Michael Lau - Bullish @ TOKEN2049 London 2022

hello token 2049 what a crazy day to be in crypto my name is Michael senior vice president at bullish and I was seriously tempted last night to completely rewrite my entire keynote given just what's happened in the last 24 hours but you know the more I thought about it the more I realized that when you're in choppy Waters it's important to kind of have a bit of a map of where you're headed to so you can navigate it properly and so today I'm going to talk to you about this idea of an innovation trajectory for blockchain and crypto what I'm hoping you walk away with is this framework of thinking about how innovation has evolved and where it's likely to be headed so first little story about myself for me it all started as an engineering student at the University of Toronto in Canada I was one of those Engineers who wasn't particularly great at physics or chemistry so don't ask me to build a bridge or fix your car but you know I was really interested in in math and so the discipline I studied was this one called industrial engineering where we took manufacturing problems abstracted them into a model use of math and Algos solved it and then kind of reapplied it to the real world and I love this idea that you could use these tools to create some kind of optimized outcome so I spent a couple of internships and Factory floors and quickly realized that actually if you took these same toolkits and applied it in a non-manufacturing setting people who don't really understand what was going on and just thought wow you guys came up with this cool solution that must be magic or innovation and so I just realized at that point in time there were only three things that I wanted out of my career the first was a reason to wear nice clothes to work second was an air-conditioned office to wear them in and the third was innovate interesting problems to solve in innovative ways so I spent about a decade in capital markets looking for those Innovative innovative solutions and problems to solve I was hooked I spent every waking moment reading books watching YouTube videos listening to podcasts talking to strangers and then every now and then bugging Senior Management to give me a shot at trying something innovative I then found myself back in the classroom this time postgraduate studies at the side business school at Oxford University specifically focusing on this topic of innovation and while I was there there was this one particularly interesting concept that was uh that was covered it was about this idea of how new markets form and there's a book called The Evolution of new markets by this author named Paul jaroski where he basically talks about this idea that there's a tension between supply and demand and oftentimes people perceive that Innovation comes into a market when the market demand pulls it out but the problem with that is that it's insufficient to explain how new technologies come out because oftentimes the man is not well articulated instead a better way to think about this is maybe a Supply push that there's this original breakthrough technology that happens and as that particular breakthrough starts to have research and development and investment Port into it momentum starts to build and as that happens there are these secondary branches to start the form these secondary branches form around use cases or perhaps nascent markets but the idea is as these secondary branches form it only helps to repel this main trajectory and there's this really great quote that the author has in his book where he says once the basic Highway that the trajectory is going to follow becomes clear then progress along it is likely to be pretty much self-sustaining following its own logic at a speed determined perhaps in large part by the nature of how scientists and Engineers work fast forward a couple more years I find myself with the opportunity to hop Industries and I joined the Skunk Works project called bullish you know it's a it was one of those interesting things because you know at the time I was like tell me more about what you do and they said to us you know hey we got about 20 25 people on the team a couple of developers a couple of technologists we're building a centralized exchange hey one day we're going to have customers you want to be the customer guy and I was like yeah sure I'll be the customer guy and there was February 2020 entered into the crypto industry and at the time we were still kind of in stealth mode and so I couldn't really tell my friends family what I was doing all I could say was I was working for a blockchain company and almost every single time I get this question what is the use case of blockchain I mean 2017 and 18 there were all these management Consultants who said hey blockchain is going to completely disrupt everything that we see it's going to overhaul the financial services world it's going to overall how Supply chains work but it didn't really quite materialize so what is the use case of blockchain and as I kind of thought about it more and more I kind of converged towards this answer at the time which was Bitcoin Bitcoin was that use case for blockchain I mean you took a look at it at that time millions of users over 100 billion dollars of market cap I mean that's a signal of adoption fast forward a little bit more you get to the summer of 2020 that's D5 summer and all of a sudden tvl Rockets up and you saw again kind of this like moment of euphoria people are talking about how it's going to completely disrupt Financial Services again it's going to overall how things work but it didn't quite catch to that degree but when you start to kind of thread this together what you started to notice was whether the adoption was happening was that was actually happening around things that were digitally native digitally native asset digitally native you know financial services that are enabled by smart contracts starting to see a little bit of this momentum adding to that main trajectory fast forward a little bit more and all of a sudden you had nft explosion mainstream news picked up on it and I have to admit this was one that kind of stumped me for a little bit because you know for all the great ideas that nfts are bringing to the table the one that seemed to have the most traction were the ones that were profile pictures and I was kind of a little confused but you know I began to reflect on it and realize that perhaps maybe I was just thinking a little too superficially about this perhaps what this was signaling instead was that there are these digitally native identities digitally native identities that were valuable to people more valuable than the several million dollars that were spent getting the nft but also as these digitally native identities were starting to emerge there is also these digitally native communities and I think it sort of kind of realizing that crypto is one of these few spheres in the world where both technology and capital are so uniquely converging with culture and it's one of these incredible places where if you look at the community that's here you can see for example both the tribalism that's in the space but also the resilience in the space being signals of just How Deeply rooted and strong this community is I mean the community is strong like hyper strong so take a step back what have we established well if you think back to this idea of a main trajectory you've got this idea that blockchain was this technology that basically exploded an enormous amount of research and development and investment and as you start to see this develop you start to see the secondary branches form tokenization digital assets the ability for you to do smart contracts to provide financial services and defy looking at digitally native identities and communities I mean I'm skipping over a significant amount of detail which you're going to hear tons about from the esteemed speakers that are here at this conference but when you look at this doesn't it kind of look like the key ingredients of a digitally native universe however it's manifested but I think what's important is as you're looking at this and you're looking at kind of how this is all happening I'm beginning to sense that there's this level of self-sustaining momentum that is actually starting to be achieved now let's talk a little bit about the pace what's the pace of this trajectory that's moving you know another really important concept that was drilled into me during my studies was this one that invention does not necessarily equal innovation invention is the creation of something novel but Innovation is where you take that novelty and you apply it commercially in a way that creates real value I gave a very similar talk to this one a couple months ago just at the very beginning of what would be considered our current crypto winter up until that point there was you know two-year Bull Run and there was this idea that there was this this wave this tide that came in that floated all boats and when there was money sloshing around everywhere you could just simply invent stuff but as the tide recedes something else gets introduced this need for survival and his need for survival is one that pushes people to prioritize finding real applications that create value as well as the commercial application of it and as I speak to builders around the world I mean it's very clear people are head down solving real problems real use cases coming up with some real solutions and I think what's interesting as well is when you look at kind of the current climate that we're in the single determinant as to how this space is moving isn't determined just simply by the capital that's being invested into it there is this real determination human capital Ingenuity that is really propelling this forward and I think that when you look at the pace of where this is moving the current climate actually it would suggest that we're actually seeing an accelerant in terms of the maturity of our industry my base cases that we're accelerating in the maturity and as we come out of this Crypt of winter you're going to find even better products and better Solutions so going back to this idea we've got this map we've got this pace that we're establishing I think it's also quite interesting to kind of think a little bit as to where do these Frontiers form where do these secondary branches actually happen in particular when you're trying to understand where are we going to next there's another fantastic framework that I want to introduce to you which is coined by this particular famous Harvard business professor called Clayton Christensen called jobs to be done framework goes if you look at the way that people think about product Market fit usually it's some way of traditional segmentation you identify a segment you study it you kind of look at ways that things they like things they don't like and you predict it from that fashion but it's the traditional way almost always is based on a core assumption that correlation is sufficient what Christensen suggests is actually we need to go beyond that from correlation to causation what are the things what are the jobs to be done that people are willing to pay money for to hire a solution to solve and to me I thought the best way to kind of explain this was actually to kind of take a little bit of a step into bullish and how we've been able to use this particular framework and how we've been operating in the branches that we are in this broader map when we started bullish back in 2020 there were two major themes that we identified the first was this space was going to grow Capital was going to come in but that Capital was going to come in largely in a more sophisticated professional manner institutional in nature and it's going to demand a number of things from this industry including scalability and deployment of liquidity the other thing that we noticed was that this space is going to grow and it's going to be more regulated over time and so fast forward November 2021 we launched bullish as a centralized regulated Exchange and the idea was simple cover the hygiene factors around the regulatory stuff make sure you do proper kyc make sure you do proper AML make sure you properly segregate client assets cover the basis because the focus should be actually around the differentiating point of how you help people to deploy capital and so from a liquidity perspective we said well amongst a sea of exchanges that are out there we want our core differentiated to be one that was deeply rooted in technology and so at bullish we decide to build at the core of the exchange the use of automated Mark makers now for all of you who a little bit more newer to this space an automated Market maker or an amm is a technology where you deploy assets into this technology this amm you define the price boundary as well as the spread and it makes markets for you and we decided to do a little bit differently as well and combine it together with the central limit order book to provide a really sophisticated framework and interface for professional Traders now you've got a problem you've got a technology solution it then leads to the next thing which is what's the value proposition of all this and for us it was quite simple and amm provides a unique source of liquidity every dollar in this amm is not a dollar anywhere else in the street doing the same thing the second is that these amms they price things independently there's no external reference data there's no Oracle independent price discovery on the platform and these amms now tuned to provide tight pricing with deep liquidity and so you got a problem you've got a technology you've got uvps the idea is then to find the jobs to be done so throw away the traditional segmentation if you are someone that's looking to trade and find Alpha the proposition is a unique source of liquidity independent price discovery type pricing deep liquidity we're one of two endpoints defining Alpha you think about using this idea of best execution in capital markets this was something that was discussed at length for the last decade how do you achieve best execution particularly around things like the cost of execution a similar idea if you have a unique source of liquidity if you have independent price Discovery if you have tight pricing with deep liquidity we're one of the many venues that you're connected to achieve that particular best execution and you think you know this is great Michael in theory it's really cool you've got a problem you've got a technology solution you've got you know uvp and you found your job to be done well for me it's the fact that we've actually been able to do a total trade and volume of 100 billion dollars in our first nine months the shows that we're getting the job to be done so if you think about the way that we've talked about this what have we established there's a map there's an innovation trajectory that has started from blockchain there's these secondary branches that have emerged around jobs to be done all of that is compounding the momentum that's happening in this main trajectory and as you're pushing this forward you look at the broader context and what you're finding is that this current context I believe my base case is it's actually accelerating the maturity of our industry which leads me to my final conclusion even in the winter I'm bullish thank you and have a great conference