Dialogue with Pacman: Blur only encourages liquidity; Blast targets the underlying asset interest-bearing market
The start of the cycle requires fundamental innovation, which has not yet appeared.
Original title: Ep 19 - Building from first principles
Original source: The Decentralised.co
Original translation: Nan Zhi, Odaily Planet Daily
In the 19th episode of The Decentralised.co’s Podcast "Building from First Principles", hosts Joel and Saurabh discussed with Pacman, the founder of Blur and Blast, the origins of Blur and Blast, Pacman’s judgment and analysis methods on the market and products, and Pacman’s judgment on the crypto market cycle.
Odaily Planet Daily will compile the key parts of this article. In order to control the length and ensure the reading experience, half of the content has been deleted. Interested readers can listen to the full content in the original Podcast.
Viewpoint Overview
· The problem with OpenSea and other NFT markets is that they position their customers as consumers. They really think that NFT is a product that you like to buy, hold and buy. Pacman believes that a large part of users should be defined as traders. (Odaily Planet Daily Note: Just like what Pump is doing now, the community culture characteristics of Meme have been removed, and users only focus on trading tokens with various different names.)
· The problem with the difficult design of the incentive system is that it is difficult to avoid manipulation (referring to large-scale witch attacks). In conventional retroactive airdrops, users will do a lot of random operations, which Pacman believes is a huge waste.
· Liquidity cannot be forged like the number of addresses, and whether Farmer exists or not, it provides liquidity for the entire ecosystem, so Blur only incentivizes one thing, that is liquidity.
· The significance of the points plan is that the project party can directly guide users (avoiding users' random operations) and accurately track users' performance.
· Blast still targets the gap in the market: passive interest on underlying assets and gas income for developers.
· The big cycle of the crypto market has not yet begun, and it is still waiting for a fundamental innovation.
Interview Highlights
How did you start trading NFTs and plan to start Blur?
In 2021, after selling my first startup to namesheet, I started to really get involved in NFTs, minted a blitmap as my first NFT, and finally sold it for about 25 ETH. So after that, I was fascinated by NFTs.
I started trading NFTs regularly. I wrote scripts to analyze metadata and I really fell in love with it. When I was doing that, I noticed that the infrastructure for trading NFTs was very suboptimal, everything was slow, it kept crashing, and I needed to use dozens of different tools. So as a trader, I really knew that something better could be created, so I co-founded Blur with my co-founder.
What was wrong with OpenSea, the market leader at the time?
Interviewer: When you were thinking about building Blur, OpenSea had over 80% of the market share, what were the plans to replace it?
Pacman: As a trader, the experience of using OpenSea was terrible, it was so slow and painful. You talked to several other people and several other traders, and almost everyone had the same experience. From a user perspective, it was clear that something better was needed.
As a trader, I usually want to see a lot of information, such as rarity data, sales data, listings, and bids. I need a lot of information for traders. If you trade tokens, you've probably experienced this interface. If you use Coinbase, you have this real-time trading experience where everything updates instantly, it's very information dense, and you use all of this information in your trades.
This is not the experience on OpenSea at all, it's more like a marketplace, like eBay or Amazon, where they (users) are shopping. The mistake they (developers) each made is that they really think of NFTs as a product that you like to buy, hold, and buy. So they really treat it as a shopping experience, and I know as a trader, I like to buy NFTs, but there's also a large portion of users who buy and sell these NFTs who are actually more like traders, so we built for that group of people when almost no one else was.
I think it's no secret at all, a lot of NFT marketplaces, even the people at OpenSea, they're capable people. They have very deep insights into the data team, so they know where their volume is coming from, what the numbers are. I think a lot of it is just cultural, like Apple, at least under Steve Jobs, was very different culturally than Microsoft under Bill Gates. So a lot of times it's not that there's any unique information, it's just that the information is viewed differently. So I know if you look at OpenSea's behavior, and their public comments and things like that. They're really just ignoring the trader perspective. I think they think that's irrelevant, or they take it for granted that their primary customer base is shoppers. And I look at that completely differently because I'm more of a trader.
What was the underlying incentive design for Blur like?
What's interesting about Blur is that it was basically planned from day 0. We knew we wanted to build a marketplace for professional traders. We wanted to use a clear points program to incentivize behaviors that we thought would drive market growth, and this was all conceptualized before we built or started writing a line of code. Other projects have basically done retroactive airdrops, where every protocol that releases a token, basically doesn't mention the token, they just hint at it, and then users do a bunch of random actions in the hope of getting the airdrop. Then the airdrop is at some point in the future, sometimes it's a few months, sometimes it's a few years. Imagine you're a startup and you're acquiring users, and then after you acquire them, you're paying them. This retroactive airdrop model makes no economic sense to me. So let's be clear, if users are going to be incentivized through airdrops, they're going to put a certain amount of effort into getting the airdrop. Let's focus our energy on things that we know are valuable, rather than leaving users guessing. Because leaving users guessing is just a distraction, let's make it very explicit so they can accurately track their performance. From first principles, it really makes sense to make an explicit airdrop rule.
The problem with incentive systems is that they are hard to design, and it's especially hard to design an incentive system that can't be manipulated. A lot of the most common incentive systems are when projects do non-linear rewards, and all it does is incentivize users to use 10,000 addresses and farm on 10,000 addresses, and it doesn't actually achieve what you want it to achieve. On the one hand it does sometimes benefit the project, and their user numbers are really increased in a completely artificial way. But I don't think it's worth it.
The Blur incentive system incentivizes only one thing, which is liquidity. The problem with liquidity is that you can’t fake it. You can spin up 10,000 addresses pretending to be 10,000 people, but you can’t directly spin up $10 million deposited into the Blur Bid pool. So even if farmer-type participants join, they can only participate in ways that we have pre-defined as good for the market, which is liquidity. The existence of farmers and the like is not a net negative for us because the incentive system is designed with these constraints in mind.
The Origin of Blast
When we were building Blur, my co-founder and I started looking at various Layer 2s because we wanted to learn by playing around with L2s. As we dug deeper into L2s and talked to different L2 teams and their founders, we found that there wasn’t anything completely new or counter to existing market structure, which is why we felt the need to build Blast, we could build something more capital efficient.
We realized it was possible to create an L2 with native interest, where the assets wouldn't default to 0% interest like a traditional L2. Instead, you could give it the default interest rate that exists on Ethereum and stablecoins, and then like MakerDAO's DAI, there's about 7% interest on SDAI.
What do you think are the key criteria for L2s?
We had two realizations that there were two dimensions and primitive concepts that could be improved that were not optimized on existing L2s. The most important thing as a developer is what primitive concepts these infrastructures can drive. The first one is native yield. Take Blur, which historically has about $100 million in TVL over its lifetime, but the TVL in these pools has not generated any yield. If these TVLs were able to generate yield, they would be a very good source of income, incentives, or rewards. This is pure market inefficiency.
We realized one day that this market inefficiency was also prevalent on all the other L2s. For example, there were billions of TVL on these different L2s, but these TVLs did not generate any yield, so the market was completely inefficient in this regard. We realized that we could build a network where ETH itself would automatically generate yield. If ETH itself generated yield by default, this would actually change the behavior of the entire system because now both users and applications are earning yield by default.
The second original concept is more oriented towards incentives, where as a developer you have two choices: you can launch on an existing L2, or you can create your own L2. Creating your own L2 has the challenge of attracting liquidity, but the benefit is that you have control over the gas fee revenue, which means better value capture for developers.
What we want to achieve is to create a network where the gas fee revenue can actually be returned to the developer. So as a developer, if I build on Blast, not only can I get the native yield, I can also own the gas fee revenue that I generate as a DApp.
Views on the Current Crypto Market Cycle
Pacman:There is a common perception right now that this cycle hasn't really started yet because it's just been driven by ETFs. I think there's a lot of credibility in that perception.I don't think there's anything that's close to the level of traction that we're seeing in 2021.
Interviewer: How do you define it though? Like Pump.fun is making millions of dollars a day. We're seeing friend.tech bringing in about $50 million for developers. How do we define traction in these markets? Is it millions of users on-chain, or is it just revenue? I'm also curious why you think the 2021 cycle is bigger.
Pacman: If you search Ethereum and Solana on Google Trends and compare them, you'll notice that this cycle peaked around March, but it still pales in comparison to the 2021 cycle. Google gave Ethereum a 100 for searches in May 2021, and at the peak of this cycle, Ethereum only had a 26. So that's a 4x difference just from Google search trends. That in itself suggests that this cycle is much smaller. But if you're a participant in the space, a lot of times you can tell by feel, and frankly you can feel that there are fewer people around, there's less mainstream attention, and there's less energy overall, and that's not to say there aren't revenue opportunities, but this cycle is definitely nowhere near the levels that were there before.
If you look at each cycle, usually the previous cycles were driven by some fundamental market changes. For example, when Ethereum first launched, we had ICOs, which made it easier for people to launch tokens and raise funds more easily around the world. This greatly reduced the friction of issuing tokenized assets. In 2020, we had the launch of Uniswap, which really launched DeFi. Now we can finally create markets for tokens on the chain and trade these tokens on the chain. Then we had the DeFi summer, and now you can lend and borrow, and all those yield farm opportunities, which are new things. Even in 2021, we have a new asset class, which is NFTs, which tokenize images and put them on the chain. These are all new things.
This cycle is basically more of the same stuff, but faster and cheaper. You could classify it as something new, but it's not really a fundamental innovation, it's just an improvement in the speed and price dimensions. So I think another reason why this cycle feels so different is that it's not driven by this fundamental market change. I think when we see this fundamental market change, that's when we'll see the really significant cycles emerge.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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