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CSX: Week 3 Notes

Jayme Hoffman

Jayme Hoffman

Here are my notes from Week 3 of a16z Crypto's CSX. This week, which focused on tokens, included talks on protocol design, security, compliance, and more.

Talk: Eddy Lazzarin on Tokencraft

  • Token = balance in a crypto program

  • Four types of tokens

    • Memecoins

    • Stablecoin

    • Arcade token

    • Network token

  • Memecoins

    • Explicitly no purpose

      • If purpose, then more interesting than a memecoin

    • Gambling and purely speculative

    • Could be decentralized, could be a scam

      • Scam = deep asymetry of info in the memecoin

    • Memecoins have been around for a while

  • Stablecoins

    • Prixe fixed to a target asset

    • Backed by collateral

    • Regulation likely

  • Arcade tokens

    • Price dampened

    • Limited transferability and use

    • Continuous issuance and redemption

    • Wouldnt be reasonable to buy them and expect price appreciation

    • Not a security because price dampened and issuance

    • Example: SLP from Axie

  • Network tokens

    • Integral to decentralized protocol

    • Potentially high volatility

    • Complete economic model

    • The most interesting: You don't design a token; you design a protocol

  • Faucets and Sinks

    • Fundamental power = issuance

    • Always consider the sink

    • Protocol as a Marketplace

      • Supply = parties creating good

        • Network capacity, blockspace

      • Demand = people pay to consume that

        • People pay for compute

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  • Bad reasons for tokens

    • Incentives

      • Pay for this is terrible; printing money and throwing it somewhere

      • The infinite ad budget you didn't pay for is not protocol design

      • goal = pmf

        • make a product people want

    • Voting

      • who wants to vote?

      • voting is a last resort

    • Payments

      • Talking about network tokens

      • Evidence

        • People do not want to pay in protocol tokens

        • People don't like paying with a volatile asset

      • Payment is not a direct sink

    • Good reasons for tokens

      • Align the network

      • Support network effects

        • Pay for network effects - Incentivize things that lead to network effects

        • Solve cord start - token issuance can help

      • Securing a protocol

        • Pay for security

          • ETH proof of stake pays for security

          • People should be paid to take risk

        • What is your protocol for selling?

          • Is this good and high quality = verified

          • Pay to ensure quality

  • Incentives changing over time

    • What about the thing you want to change over time?

    • Manual programs

      • You want to be able to walk away from the system and it still works

      • Initially, use manual token allocations aggressively.

        • You're trying to find PMF

  • Path to decentralization

    • “Decentralization is the regulator strategy”

    • End users don't care about decentralization

      • They don't care about monetary policy

      • They care about banks don't steal money, hold value, high-quality products

    • High-quality products

      • Built on the most solid foundation

      • if network token, needs to be decentralized

    • Where to start?

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    • Centralized but functional

      • Points

        • Blackbird doing a great job

          • $Fly = offchain (good idea)

          • Nobody is going around buying fly

          • People are excited about it

      • What about testnet?

        • “If transfer entire balance, was it just mainnet all along?”

          • people can still be burnt

          • markets can still happen

      • How does it look?

        • Did people lose money

      • Avoid risk

        • Tweet bad, and the price goes to 0?

    • A simple test

      • if the team disappears, what happens to the token price?

        • if goes to 0, you’re not decentralized

    • Memecoin decentralization

      • Bottom left - decentralized but no functionality

        post image
      • Why not go right?

        • Legal risk

          • The minute you benefit, you are moving way back up the decentralized path

          • You can become a security again

        • If totally decentralized, how are you going to find PMF?

          • Easier when centralized because you’re in control and you can feel pull of the market

  • When to consider token design?

    • The earlier, the better

    • Design a protocol first, then see where a token's role is necessary—it may not work without one.

    • Design: Centralized app over here, Decentralized protocol over here

      • Imagine if Coinbase made Bitcoin

      • Separately, they have a business with a client of that protocol

      • Compliments together - “I have a protocol I like but I can think of a company i want to be a client or vice versa

    • Does value go to equity or token?

      • When we invest, we prefer both to preserve alignment

  • How to distribute tokens?

    • Automatic programs

    • Manual programs

      • Wish people thought more about them

      • Airdrop

        • We think of it as something to give to users

        • Uniswap example

          • Anyone that swapped

          • Those were primarily developers

        • Discount to regular people

          • Think more about long-term stakeholders who are going to build on it

          • Those are the people who are most valuable

        • Retros

        • Grants

        • Prizes

        • Partnerships

Talk: Matt Gleason on Security Best Practices

  • Note: this was one of the most dense and actionable talks. I recommend watching it when it hits YouTube.

  • Security in crypto

    • Who are the parties that want your crypto

    • What are they doing to try and get it

    • How can you address it

  • Types of threats

    • Independent actors

    • Criminal organizations

    • Lazarus - mid-level nation states

    • Sand Eagle - The scary one

    • Criminal orgs and Lazarus are the ones to care about

  • Motivations

    • Hacktivism = defacing websites, leaking tools and emaik

    • Financial crimes = steal crypto

    • Espionage = ip theft, steal secrets

  • Targets = anyone that has crypto

    • You

    • Your org

    • Your customers

  • Attacks against accounts

    • Mostly

      • Sim swap

      • Password guessing

    • TTP - people

      • phishing and bribery

    • TTPs - dependencies

      • find someone the target depends on, hack them

  • In order of likelihood

    • someone gets phished

    • someone gets sim swapped

    • someone password guessed

    • smart contract exploit

    • disgruntled employee

    • highly motivated

  • How to avoid?

    • For you

      • avoid using sms for auth

      • use uniqu passwords

      • harden account recovery

      • MFA = most important

    • For your biz

      • MFA

      • SSO to force auth across services

      • Keep track of dependencies and due diligence

    • For your customer

      • How do you make sure the password isn't guessed

      • Forced OTP

      • Notify user on new logins

  • Audits in crypto

    • Almost everyone who gets hacked thinks they cant be

    • You need your system reviewed

    • How?

      • Find someone good

      • Reserve some of their time

      • Get the report and fix the issues

  • Crowdsource audits

    • Dont have as many examples of code getting hacked

    • If the code isn't up to snuff, you will get 100s of comments

    • After you do it, you need to get another audit

Talk: Hilmar Pétursson (EVE Online)

  • Hilmar

    • Student of history

    • Expert on economic primitives

    • Talked to oil industry - “omg that is well game-designed”

  • Eve Online

    • Players work on projects that take 100s of people … for a year not months

    • Mission: Make virtual worlds more meaningful than real life

  • How is crypto like virtual worlds

    • Tokens equally not real

    • Jobs aren't real

    • The economy is equally not real

    • What is meaningful?

  • Kant on rules for happiness

    • Something to do

      • The game

    • Someone to love

      • Friendships in the game

      • Real-life friends have never been tested

    • Something to hope for

      • The next expansion

  • Real life has failed people

    • 7B people, only 200m people like what they do

    • Can we solve that?

      • Give people agency

      • Give people meaningful social networks

  • Why decentralization

    • Today: user agreement

      • Nothing belongs to you

      • You must adhere to the rules of CCP

    • Eve is like Bitcoin

      • Derives its value from social consensus

      • Lindy trust properties

  • Layers

    • is there a way to replicate it in a game simulation?

    • is there a way to design it so that it's better than real life?

      post image
  • On collective suffering

    • Eve = Where nobody dies, but great loss can be experienced

    • Something magical about the collective suffering

      • Underestimated part of biology

      • People seek this out

        • adventures together

        • marathons

    • Crypto is similar

      • Winters = collective suffering

      • Such bonds → What winter did you join?

  • Building in crypto

    • Very similar to when we said were going to make a database game

      • People were like, “Weird.” .. “elves in Iceland are going to use a database to make a game”

    • Comparison

      • Slow: databases 20 years ago were slow

      • Transferability: happening already, claim they don't want it, but people are already buying/selling

      • Financial: People have more money in Even than in a bank account

        • Average Eve savings = $1300 vs America savings = $500

        • Should be able to pull on that in case of an emergency

          • “Why would I disallow that?”

          • What is the moral principle of making that wrong?

    • Challenges

      • Secrets

        • You need to be able to have secrets → ZK

        • As soon as we announced (ZK) all the people working on this came out because they needed to test their ideas

      • Agency

        • You need to limit agency (i.e., moving from one solar system to another) → Every action has a cost

      • Blockspace

        • “There is a fight for blockspace anywhere and anything”

        • What hits in block matters a lot if a spaceship does or doesn't survive

        • Theres a queue to get into the frame

          • the queue is unpredictable - “When is my message going to get in”

          • never-ending warfare

            • similar to crypto

        • Time dilation

          • Similar to real-life

          • If a lot going on, time dilates

          • Time dilation = allows you to strategize more

          • Real-time, only so much you can do

    • In some ways, crypto is a big MMO (Solona vs. ETH)

  • If you were starting as an entrepreneur today?

    • Find people who love what you are doing

      • Better than millions that just like what you’re doing

      • “We like it, and if you like it, come join”

      • Avoid ambivalence

    • Start there and then diffuse into mainstream

      • main things started as niches: metalica, apple

  • On getting inspiration

    • Iceland is small

      • People in your social network are weird

      • You can’t specialize in anything

      • the initial team were artists, i wasn't a game dev

    • Deconstruct history and evolution

      • economists = good at analyzing the economy

      • physics = good at emergent behavior

  • Scaling large groups

    • Getting 10k people to do anything is very hard

      • sporting events, concerts, protests

    • Concert = single player replicated 10k times - eddy

    • Burning Man took a long time to scale up

    • Military takes decades

      • Doctrine → Train people

      • Takes 100s of years to train military

    • Eve took a decade to get to 10k

  • On design

    • I like to think of design as in “de-sign”

      • Take everything away

      • Figure out what is essential

Links that came up

Launcher Labs Progress

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 11 months ago

Longcast of my favorite lessons from CSX: Achieving PMF is like holding a winning hand. - @jasonr Design your product for the dinner table. - @benrbn Web3 is the hardest place to be an entrepreneur. - @moshaikhs Build a great community by genuinely giving a fuck. - @jing Network tokens are the most interesting token type. - @eddy Find people who love what you are doing. - @hilmar More cryptography is better. - Valeria Nikolaenko The new Five Forces: the source of competitive advantage has changed. - @skominers Regulation should reflect democratic values. - Michele Korver A brand is a collection of beliefs people have about your company. - @steven Fundraising is answering questions about a business. - ariannasimpson.eth All decisions in the beginning compound more than you think. - @alexblania View life as art and paint pictures. - @chrislyons Think smaller to go bigger. - @shanemac.eth Communities are the most powerful force. - @cdixon.eth

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 11 months ago
sixFarcaster
six
Commented 11 months ago

what is a network token?

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 11 months ago

a token used in a protocol i like @eddy’s chart here notes from talk https://paragraph.xyz/@jayme/csx-week-3-notes

Eddy Lazzarin 🟠Farcaster
Eddy Lazzarin 🟠
Commented 11 months ago

ETH, UNI, and MKR are examples of network tokens in my view. They’re integral to decentralized protocols.

Mikko Farcaster
Mikko
Commented 11 months ago

Love these snippets! Thanks for sharing.

BenFarcaster
Ben
Commented 11 months ago

1000 $DEGEN

a16zcryptoFarcaster
a16zcrypto
Commented 11 months ago

🔥

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

Here are my notes from Week 3 of @a16zcrypto CSX. 1/ This week focused on tokens - some highlights below 🧵 https://paragraph.xyz/@jayme/csx-week-3-notes

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

2/ Key token categories • Memecoins • Stablecoin • Arcade token • Network token

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

3/ Memecoins "Memecoins have been around for a while ... Look at CoinMarketCap in 2013" Explicitly no purpose. If they have a purpose, they are more interesting than a memecoin. https://warpcast.com/jayme/0x990c07a5

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

4/ Network tokens The most interesting: You don't design a token; you design a protocol. https://warpcast.com/jayme/0x0c08d4d8

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

5/ Faucets and Sinks Fundamental power = issuance (always consider the sink) Protocol as a Marketplace: • Supply = parties creating goods (network capacity, blockspace) • Demand = people pay to consume that (people pay for compute)

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

6/ Reasons for tokens Bad • Incentives - infinite ad budget you didn't pay for is not protocol design • Voting - who wants to vote? • Payments - people do not want to pay in volatile protocol tokens Good • Align network • Support network effects • Secure protocol

ColinFarcaster
Colin
Commented 1 year ago

Can you say more on why incentives are a bad reason for tokens?

BijiFarcaster
Biji
Commented 1 year ago

interesting how the sentiment moved away from tokens = incentives. it's not long ago that tokens were framed as tools to overcome cold start problems @jesse @a16z

BijiFarcaster
Biji
Commented 1 year ago

@jayme this article from @a16z argued that tokens are useful incentives for early contributors https://a16zcrypto.com/posts/article/go-to-market-in-web3/ could you share why the narrative shifted to being "bad" when used as incentives?

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

7/ Path to decentralization “Decentralization is the regulator strategy” Where to start? • Centralized but functional, manual distribution programs • Memecoin: bottom left - decentralized but no functionality

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

8/ Crypto is a lot like virtual worlds • Never-ending warfare • Like one big MMO (Solona vs. ETH) • Tokens, jobs, economy are equally not real • “There is a fight for blockspace anywhere and anything” - Hilmar (CCP Games)

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

9/ Kant's Rules for Happiness • Something to do → the game • Someone to love → friendships in-game • Something to hope for → the next expansion

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

10/ Real life has failed people 7B people, only 200M like what they do ... Can we solve that? CCP Games Mission: Make virtual worlds more meaningful than real life

Jayme HoffmanFarcaster
Jayme Hoffman
Commented 1 year ago

11/ Collective suffering There is something magical about collective suffering. • Underestimated part of biology • People seek this out (adventures, marathons) • Crypto is similar (Winters = collective suffering)

CSX: Week 3 Notes