VVV, CFTC and Morpho | Livestream

What's up, guys? Just wanted to let you know about the Block Works Digital Asset Summit, which is back in New York March 24th through 26. We'll have top speakers from leading asset managers, financial institutions, DeFi protocols, crypto companies, and policy makers all under one roof. Think of Black Rockck, Coinbase, Robin Hood, and more. Follow the link in today's show notes to buy tickets, and make sure to use code 0x200 for $200 off at checkout. See you there.

Nothing said on Zerox research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and any views expressed by anyone on the show are solely our opinions, not financial advice. Pokio Ryan and our guests may hold positions in the company's funds or projects discussed.

What's up guys? Welcome back to another episode of Xerx Research. Another live stream of Xerx Research. Danny, how you doing?

Good. Good morning. Good morning. Are you having a good time?

I'm doing great. How are you doing?

Trying to be positive today. Let's be positive. Yeah, I'm doing very well as well.

Before we get the stream started, I wanted to give a quick shout out to Lightseed IR, our new investor relations platform for Blockworks, not Blockworks Research for Blockworks. I think we are working with Salana to offer investor relations for Salana. I think we're going to do a bigger release today, but just wanted to give a massive shout out for it. I think today or this week at some point.

Yeah, Danny, I think you might have a bit more information on this one than me, but if you want to.

Yeah, I'll just I'll pop this up here, but you caught the gist of it. Basically, we kind of pre-announced this platform and I know David Effort was at Hong in Hong Kong and announced kind of pre-announced it there as well the platform, but I think Bach kind of captured it'll sort of be an investor relations platform for the Salana ecosystem.

So funds, protocols, the Salana Foundation themselves can you know I think Blockworks itself is trying to push into this this angle of investor relations and getting more concrete into the details of protocol operations with quarterly reporting and understanding better metrics and you know token transparency and all these different things.

So I think this kind of partnered with Salana is a great opportunity for that whole e system to get on board that train. This is it's certainly the direction that the industry is heading like more I mean it's not really compliance because there's not regulations around these types of things but it's sort of like setting the industry standard for compliance I think is kind of how you'd want to view it and like what things are reported and on what basis.

Similar to how businesses report earnings and and share details regularly with their investors. That's that's kind of where we're trying to push.

So this platform will have a bunch of data like that on all the Salana related protocols but we've also got some new analysts maybe in the Xerx chat you've are familiar with Toma or Zaki and Joe as well will be writing and putting out content and our very own Carlos from the Blockwork research team as well will be leading and driving some of that content as well I think.

So definitely some fun and exciting stuff I think you'll see coming out of this.

I think you kind of hit the nail on the head there specifically around like how I feel like we talk about this all the time. the industry needs more of XY Z. But there is a clear issue in how these protocols communicate with potential investors both on like the retail investor side as well as on the professional investor side. And this is something that we're working towards closely with Solana Foundation to fix to improve.

So if you are not Solana but are interested in investor relations either Effort Capital has already reached out to you to chat about it or you should reach out to Effort Capital to talk about it. I'm sure they're taking on more and more clients as we try to build this out and be a net positive for the industry.

Okay. Unless we have any other comments, I'm going to get into the three topics that I've managed to scrape by together for this Monday episode. Are we ready?

Yeah, let's run it. If you also if you don't know who Effort Capital is, I mean, reach out to anybody that you have as a contact from Blockwork. We'll put you in touch. Yeah, we'll take a

Okay, I'm gonna start off with this morpho thing and I need to actually find the thing. I just realized. Yeah, I have it here.

Zaki is really upset with you, by the way.

You're upset with me?

Zaki is upset with you because you said his name on the screen.

Oh, is he? That's unfortunate. That's okay. He'll figure something out. He's gonna end up on the He's gonna be on the pods. Yeah, eventually. It'll be He doesn't realize that I'm gonna dox him immediately because my brain can't make the connection between real name and pseudo name.

Okay. So, big Morpho news. We had big A news last week. Kind of positive and negative on the A news. The negative being the conflict. The positive only news for Morpho is that the Apollo Global is going to acquire up to 90 million Morpho tokens over four years.

I have a few things to say about this and I want to make this with my face like this if you don't mind. I am a little tired of announcements that don't talk about when something was signed, at what valuation it is happening, if there's a discount. And I maybe this is something that we can work on on the IR site so that people can know more and more about this.

But some I think this was a similar thing that I had with the unis swap news, black rockck buying unis swap or black rockck getting involved in unis swap and there was another thing as well recently layer zero and citadel where we're just not seeing any of these figures. We're not seeing any of like where they bought it and I think this is like a remnant. It's like it's a remnant of the old cycle maybe a little bit.

Where like any partnership with a traditional financial company was like wow this is huge. We're like getting involved in the real world and it's like well now everything is kind of involved in the real world to an extent. So I would appreciate seeing some more information.

I do like on the other hand I feel like Morpho is kind of an under considered token to an extent like not many people are like oh I'm bidding morpho but more people are like oh I'm betting a I think the primary reason for that is that morpho doesn't have any fees I think everything is captured at the curator level or like whatever the front end level yeah they don't have a the their fee modules turned off they're they've said that they're, you know, explicitly like in growth mode today still.

So, uh, there's no revenue today, but you could, you know, you can hypothetically model it out assuming some rate that they charge charge. Yeah. So, I think it, you know, people if if you're, you know, doing a model on Morpho, then you you know, you'd assume some effective interest rates on what they could charge or some bips that they could take within the product.

But yet today it's like not turned on which is not too different really from you know like the uni token for example for a long time.

I agree with you though. I think some of the things that would be great to see are price paid or if there's a discount maybe I think the the way that this is framed is quite vague in terms of a deal to acquire up to an amount of tokens over a long time period of four years. could mean anything.

Could mean that they've they have structured like a contract in some way. Maybe they'll they'll use the software and then therefore like buy an amount of tokens like per month over four years and maybe that amount will change depending on services rendered or something. It it's really hard to say. It'd be great to see see some more details, but that's all we get.

Yeah, I I imagine because they're traditional financial company, they'll have to disclose to an extent somewhere at some point what they bought and what they didn't buy. But I just I don't know how it works and I'm hoping that things change.

In terms of the how much do like one of the SAS things is like the death of SAS thing is that you can just build out a lot of these things yourself. We I think we've all they gets forked a lot because they have a licensing thing. Morpho hasn't gotten forked that much. People can just build on top of it and use it, right? Like Felix operates as a and I talked to Charlie about this on the bot as well. Felix operates as a curator of Morpho and they have their own front end and like you can just use their front end. The back tech is the back end is completely Morpho.

But the Felix guys just charge for curation. I'm wondering how much power Morpho will have once they come in and they say, "Hey, you know, it's been free all this time. Now it's 50 bips or like now it's 25 bips and like we talk a lot about software deaf SAS death I think a bit over over um overplayed but maybe not like for everything but so like there's industry level software that just isn't easily replaceable.

I don't think this is a hot take like I don't know SAP and stuff. I don't know if that's if you guys have heard you still. I don't like nobody's going to replace that at least anytime soon. Anyway, the general gist is like we have this but versus on the crypto side now you're saying like not you but people are saying oh like they'll just turn on a fee switch but Morpho is purely a back end thing. They don't have any distribution on the front end. I think they don't have any distribution on the front.

When you think about lending you think a like morph is distributing itself through Coinbase for example. they implement this thing. Why wouldn't like audits are a thing obviously, but if this code is open source, which I'm not sure if it is, but anyway, like let's say if you're getting a already audited piece of tech audited and it's just a fork, it I don't think it takes that much time.

I mean there will be a cost associated but if the Felix team was like like our cost for the audits is 50 grand fees we would pay 150 grand per year. you know like what's the make sense?

I think it makes sense. I think if I look at the quot statement in a vacuum today I would kind of say like there you know there's Morpho there's I guess Oiler is in a similar bucket like there's a few platforms with kind of like vaults and curation as sort of like a product and a service. So I guess the down the actual question would be more like you know if Morpho turned on a a fee structure to curators would they move to like an oiler or another platform.

I think the the other question you have to ask is like how much liquidity is being shoved into Morpho today because it comes from Coinbase or wherever else. Now, you might be asking like, I don't know, is Coinbase going to, you know, take strip out Morpho and just drop in their own version of the same software? They have all the customer deposits anyway.

They totally could. I I think it's a risk, but they've also invest backed Morpho, so I don't know. I I see the Coinbase Moro relationship is more symbiotic than anything. I think the the fee thing is always a good question, but I feel like this is a conversation we have about everything of like, well, if they turn on fees, won't somebody else just make another one and and uh undercut them and then take away?

And it's like, yeah, I think this does kind of happen, but I don't know. You you see this with a as well, and you mentioned it first of like, you know, a has been forked a million times, but basically all the deposits that a d attracts have stayed in a and it doesn't really matter if you copy it and make it slightly different and charge no fees. Like people are just going to stick.

I don't know, there's a there's a safety and security aspect on the crypto side of things and then also just like I don't know lindiness and then after a certain point it's just there's just so much capital there that it makes sense to interact in that place. I think for Moro Morpho it's you're probably hoping for a similar thing. I think obviously the Coinbase relationship is like that's pretty material.

So, I would I would almost make the same argument in the sense that assuming, you know, they're on good terms with Coinbase, like and Coinbase isn't going to like rip them out and just drop in a, you know, AI vibe coded version of the same thing or just, you know, copy the open source code if if that's legally okay. I'm not sure what the license is, if it is or isn't. Then maybe it's maybe it's kosher, maybe it's not.

But I don't know, there's a lot of path dependency there. I think we've seen the same thing with um I think it was a similar one with KHI and Robin Hood where they basically partnered with Khi to do prediction markets and then like maybe a few months after they announced that they were building their own in-house kind of prediction market platform with probably a goal to just do exactly what you mentioned of kind of strip them out and drop their own thing their own solution in.

So I don't know I think there's a case by case kind of argument that need that will need to be made for I don't know This is a conversation we have about about every every type of application that goes from not charging a fee to then charging a fee. It's like those are the downstream questions that come with it. How much of a moat do you actually have?

If you do, then you're probably fine and you can charge fees and and increase fees and and if you don't and all of your customers can leave quite easily, then then you're going to have a problem.

Yeah, I think it's not clear in this case. Yeah, it's not I mean I think in crypto it's a very fair conversation to have a lot of the time though because vendor lock is I think not really a thing and also people are very mercenary and able to switch and leave at any time like especially users.

So I it also depends on like who they charge if they're charging users that's bad for the front ends and if they are charging the front ends that's bad for the front ends. So yeah, there's different ways they could go about it which would have different downstream impacts.

I think I would imagine that I don't know they they've designed the product around the curator model and like attracting really like risk curators rather than sort of like users and they've attracted users by doing the partnerships. So it it seems like it would make more sense to either directly charge like a you know like a SAS sub fee to like a Coinbase for the integration and then maybe take a you know take some bips for from curators that you know generate revenue on the platform but I don't know.

Great way to end it by saying I don't know but that's that's really nothing. I don't know. Okay. I I guess like what does apart from this morpho thing which we said we were going to be positive about? Well, we kind of sh on it. It's fine.

There well to be fair I started but there's two other pieces of potentially positive news. One is that Dragonfly raised 650 million United States dollars for their fourth fund. This is a ridiculous like I don't know. It's I've seen now this isn't anything against the Dragonfly guys. I think they have some really smart guys obviously and venture is very difficult.

They're and I don't know what deals they get. It's difficult for me to see like which ones they allocated more to which ones they allocated less to. If you go over their portfolio, it's not I would say outperforming other VCs maybe. But I think this is pretty positive in that it shows there is still some form of liquidity coming into crypto.

Like one of the big things is well VCs are very important to the crypto economy obviously despite what people might say that VCs are bad some are not great but you still need their capital to fund projects especially in initial. So like and $1650 million is not a little amount. So maybe our takeaway here is that it's not all doom and gloom.

I'd be curious. I don't know how big their prior funds were by capital raised, but I guess I'd say I'm surprised at the dollar amount. Like I would have I would expect a lower number, I guess, just in the sense that I don't know. I think if you looked at if you look to like 2024 like that sort of vintage of protocol that went public that was like an especially high watermark for things that absolutely did not make sense by the time it reached the public market.

So I guess if you know if they sort of like raise a certain amount of money kind of prior to then and then you know public market prices of a lot of these things have come down since then I would expect that it would be harder to really put the same or a larger amount of capital into new protocol investments. So I'm surprised by that. like it seems like it'll be difficult honestly to to do that unless unless the valuations that they're raising at that that protocols are raising at are still just anchored to a high bar.

But we've seen so much like public market draw down that that would just be very surprising to me unless unless expectations are still quite high on the VC side. I'm not sure.

Yeah. I I will say one thing, they also like I completely forgot that they invested in Poly Market, Rain and Etheina. So I imagine they're doing pretty well. They also did lighter which I think is also should be doing well. But yeah, I agree with you like I think I would have expected maybe a smaller raise.

But I think it also makes sense for capital to congregate around like better venture capital funds as I feel like before everybody had a venture capital fund facility see these gap tables of like 40 people. Yeah. Anybody that made eight figures in 2021 opened a fund. Oh now I'm a VC then I guess like some of those are getting flushed out.

I will see this I imagine on the liquid side as well where it's like oh some of them just die out they can't make money they have to return people call capital back and like the good ones stay and maybe raise a bit more money and that's why you get outsized fund just $650 million a lot like you can do free monad rounds you know and you can just take the whole round so yeah I guess that's why I was surprised I wonder what their mandate is I wonder what they're going to like if it's just crypto or if you can also do AI stuff.

Because I think Polymark still fits into crypto because it uses crypto rails. Yeah. But I don't know if all of them do. Yeah, I don't know. I guess like I was expecting some more pain before we started seeing funds are able to because we saw another one as well recently where a fund announced that they raised Oh, obviously like A6Z announced that they raised a massive amount of money, but that one I don't consider.

I don't know. I guess I was just a bit shocked. With A6Z, I think it's just expected at this point in time. I I think they have kind of the same problem though. Like I don't know. We could probably go back and look at I mean that's sort of the nature of venture investing is you're just going to end up having a lot of euros.

But I feel like just the amount of capital that they raise, they're really forced to like to spray into a lot of stuff that maybe they otherwise wouldn't if they didn't have so much capital. But maybe that's just the nature of of like becoming the biggest venture fund. I don't know.

Yeah, I think I saw somebody today talk about no the other day on an ex article which are often very uninteresting, but they were talking about how VCs invest. And I think a lot of those like funds that I said are probably like the VC funds, the smaller ones. Everybody who made eight figures who in 2021 and were like, I'm going to start a VC fund. They probably overinvested in like a bunch of copycat protocols and they just ended because it wasn't like the way that it was in 2021 where you could I don't know invested in a fork and then make a ton of money or like an L1 and stuff versus now like I don't know what um Monad's most recent raise was. Was it two bill at two bill valuation?

Well, they did the ICO on Coin List or on Coin for VCs. I think it was also two bill and it's fully diluted 2.2 bill. So, yeah, I think it was similar. Yeah. So, it's like I don't know. It took four years, four years on your investment and you're up 11%. 10%. Pain. Yeah. It just it's just kind of the way it goes.

I guess I guess the upside like when I look through A16Z is I know historically, you know, of course they're going to they're going to have access to all those best deals. So, you know, like when SU and Aptodos and all of those massive rounds were being done back in 2122, like they certainly were probably some of the larger investors in a bunch of those deals. And while the public token prices of a lot of those things are are down from their highs, like I think they're certainly up from like those seed raise rounds quite significantly.

So, hard to say. I mean, if a lot of these things in public recently in the past one or two years, like it might actually take a little bit maybe more time before it changes kind of how the the future venture viewpoint is in terms of like amount of capital to allocate, if that makes sense. Because they, you know, they they invest and then they have to wait a long time for the thing to even go live and then they have to wait for that kind of vest period as well to really like see sort of what happens with the investment.

Obviously you know you kind of know like you know roughly kind of market to market valuation um how some of those things are doing over time but it doesn't really like necessarily hit the book until a few years later. So there is there is kind of like a lag period there to um in terms of maybe an adjustment in how they approach things.

Yeah, I agree. But but maybe the investment view is wider now. Like I I feel like previously crypto was very much like Frontier and you only invested in crypto. Yeah. It's like okay we're only gonna buy L1 tokens and now but now I think there's there's like a broader view of like you know you could look at you know Stripe is doing their tempo chain and like it's it's a bit more connected to fintech and finance and and trad there there might be a broader range of investment opportunities.

Yeah. I mean there was a whole like class of not class of but there was an entire type of VC fund that only did like crypto infrastructure which and even recent like Alliance I I wouldn't say like made their name but their focus was only crypto applications which is like a crazy thing to do like you're only focused on crypto applications. I mean, I guess like you want to build a niche, whatever, but or like you want to invest in what you know, but even then that's like a pretty crazy way to crazy way to approach venture.

I don't know enough about venture to like know if that's the right way to do it or not. Um, I think in the alliance scenario, it might be a bit different because they're incubating a lot of these products and I think they have like a venture builder approach. So, it makes sense to have like specific niche. You're hyperfocused on it. You know, like what works, what doesn't work. You have kind of a formula of getting these products out, but and they're very early.

They're very early stage and it's small check sizes. Like, they're not shipping 10 million into a huge round, right? They're they're putting smaller checks into teams that are like, "Hey, we're going to build this consumer app and just see if it works." Um, so I think that like the approach like really works for them there.

Yeah. But versus like like I feel like hack VC maybe or Polychain like I feel they do like these massive VC rounds right because their ticket sizes they do these massive L1 or infrastructure rounds because I think their ticket size is too large like they they can't do an application because those historically don't raise as much money.

So, and I don't know like I I know Polychain made a butt ton of money on on TIA for example, but they managed to sell I think quite a bit. But I imagine there's at least with the new class it's like like Monad and Mega E are both cool and I think Mega E has been fine because I think they raised much less at lower amounts. If you just mark to market your monad stuff for years, for six years, maybe five years based on like private valuations first and then now I don't know what are you going to do? Like it's it's just a tough market like everything you have to Yeah.

And that was years ago too, right? So like what's what's what's raising today? Um, I think obviously the market's very different. Like we don't have like there there aren't 10, you know, unreleased L1s now that are raising, you know, $200 million for their seed. Like that's just not happening. So certainly some of it is I don't know there there's been a lot of prediction market excitement.

I've seen there's definitely been some some raises in that realm like we're seeing more of these like cryptox AAI things and like agentic apps and different things along those lines. I think the the set of opportunities is definitely different. Um Tempo is probably maybe the good example. I guess there are in some cases some some blockchains but they there are more like but even Tempo's like paradigm is essentially building it out themselves. Like it's very much to me like a venture builder style of

Yeah, it's similar to like Arc in that sense in that it's like you know you have Circle who's like we should build this for our purposes and I think you see I I kind of look at Temple the same way and that it's like okay Stripe says hey maybe this makes sense that we have something to build out for our purpose. Yeah. And just like maybe to tie it back to Dragonfly, one thing that has I feel like says quite a bit is this isn't the end state of blockchains.

And so he would like when people were like, "Oh, like we shouldn't invest too much in infrastructure anymore." At least he'd said this like a year ago. I don't know if this is still a spot process. Um but if I mean if returns on L1 are really low and no one invests in them, we might just be stuck with the current set of L1s that we have, which isn't necessarily a bad thing. Like you have Solana and ETH plasma hyperlquid mega e monad surely like I don't know some of these succeed and figure it out base arbitro you know B&B B&B I always get worried when I count those but yeah like you got to include Asia man you know or is this like is this I don't know $650 million going into a fresh set of infrastructure your projects.

Who knows? I guess we're going to see. But like you said, I haven't seen any like I don't know. I feel like all of those um I don't know if you're you also have these channels, but I was I deleted them now, but before there was like this channel that would just send in every single raise that closes like what valuation, who were the investors, etc. on Telegram. I feel like I haven't seen an L1 in there in a long time. Like you said, it's a lot of like protection markets.

Yeah, the the L1 ones it's like the tempos and the arcs and yeah the other serious stuff but not like I don't know the death of infrastructure investment could be very interesting for crypto the other stuff has been um the other stuff has been like all these trading like I everyone everyone I don't know there's so many teams that are working on like we're going to build the everything trading app um it feels incredibly saturated as a space like some of them are Hey, we're making a FOMO. FOMO is an example. There's like um I think Liquid is one.

But there's a million of them. It's like, you know, it's kind of like the Axiom but the next generation of that where it's like just put all of the crypto trading applications into one broad uh like front-end interface for people, making a full kind of like trading platform. But I I feel like that's been an area where I've seen a lot of different teams and raise announcements as well. God, it's so funny. I don't know. I don't know.

There's like Yeah, Axium made so much money before they left. So crazy that they just launch token just made a lot of money and just left. I think Oh, would you?

No. No. It's an interesting It's funny. It's a funny thing we say this frequently of like, wow, they made so much money and they didn't even like launch a token. But I wonder like if they launched a token and then the token went down 90%. Like would you be more or less upset that they that they launched a token?

I I imagine that the answer is probably you'd be more upset if they launched a token. I think either scenario I'm going to be upset. Yeah. To be fair, I didn't even trade that much on Axium, so I wouldn't have gotten a good air drop. But like for you for example like you were pretty early to actually see like yeah I used it a little bit.

I think there was a point in time where you realize you know where where a token and an airdrop like would have been plus EV and I wrote you know and I I wrote about it I wrote about kind of the opportunity there. Uh certainly for like YC that was a great investment from them. Yeah. Um but there was a point where like that got eroded in terms of that you know Yeah. after me being early, then there's like, okay, hundreds of millions of trading volume on here. Like, I'm not it it no longer means anything to me.

And so, I just kind of gave up on the idea. I was pretty I felt pretty strongly about the idea that it was a very low probability that they would launch a token. I I don't think there's anything wrong with making a good product that makes money um and and doesn't crypto token. I I don't I honestly would almost prefer if we had 10 times the number of apps that were just good products that made money and and didn't have tokens. I would not prefer that.

If something is making money, I want to be able to invest in it. Like same thing with I want to be able to invest in it, but I I don't want them to launch a worthless token that doesn't have any relationship to how much money they're making. Yeah, I guess they're always kind of stuck as well in which Yeah, I get what you mean. Let's tokenize their equity and then just let me buy that.

Yeah, that's what I would like to see. the SEC is going to come get you. Um, talking about three to four level agencies. Um, you're sent this in in the morning, but the CFTC issued a statement on prediction markets. I'm going to open this up and take a look. Um, if you want to give a bit of a background, I'm also happy for you to do that, but up to you.

Yeah. Uh, Michael Selig, he dropped he actually dropped a Twitter post, but I'll just share this one. He he shared a video of him talking about this, but I figured it easier to just share the quote, but he basically said something along the lines of the the CFTC will no longer let state governments kind of undermine the CFTC's jurisdiction over prediction markets. Basically saying there's been a lot of lawsuits in different states um against prediction markets um you know labeling them as gambling or casinos or like trying to adjust how they're sort of you know maybe they're not allowed in certain states or jurisdictions.

Um it seems like the CFTC here is is trying to take a stance um and say that they have kind of full decision-m control within that the US to kind of make rules and regulations around them. Uh in I'm not like a legal expert. I can't really say whether in practice that means anything. I I don't know. I think for a long time states there is this sort of like state versus federal government uh approach to to a variety of things like legalization of drugs for example is a classic one um where you know there's been headbutting over you know maybe marijuana is banned federally but states say hey we're going to legalize it and it's fine.

Um, so this is I don't know it's just an interesting case where we're seeing kind of this same battle happen but uh in the reverse direction where the Fed or the CFTC is saying hey these should be okay. Um and certain states are saying no we we don't want them. Um interesting to see how it unfolds. I think naturally as everyone knows or currently feels uh prediction markets are have been a pretty divisive topic uh for the past ever since they blew up really like at the end of 2024 with the election.

Um so not surprising to see this here. I think the and the big big issue with the kind of the conversation is like