DeFi: From Apps to Primitives | Carvas - Cherry Ventures

[Music] that's built on top of that ecosystem so that's also something that introduces switching costs in crypto secondly intangible assets uh there's mostly just brand I think uh copyright's not really a thing um intellectual property is not really a thing closed algorithms are not a thing right so I think there's essentially just brand and I think that in Crypt or in specifically which is what what I care about uh brand just appr proxy for how lendy that asset or has been around how long has it been around with how much tvl and henceforth how safe it is if something has been around with billions of tvl for many years uh the brand that that builds up it's kind of like a proxy for the end user that it's safe right um and that it hasn't been exploited so far so it's probably less likely to be exploited in the future uh versus a new thing then lastly Network effects and deficient scale I think these two boil down to liquidity Network effects in crypto so these would be uh every LP in a de wants to be in the deex that gets the most trading volume and any trer using a de wants to try in the Dex where there's the most LPS right so there's a lot of liquida network effects that get established in crypto as well and I think that's also just like in web to uh the most important one then sinking in the sack I I I basically want to present a thesis that successful defi protocols want to sync in the stxs Meaning go down and become more defi infra for their specific vertical instead of the defi app which is what they all start with right um and case studies for that how's that happening now I brought three uh starting with unop so unop V2 is a very simple app I think it would be very easy to categorize unisoft V2 as just an application right it's somewhere where you can go to LP and get a meal for your pairs or some somewhere where you can go and try uh one token for the other there's not that much built on top of it uh there's obviously a bunch of Forex but there's not like a full ecosystem built on top of just unop uh V2 and and other defa projects using that however unop V3 I think it's already a little bit below in the D5 stack or in the amm stack in the sense that there's already some things built on top of it right there's for example liquidity managers because that help people positions are concentrated they're not full range you kind of have to pick the price between which you're comfortable providing liquidity for that pair and so a bunch of different liquidity management protocols have emerged let's say rakis gamma um Melo finance and a couple others that just are sits on top right in the stack on top of unop and allow LPS to more efficiently or more easily manage those LP positions and there's other things right I mentioned derivatives for example some people are trying to build derivative protocols that utilize D LP positions in unop V3 as their uh kind of like base asset and then use the payoffs of of those positions to try to build synthetic derivatives on top so for example if someone LPS into unisoft V3 they're kind of like short volatility right if volatility happens they lose money so and if volatility doesn't happen they make money on the fees and then V4 uh the one that's going to launch this year I think is a huge step in this direction of becoming more defi infra and not so much def app uh most of the people that are going to utilize unisoft before I think are going to go via other things like unisoft X which is also announced and unop V4 is built as something that is trying to become um a priority defi infra for liquidity uh the reason for that they announc the concept of hooks right hooks is just a piece of code that you can uh attach basically to any uh pool that's inop before and the idea is to have a bunch of different people that previously would have built other separate projects or other separate dexes or Dex designs just take those ideas and build on top of unisoft V4 and just add to the amount of things that are built on top of that and to the modes of the de then Moro uh Morpho started out as a simple app that optimized the rights of lending and borrowing assets on a and compound right so uh some of the assets would get matched peerto peer instead of peer Topol and the percentage of assets that would get matched peerto peer would get a little bit better yield both on the borrowing angle as well as on the lending angle this is a very simple app right and it's something that's uh very obviously built on top of another project right because of these obviously their growth and even their REM would kind of be limited to whatever the underlying projects would have as well right they wouldn't be able to grow beyond what T has in terms of tvl or what compound has in terms of tvl so the new product from Moro marho blue announced a few months ago it's basically a lending primitive uh in this chart it sits below where aen compound sit where aen compound are still relatively close to the app player right they they still manage risk they're still um very much so user facing and all of the the aspects that would make something an appp but Morpho blue is much more of a primitive very simple code very uh low amount of lines of code and something that is designed again just like unisoft before for people to build on top of so the idea is that that there's going to be these things called metamorph of vaults there's already some of them which are going to be uh lending Market implementations built on top of the Primitive which is morphol blue and then these ones are the ones that sit at the same layer in the stack as aen compounds and then lastly the last example dydx dydx obviously uh one of the major burp dexes um dydx V3 for example was something that was built already on nl2 but on starx which was uh a specific type of L2 that was itself built on top of ethereum being a layer two right and at some point and it was super successful right um the product was super successful dydx V3 but at some point they decided to sync and build their own chain called dydx chain which doesn't rely on ethereum and doesn't rely on starak and there's a bunch of reasons for that as well uh one of the main ones is that they get to control more of the stack right it's almost a vertical integration where they're not just um an app that has revenues and has users as an app but they're also a Chine that already has a lot of the man because of the app demand itself but it is also going to capture value at the chain level and is more defensible like that too there's a bunch of other examples obviously this is a very short presentation 20 minutes so I couldn't be able to just list all of them but uh I think once you start looking at Defi and defi strategy through this lens of every app wanting to sync and become BEC more like defi infra instead of a a defi app you start seeing it everywhere so micer synthetics and Lio are other examples that are pretty much as good as as these ones presented and then uh just as a recap why and how right the thesis that we're trying to defend is that successful def5 protocols want to sync in the stack and why and how the why is because the deeper you are in the stack the deeper your MO is as well we've seen how modes from traditional businesses translate into crypto businesses or crypto protocols and having things built on top of you having other projects integrate you it's much easier if you're defy infra than if you're a defi app obviously and then uh secondly obviously you can capture more of the value which is uh what happens and if we believe in the fat protocol thesis that we saw in the beginning uh things that sit lower in the stack are valued by the market and empirically they are in fact higher than things that sit on top of that infra and higher in the stack so both because of mode building uh ideas and mode build and there's a mode building strategy as well as from a value capture perspective and from a valuation perspective I think those are the two wise why this thesis has been playing out and why I think it will continue to play out over over the coming years and then how uh we've seen three different approaches the first one uh unop I think is more gradual eventually becoming a little more complex and relying on additional project and additional uh Builders to build uh on top of it just because it it like the full-fledged version would be too complex to build as an app in itself then we saw Moro which initially just launched something built on top of another Thea project and then decided to basically take two steps in that uh syncing strategy and become something that other Landing markets could be built on top of so basically becoming as deep as possible in their own D5 vertical which is lending and borrowing and then we lastly saw uh DX which uh was a per stex and now is a per stex but also a blockchain in itself the DDX chain so these are like three hows or three different examples of how the syncing in the stack can happen and is happening uh and and this is essentially our thesis and my thesis is that D5 projects will most likely all start out as end user apps achieve product Market fit that way achieve scale users all of that and then when they're starting to think of how does this become something bigger that captures more value and that's more defensible over the long term they'll start considering how how they can syn in the stack of their own specific the5 vertical and that's the presentation thank you for the time if you guys want to reach out this is my email this is also the fund that I work at Cherry crypto s stage fund mostly by in Europe but investing globally so feel free to check us out and uh feel free to reach out to me as well thank you so much