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CSX: Week 3 Notes

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

  • 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?

    • 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

      • 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?

  • 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

Launcher Labs Progress

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