you know, thinly veiled value extraction. Why was anybody trading these, right? And you know, why um are so many people, even those who have touched crypto at times, completely turned off by it, right? And I think it is very good that the system will embrace rules that keep us on the straight and narrow, that give clarity to builders who want to do it the right way.

[00:36:54]To build these better systems that create shared value and make it more difficult for the people who want to run this continued like easy money grift to make themselves wealthy while building nothing of a value. And so I think the Cypherpunk is very very strong. Like I think Cypherpunk was also very much exploited, right? To do a lot of bad things. And so I think the balance we're moving towards is a much much healthier one. And I think you see it in in the way in which as of right now um you know, I I know you were talking at some price performance like stuff, but I think in this sort of bear market moment, you know, projects with some degree of fundamental utility associated with them are you know, outperforming in many ways because I think the next class of institutions that come on chain, next class of investors are not going to be interested in in betting, you know, these these shitcoins.

[00:37:57]>> Mhm. Okay, that brings me to the last part and I just have two more questions for you Alex. First is so you know, for somebody for an investors looking at this net token flow dashboard let's say he sees this very interesting token. It checks all the right boxes in terms of revenue and emissions and I see consistent value flowing to the token. He goes out there and he buys a bit of it in the anticipation that uh this is something that he should fundamentally hold. Uh a few more months later an announcement happens that some XYZ company is buying the project and the token suddenly has no home because there's no legal recourse even though there was a promise. Uh we saw that happen with Axelar before when Circle acquired them.

[00:38:47]We saw that with vector.fund as well when Coinbase acquired them. So I might be looking at a net token flow dashboard and maybe one of these things is the next target for one of these organizations and I'm like all of a sudden >> [laughter] >> you know, holding a worthless piece of uh on-chain nothingness. So I'm curious um thoughts about how then players inside the industry don't really respect this idea that tokens do mean something for them when it comes to making a business decision which is more aligned to their interests. They will always make that choice.

[00:39:27]>> Yep. Um I mean obviously, you know, I just say, you know, I no financial advice here or you know, anything like that. You know, it's just just just my my opinion but like >> discussion. Curiosity.

[00:39:40]>> Yeah. Yeah. Yeah. So I mean it's why I I described the the net token flows dashboard as necessary but not sufficient, right?

[00:39:52]And if you scroll down on this dashboard, right, if any watchers are are looking, you can see at the bottom it's very explicit about what the methodology is, right? For for each particular token, right? Yeah. A bit bit further down, right? So you can see um when we talk about token revenue for any of these given tokens, what are we actually talking about, right? Is this a buyback and burn? Is this a fees that go into like a multi-sig kind of thing that get redistributed to holders, right? Or is this kind of like an immutable permissionless thing that is ensured by the smart contracts themselves.

[00:40:34]So, I think like, you know, if I'm going out personally, all right, and looking at tokens, I'm looking at two things, which is definitely like are these claims like are these are these things that I am getting insured immutably, right? And Ethereum would be a great example here. Ethereum does not have a team that gets to say whether or not, you know, those burns are happening at any given time. They don't get to sort of change the parameters or start start directing fees to themselves. Like that is immutably insured. Um and the second thing I would look at is incentive alignment. Um do these folks have a an incentive that is different than the incentives that the token holders have? Um because if the answer is yes, then, you know, you mentioned Warren Buffett earlier, right? And it's show me the incentive and I'll show you the outcome. Mhm. And um you know, there is no such thing as an absolute sherbet, but if the teams have no control over the the the value redistribution to the token, then that is, I think, a really good signal. Um and if those teams only benefit through those same mechanisms, then I think that is a very good signal, and I agree that um like for me, personally, I would massively discount like anything where that sort of stuff isn't in place, because yeah, you're one $100 million check away from your token going to zero.

[00:42:10]>> [laughter] >> Wonderful.

[00:42:13]Um I guess the last question is on the Clarity Act. It's being touted by many as like that moment then crypto will finally have mainstream attention, adoption, whatever, whatever.

[00:42:25]Um, curious to your thoughts on regulations. Like crypto by its very nature is very global.

[00:42:33]Right? Because it's permissionless, globally accessible, and uh we have a single country um making those rules right now. So, would you do you see that this as uh like a failure of the world or the crypto community to not have like other major powers be involved in the process of trying to understand, educate them about what these technologies are, why they are better than how or the alternatives that that are used today.

[00:42:58]Um, and we have like a you know, one person sitting in the White House kind of deciding the course and direction of this rather than a broad-based discussion that should have happened beyond the boundaries of the United States.

[00:43:11]>> Yeah, I mean, I would say, you know, I started building, you know, in 2022.

[00:43:19]And so, I started building in a moment uh whereby, you know, our government in the United States was was taking uh an incredibly aggressive and and how to step globally position based on, you know, laws that were written not about this new emerging technology. And that was terrifying, right? For me as a a builder. There were no clearly defined rules by which I could build and know, um given my intention to build in all the right ways, that I would be safe and protected, right? Um, uh and so, I think that was a major issue, right? I think that was a major overhang uh on our industry for a number of years. I see the process by which clarity is coming to be to be a very positive one, right? Because um it is a bill that is being, you know, drafted and refined through the democratic process here in the United States. That for it to pass, it will have to pass with bipartisan um sort of support. And by the way, new emergent industries should not be partisan. Um these things should be things that we can all agree on collectively because it is in the interest of us as Americans to um you know, uh win this new emergent technology, ensure it's built in America the same way, you know, early computing and the early internet and so many other things um have been. So, it should be bipartisan.

[00:44:56]And so, uh the United States is now, you know, leading. And there will be laws and laws are difficult to undo. So, we will have clarity here. And I think what you are already seeing though is and this is uh very much history of regulation too is that when one country, especially the United States, begins to put some of those rules in place, it is used as a model for other countries. So, there are, you know, clarity like um bills right now moving through uh governments like in South Korea and and elsewhere um creating similar types of uh guardrails for crypto businesses, uh for builders, for the on-chain economy. And I think that is very positive. I think each country will make slightly different decisions, but that is getting us closer to I think what you are describing which is, you know, that the globe is figuring out how to treat this new emergent thing um in a way that allows it to like grow and flourish in the right way, just like they did with the early internet because there are so many examples of things that could have been done, um, laws that could have been applied to the early internet that I think frankly would have killed it or would have made the internet very, very different to what it became. And so I think it's very, very good. I expect if Clarity passes, it will be a giant sigh of relief for any US builders, you know, like myself.

[00:46:29]Um, and then I think internationally it will sort of set a standard by which other countries can extend similar sort of protections and guardrails, uh, to them. And then, of course, this is what gives the institutions global capital the ability to participate in these systems at a scale in which they have never done before. So it is jet fuel for the on-chain economy, for these on-chain firms, and all of that sort of stuff. So I think it is very, very good.

[00:47:00]>> Hm. And if it does, um, enforce like, let's say, KYC requirements and stifles that that permissionless aspect of, uh, of the blockchain, what do you feel about that?

[00:47:13]Is that something >> Oh, oh, obviously no, no, yeah.

[00:47:16]Yeah, no, like absolutely not. I mean, that that would be fundamentally, you know, going back to an attack on on crypto and DeFi. Um, whereas, you know, I think what you see in the current draft of of Clarity is helping to, uh, say, as long as you are building in these certain ways, and it is in some of the most decentralized, right, and permissionless ways, um, those types of, uh, restrictions will not apply to you. And that is very, very helpful, right? Um, it could create issues for people who are still bit between that like centralized and decentralized like yeah, like you know, like I think there's been a lot of conversation of like what will this mean for uh Hyperliquid, you know, who is, you know, certainly decentralized in some respects, but um very much not in in many others.

[00:48:12]And it might force them, you know, to to make some changes in in how they operate. But, you know, especially for builders like us who have built fully immutably, fully on-chain, fully permissionlessly uh from day one, it's music to our ears.

[00:48:28]Because, you know, we didn't know if that was going to be deemed okay, you know, 4 years ago when we were getting started. And now this is like wind in our sails.

[00:48:37]>> Yeah.

[00:48:37]>> Um uh which is amazing.

[00:48:39]>> You know, um I would let you go now, Alex, but no podcast ever ends these days without discussing AI. And so, uh I'm sure you'll remember a couple of weeks back we had uh the Kelp DAO hack when our seed was compromised.

[00:48:55]Um The The other conversation that's happening is around models, right? We We are seeing emergence of sovereign AI like there was a crackdown on you can't have non-Americans can't access this model.

[00:49:10]And I'm hearing similar voices come from China as well.

[00:49:13]One of the conversations that that goes around on CT is that um somebody has access to these powerful models and they're being used to compromise DeFi. And in fact, almost all of the DeFi is compromised, which kind of reflects on why the numbers are so bad. I don't agree with it, but I'm curious you run a you are in the DeFi space like it's your bread and butter, so to say, in one way, shape, or another. But, do you feel an impact? Do you feel concerned about these powerful models and our inability to work around them, put our capital at risk, um because we're talking about bringing trillions on chain? So, how do we deal with that?

[00:49:53]>> Yeah.

[00:49:54]It's a great question. Um I mean, my reaction to the the commentary, right? Because this this has been a very brutal year when it comes to DeFi hacks and exploits.

[00:50:09]But even if we're saying DeFi here, um I think that does a disservice when you actually look at what these hacks are.

[00:50:18]So, yeah, people would say something like, well, my god, somebody must have mythos out there, right? And they're they're using it to to hack these DeFi protocols that, you know, have seemingly been unhackable forever. But then you look at what are the actual exploits that have happened? And almost every single one of them has been a uh system whereby uh you know, like hundreds of millions, tens of millions is insured by a one or two point of failure. So, you have to think about this from the perspective of of like uh North Korea.

[00:50:59]If there is a five-person multi-sig, uh that has controls over $200 million right? The bounty for that is just take that 200 million, divide it by five, and anybody today could like spend $20 million to break two people's computers. Like, that is not an AI issue. It makes it a bit cheaper, they could use it AI to help them do it, but the issue is that um these are have been terrible security assumptions. Mhm.

[00:51:34]Um and these are centralized points of failure. This is not DeFi. This is a major issue. Like, these are centralized points of failure. Um that it's more surprising that these hacks did not happen sooner than they are happening at this moment where we're talking about like methos and and stuff like that. So >> need a methos is what you're saying is it?

[00:51:55]>> You don't need it. Dude, you if I can get a hundred, you know, if I am am North Korea and there's a hundred two hundred million dollar prize out there if you merely get to two people or their machines remotely, you spend ten million dollars per person and and you could get a crazy ROI and that is the issue.

[00:52:17]Uh, you know, that is why, you know, we from day one have built in this a hundred percent immutable way. We have no control over, you know, the capital parked in our contracts. Um, you can't put a gun to our team's heads and, you know, get the two hundred million that's deposited in our contracts. That is important for everyone to be building around. Now, is there some fear like or apprehension about the potential for exploiting like core DeFi contracts, right? So, for us it would be like the security assumptions in our core TVL contracts are the same assumptions in Uniswap. So, you would have to break like the UniV2 UniV3 code, right? In a way that has never been done. The bounty on breaking that code uh, for most of like DeFi's existence has been multi-billions, right? So, clearly everyone, the smartest people in the world, every emergent model has had people using it to try to break that code. I think it's pretty well tested at this point, right?

[00:53:32]Um, that's the only thing that would scare me, right? Was if we started to see um, core immutable code that had been in uh basically uh insured by billions, tested with billions of capital over a number of years starting to break. But no, if it's saying like, "Dude, we just got to a guy on a multi-sig." It's like yeah, you didn't need AI to do that.

[00:53:56]It's weird that, you know, they didn't get to them sooner. And that's why we need to build these better systems. We need to build around immutable uh code. We need to remove centralized dependencies wherever possible. And then we also, frankly, you read some of those things and you go, "What the hell is your opsec?" Like, you know, at that level you should have so much discipline if you are insuring any degree of user capital. You know, you have to begin to act like an institution in the amount of like security that you put around yourself.

[00:54:26]Um which, you know, again, I think shouldn't be the case because then you're not a hyper-efficient on-chain firm if you're having to spend millions of dollars on security because if somebody gets you, they could get, you know, a billion dollars.

[00:54:40]>> Yeah, I mean, it's uh >> [clears throat] >> it's surprising to see that firms with 200, 300, 400 million dollars of uh people's capital are um have such deplorable opsec.

[00:54:57]It's And it's also a big surprise to me that we don't debate that enough in the industry. Uh that Okay, your core primitives are standing on literally some multi-sig.

[00:55:09]And all it takes is as you said, like two motivated people and enough bounty to >> Yep.

[00:55:15]>> and not even a powerful model. So, that's a truly scary thing for the for the entire industry.

[00:55:20]>> Yeah, and it hurts us all, right? As you said, this this is a a tax on the industry every time one of these happens because nobody's going to understand the nuance of the difference between protocols like these and who we are. But that's also like that should discount um I think, you know, anybody using protocols with those types of things.

[00:55:41]It's up to us to do that kind of due diligence.

[00:55:43]Um, you know, I would never park my capital in a in a uh uh DeFi protocol with those types of risk vectors associated with them. And if fewer people did, well, then when or if they got hacked, it would be far less costly to us as an industry.

[00:56:01]>> Do you want to feed like a lot of KOLs?

[00:56:03]Because I saw back then there were a lot of people who like big names in the industry who were talking um crap about DeFi, right? I'm I'm going to leave this, that, all that kind of stuff. Uh they have an outsized weight for better or worse when it comes to influence. Um is this is this a skill issue or is this um a motivated um you know, somebody is trying to shake up the industry in some way or, you know, trying to benefit themselves financially? Do you see that kind of um behavior on their part?

[00:56:39]>> I mean, yeah. I mean, there's plenty of people who have an interest in um creating as much fear, uncertainty, and doubt around the industry as possible. But those would largely be the people like outside of our industry, you know, the people who are part of these traditional systems. So, you know, they'll take any shot they can at us. Um I think within our industry, you know, again, I think it is fair to be very, very critical in these moments. Um but I think the onus should be on uh you know, you being um a having an ability to discern the difference between uh you know, a centralized hack and a decentralized, you know, hack and things like that. Um but largely I think, you know, I think there is a there's a cynicism that you see if you spend a bunch of time on Crypto Twitter that is not in existence when you go out and you like meet with some of the largest institutions of the world, right? That are hiring, you know, leads of digital assets that are in the process of tokenizing every single type of thing that they can, who are, you know, leading the drive on bringing like global effects on chain. You get none of that cynicism and I think, you know, a lot of the like KOLs, influencers, like I think the era of of easy money on chain is over and I think that does piss them off because they were able to exploit all these asymmetries and and take a lot of money. And so I think it's very important to like ignore a lot of these voices because this industry is coming for global capital.

[00:58:20]Um this industry will grow substantially, um but it's not going to be the kind of thing where you were in a some sort of private group and you got some sort of alpha and you made a thousand X and you dumped it on your followers and I think that is a good thing.

[00:58:37]>> for saying that, but that was that is actually a great note to end this podcast.

[00:59:00]Thank you so much Alex Alexander Cutler for showing up on the Rock Labs Report and I'll see you on another day.