The Network Glue, with Mara Schmiedt and Collin Myers

all right so thanks everyone for spending your Saturday afternoon here listening to us talk about a bunch of things so what's this talk going to be about so as a part of this we kind of want to dissect where we stand today on the chapter of token utilization and token distribution and more importantly where does the application layer sit in between that chapter so with that let's let's kick it off but before we do I want to ask you some questions so just quick show of hands who here in the room owns tokens and their wallets cool keep your hands raised who actually actively uses those tokens either by a function of staking delegating or boating and the networks that they're a part of okay nice that's actually better than I thought because my Segway was going to be what we're kind of observing in the industry is a separation between you know active token holders versus those that are kind of passively token holding I'm really happy that we have a representative sample of the ones that doing it the right way but we still do see this kind of separation and it's a hurdle to adoption so that's kind of dissect and have a quick recap so what have we seen you know and the kind of era of token utilization token distributions so let's talk about you know erawan and we kind of dub at the the Wild West why because everyone remembers how those times have have kind of shaked out and where they are today so 2012 to 2018 the introduction of smart contract platforms and you know the ico aetherium and kind of the I sacred like ICO craze that followed it it was an era of you know a lot of innovation in early stages of kind of the design of incentive mechanisms that support those protocols and largely speaking no regulation to kind of determine how the sound and most effective and compliant ways of doing so so within that context you know at very early stages of kind of a mature attack and many points so what we've kind of done is you know dissect the themes of that era and kind of the questions that people ask so first off what even as a token you know what purpose does it serve and what does it facilitate now where can i buy that thing who offers me a platform to get access to owning and acquiring it can I use it most of the time most networks were not a stage of having you know launched to Maine that with you know a token function that had full utility so that in the next question kind of was how do I transfer it and where do I go to trade it right kind of segwaying segwaying into what we think is as kind of the next era and we're kind of going to dive into this the age of use we kind of call it that as we've seen an evolution of maturation and the technologies that we see in protocols that are now ready to launch to may net and tokens actually have utility for token holders we've seen fewer token launches part of that in response to increases in regulatory scrutiny that haven't necessarily been you know brought out in tandem with actual regulatory guidance explicitly around how things are to be done there's a lot of kind of progression happening in that space and as most of you have probably seen the SEC Commissioner has her peers has brought out an interesting proposal around how the future of that can look we're seeing increase in maturation in tech and most importantly at the rise of proof of stake which we're going to dissect a little further down the line so now that we've kind of entered that chapter what are the new questions that you know people are asking now that you can actually use the thing that you just bought how do I use it and what do I use it for and where do I go to use it chapter bro some of which are in unison but also some of which are in opposite directions but ultimately everyone needs to be working together so let's gonna talk about how we got to prove mistake because it's an important I guess idea to discuss about participation watching started from a proof-of-work perspective we're participating with your tokens just wasn't structurally or design possible proof of stake is in theory by design allows for increased participation and it's been an interesting road to get to where we're at today so the genesis of proof of stake is the introduction of peercoin in 2012 the iteration of those ideas resulted in tender vinovich chairs in 2014 which are quite important for some of the things that we're seeing today 2017 we saw a large increase in research on the topic not just by individuals by collective humans which was a very very interesting trip a lot of proof of state work was done by individuals and and still is led by individuals that have the right mindset to do so but now it's a collective research effort so we saw a lot of work in 2017 go into Casper FFG at CBC and then Morris as well the earlier work in Casper has now turned into e2 and Morris is supposed to turn into cargando 2019 is what we categorizes implementation and this is where we saw from state networks ago live for the first time and actually launched a Mane that and witness participation inside those networks that allows us to dissect it now and understand it better and draw conclusions from them 2020 is a big year for proof of stake primarily led by youth to which is coming and poke adopt probably the two biggest layer ones that right now have have the roadmap set up to launch in 2020 and then we have prominently our two solutions like scale which is a delegated proof of stake for a call which serves as a scaling solution on top of theorem so to I guess to digest the data a bit more you know we don't have really great data metrics to show relative growth inside the box and aside from total value locked up it's not the greatest metric but it but it is something that we have an industrial relative growth so this is essentially gone from zero to today 14.8 million dollars as the market half of all mistake protocols that exists today in aggregate across all of them we're seeing around 70 percent participation which talent created but actually what that means is that there's loads of people who are on the supply side of these networks providing resources and ultimately no one using the networks because if there were more people using the networks then there would be more liquidity in the cool so now that we've kind of dissected this kind of exponential growth of value from you know zero to fourteen point eight billion dollars in market capitalization was obviously has brought about an increased surgeon and business models that support these types of networks so I think this is a pretty good illustration of you know what what has emerged in a context of that which is the delegate work entity it's a super diverse category of stakeholders that play a critical role at enabling proof state network security by providing the infrastructure to support the network's there's you know broad categories those who have you know staking as a service native to their business models we're going to dig into that a little bit more but this is kind of like the larger broad base of stakeholders that are forming around that and then you know custodians and exchangers are kind of the new kids on the block offering staking services across certain networks and an interesting kind of evolution is you know what is the role of the venture capitalists in this entire system and something that's really interesting is actually the evolution of you know what role is the capital provider play in these systems and we've seen an interesting web 3 business model evolution where the capital providers also becoming the work providing entity and other interesting VC models such as that we've seen a multi foreign capital so what does all of that kind of translated into the trends that we ever like observe and token distribution models that are conducive to achieving kind of design goals of you know enabling token launches and network launches that are as compliant and regulatory sound as possible ensuring that networks that launch to Maine and especially proof of state networks that have a really important consideration and the initial launch and distribution of tokens to boots job and secure the network and one of the interesting things kind of that we've seen with that is there's a relative increase in focus on things like self selected and use focused distribution and we'll go dragging with that we've kind of known and and seen the classic you know token distribution models of doing a fundraise that doesn't necessarily have like a built-in filter mechanism that deters against participants were purely there for speculative purposes and we've seen a range of passive ear drops with semi questionable you know active participation rates and and it has some very some concerns around the efficiency of that distribution with regards to the tokens that were and it actually ended up being used so interesting that interes seemingly enough with with what we see now there's a bigger focus on interactive air drops I think something that we seen with life peers merggle mine and new models that are proposed by people such as new cipher with the word lock is you know self selective distribution right indicate your intent to participate to be rewarded with getting the tokens and being able to transfer them so in that context proof of uses is kind of what consensus is pioneered in that area which is a programmable mechanism that ensures that token holders who purchase tokens or get tokens distributed to them are required to programmatically prove use before they're actually able to transfer them outside of the network it's an interesting model we've kind of done that with foam last year and it's the same model that we've kind of adapted for the distribution that we're doing for scale in q2 of this year so stay tuned for that kind of dig into that more so how does the next chapter look and what should it be called hopefully mainstream adoption so how do we bridge the gap and how long does that gap take I think that's the question we're all kind of asking ourselves in the context of decentralized network participation and use so what is really needed to cross the Tasman what are kind of the hurdles to participation today well on one fried on one front obviously the regulatory uncertainty needs to evolve into something that provides more guidance to to be conducive to innovation and further exploration in the space because obviously no one wants to serve in prison the other three aspects are obviously general education broadening the scope to bring more people into the space and help them understand evaluate and make informed decisions about it and then addressing you acts and UI frictions and the fragmentation that currently exists especially at the application layer which is what we're going to dive into next a variety of primarily what like people coming into the space by the industry is exchanges and experience you can think of these prominently as financing coinbase they have extremely large war chests and they're able to productize these offerings that they have an existing user basis it's easy for them to opportunities we've also seen on the ledger level which is actually quite cool which which we've really enjoyed this if you have pesos and you have a ledger you have the ability to delegate inside of the native application to a variety of different validators not a singular validator but you were provided with optionality there are some pros to this happening in the industry it does lower fragmentation because you have an existing user base who who is already in the system but one of the bigger problems with participation which is a problem that that is not up to us to solve yeah but if the problem getting people into the system so your finances and your coin races of the world are extremely important because it allows for people to come into the system however there are some cons to this we've seen essentially fairly aggressive pricing models come out of these larger players which is actually quite disruptive to not only the smaller staking providers which provides more decentralized security to these networks but ultimately by getting rid of the Commission fees and getting rid of those incentive models inside of their platform it potentially may threaten the network so therefore the incentive alignment of what they're doing on their skating pricing strategies specifically finance is potentially from the long term perspective like very very healthy another trend that we've seen is never quartz so I'm a network I'm about to launch I have sufficient funding I have a large group of individuals and what do I do with them and how do I foster participation inside my own network most of them are going down the route of building their own ui/ux isn't becoming friends two common examples are blue good life here both of which have done a great job of the same thing offering the token holder an opportunity to have optionality and choose their delegator distinguished definitely pros to this single interface it also creates a very interesting competitive market dynamics between token holders and validators it essentially allows for an increased layer of performance pressure to the infrastructure provider if I want an infrastructure providers platform and I'm only looking at what their stats and metrics are don't have any relative comparison to competitors I'm really not actually strengthening the provider to stay on top of their game so by introducing optionality to the token holder and essentially commoditizing and we'll create a very interesting competitive price dynamic but also an our pinion increased security and also increased the enjoyment that's open all there to participate there's definite some cons to this as well though again it increases fragmentation if I support Lu like there's a really strong chance and we're trying to pull data on us now to find correlations between use and different networks where people are using well ultimately like if I'm deep enough in the game where I'm sticking a life here like it's really easy for me to just get on the spot that gets them a little bit also use it however I should be able to do all these things inside of the same thing so it does again increase fragmentation another part of it is is that it's non core work for a protocol team and that's kind of one of the important things that we found out is that from a protocol team perspective like you're here to focus on the protocol level issues that do come and this is essentially not or duty for you to provide we also have thoughts and beliefs that as things mature were decentralized networks will have an increased pressure to decentralize themselves from different angles when it comes to being rewarded or financial interaction with the network we believe that networks are incentivized to not build hosts and maintain access and then finally the statement providers most of these people are to be very transparent these has been probably the most innovative teaching that's happened inside of the space people support multiple different protocols sometimes too many protocols but ultimately we've seen a series of these spike up all over the world with different skill sets that have being here to help work with protocol teams other economics work with protocol teams on their distribution mechanisms and work with protocol teams to ultimately bootstrap these networks with the very beginning which is extremely important because we're launching through state networks if you don't provide the security at the beginning that no one's going to use the thing so it's been extremely crucial for all these things being you know brought together one of the main pros as well the token altar level is is that it's tangible right we've heard about proof of stake we know that producing is live we know that participating is easy we know that we get rewarded for doing so but like who's going to make that tangible for me who's going to show me that promote up to perspective so that's been very very good for you the ecosystem to show people that participating is easy however some of the cons of this since there's so many players popping up because the business model makes sense it creates fragmentation I would say that one of the things we're interested in is whether or not this decreases participation because the user is completely overloaded with optionality they want to do the same thing inside of many different platforms and we think that actually decreases the level of people getting involved networks so what am i poking out here this is probably the best way to look at it and think about it the older I on the portfolio I support these networks I want to interact with these networks but I have 19 different applications to do so it just isn't really good for anyone and it's really hurting the user and the user in this sense but getting networks off the ground in the future is one of the most important people to focus on and this is something that so kind of segwaying into what we had consensus and more specifically code if I have been working on consensus activate is basically a platform but kind of beyond that it's you know an initiative for active user research identifying kind of these patterns seeing where the trends are going and and see how we can do our own part in enabling how how the path to mainstream adoption can look so from our perspective what is this platform do at the most tangible level it's basically a glue right it connects all network participants in a way that is easy in a way that is seamless both for the token holders and the staking providers and creates competitive transparent and easy to use network bootstrapping and the way that we do this is not necessarily just for networks that are planning to launch which have a token distribution associated with them but also existing networks right extending across a breadth of supported networks that tokin holders montane track with and want to participate in that work native functions and get rewarded for doing so so whether that is taking delegation voting these are kind of the things that we're building out and support decentralized networks and in offering to their user base and the relevant stakeholders that they have so here's a really ugly graphic not enough coffee and not enough time but anyways they're really short TDLR is what what are we trying to do here it's basically just a connection right building a connection between all of these stakeholders and allowing them to come together in a really easy-to-use way our main objective ecosystem participants are all the ecosystem participants that we've just spent our time talking about so respectively all of these should be the ones that we enable through through what it is that we're doing so for the token holders what is it that I care about well I care about you know getting the thing I care about using the thing I care about being able to make informed decisions about how to use it and who to use it through right and being able to do so in a really easy-to-use manner validators or you know more broadly any kind of delegate work entity that is you know running on a supported Network for us should have an easy-to-use interface where they can you know offer their services and get access to that kind of retail demand and distribution that is coming through for does the centralized networks that we're supporting and then lastly I guess our partners the decentralized networks that we're working with scale is one of the first partners that we've officially announced they're going to be doing there may not launch in q2 of this year and they've spent a really chunky amount of time to kind of roam through the details of how it looks to launch a delegator proof of State Network today and what matters from a token distribution perspective from a validator onboarding perspective from a bootstrapping perspective and how to face that out in ways that you know insurers and maintains early stage network security and then later stage network use so this is kind of sneak peek of of what it is and how it looks in in the easiest way it's it's basically like a home a portal and a connection point for you to interact with the centralized networks that explicable of the frictions that we see today and hopefully provides a less fragmented space for you to come and use your tokens so basically use your tokens supports any type of network native functions that that our support and networks have we provide you with data-driven insights to understand what the network the network general performance and health is how validators are performing what their uptime is what their history is for you to be able to execute on that decision within the platform and select who it is that you actually want to stake with and then lastly of course you know be rewarded for participating the core of the incentive mechanism behind all of this so with that I'll leave it and say thank you for spending 20 minutes on your Saturday with us and go find out more so activate codified Network sign up if you want to hear more about the upcoming partners that were due to have announced this year and also just catch us ping us telegram us if you have any questions feedback thoughts we'd love to hear from [Applause] how nice yeah [Music] yeah so I guess using in the sense of staking we can talk about because we've been looking at the taxation issues that exists there I mean essentially it's double taxation but it's pretty much double taxation well it depends like if you do work and you receive tokens for services rendered there's there's a double taxation event that takes place if you are staking on a network and receiving reports we're doing so there's also a double taxation it takes place in that setting so you know if you're a holder and you pay tax based on your profits if you're a stinker you get taxed when you receive your rewards and then you get taxed again when you sell your rewards later so the double taxation problem that exists there are people who are actively working on that accrue stake Alliance is one group that is probably doing the most work on that topic but the taxation issue I personally don't see as being a blocker to participation maybe with a different user type but it's not the user type of today but it's important for the easier type of tomorrow because if we just have the same people inside it was easy to say no offense it's you know we're an echo chamber right now so I would agree from the longer-term perspective the taxation problem is an issue and however I don't see it getting solved really really any times but there are pressures to being a stager and also getting taxable yeah yeah I mean the goal there is the providers who post their services inside of activate the goal is to have a a geolocation of not just that but everyone well basically if you choose a provider we would like for that interactive map to change to the others I'm with this provider here's where their notes are located and if you have a geographical preference that's more between its open holder and the provider yeah I mean from a token holder purchasing perspective obviously there are restrictions so who can actually participate we do kyc anyone who participates in the launch and there are obviously sanction countries that can't participate in doing so and then there is a few set of other countries that are not supported from a money like transmission licensing perspective we're using wire so obviously any country where that steamed as explicitly illegal as a country that we're not going to be servicing for that purpose on note participants that you can delegate to not as of now but to be honest with you like we we do track I mean for us the first stage of decision-making is you know country of incorporation for the sake and providers that we support and then I guess the second layer which is a lot more data-driven as where are the notes actually operated which we haven't gotten into any legal you know crosshairs for but you know good point to raise and something we may have to in the future okay all right yes I was like it was like a 25% hand raise so for us it's all it's highly like incentive alignment based so like with everyone that we participate in so for the network's we support they don't pay us in Fiat they pay us in native assets because we believe that you have to have skin in the game to be incentivized to like maintain this thing for basically eternity right so same with a partner is like on the validator fund who we support obviously like we're trying to help them with their business and in turn like enabling the marketplace or the platform that we're providing so it's it's more of a partnership type business model in general [Applause]