Hayden Adams Explains Uniswap and the Rise of DeFi

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:19)

So Tracy, you know, we recently had the Coinbase IPO.

Tracy Alloway (0:23)

Yes, we did. A big moment for crypto that was, I think the analogy I most saw used was that it was like crypto's coming out party.

Joe Weisenthal (0:33)

Yeah, I think that's fair. I saw it compared to the Netflix IPO, maybe some comparisons to the launch of the CME Bitcoin futures in late 2017, but certainly quite a big moment for the crypto world.

Tracy Alloway (0:49)

Yeah, it sort of, I guess it capped a really big year for crypto in the sense that we've seen this massive institutional adoption or at least a lot more than a lot of people had expected. We saw PayPal saying that it would allow its users to buy and sell crypto.

We've seen parts of Wall Street start to get more interested. We seem to be very, very close to getting that long awaited Bitcoin ETF. And so it really feels like all of that momentum sort of built up and then exploded in the Coinbase IPO.

Joe Weisenthal (1:24)

Yeah, that's exactly right. But there is an irony with Coinbase and you mentioned crypto ETF, but there is an irony with Coinbase, which is that with crypto, it's supposed to be cutting out legacy financial institutions. That's a big part of the sales pitch, but Coinbase just went public on legacy exchanges. But beyond that, Coinbase itself is kind of in a weird way, a legacy financial institution itself.

It handles fiat currency. People send in their dollars or euros or whatever, and from there, they can trade various digital currencies.

But they're holding dollars and all kinds of, they're a gatekeeper and they have to do anti-money laundering regulations and knowing your customer. And they have all kinds of personal information on their customers. You have to tell them your name and upload an ID and everything.

So although it's kind of like a crypto exchange, it's very much like, it is a legacy financial institution in some very real way.

Tracy Alloway (2:29)

Well, it's also a centralized order book, which kind of flies in the face of a lot of crypto ethos about decentralization and trading between parties without a third party in between them.

Joe Weisenthal (2:42)

Yeah, exactly right.

It bears many resemblances to a traditional exchange or traditional prime brokerage for its institutional customer or traditional online brokerage, like maybe a Schwab for retail traders. So it's only partially new. But that being said, there is a phenomenon that's growing in the crypto world. And I don't think we've talked about it yet, but it's been growing for the last couple of years. And that is attempts at creating markets that are truly, truly decentralized. So no company handling the trade.

Tracy Alloway (3:16)

Right. And so this is a really interesting project from a market structure perspective, because normally you would have a third party who's stepping in to provide liquidity as needed.

But if you just have market participants who are trading with each other in a truly decentralized environment, then you have to figure out other ways to encourage liquidity. And I think that's where this aspect of crypto actually becomes very, very creative. It's also where weird stuff tends to happen. And I think we're going to get into that.

Joe Weisenthal (3:51)

It's super weird. It's super different. It's a very different structure, obviously, if there's no company, there's no one to send your cash to.

But that, so that also is its own weird thing, how you solve that. But there's also no gatekeepers. There's no setting up accounts.

It's just a very different thing. But there is an argument to be made that a sort of decentralized trading environment is much more true to the crypto ethos.

Tracy Alloway (4:18)

All right, let's get into it.

Joe Weisenthal (4:20)

Yeah, I'm super excited to talk about this, to talk about DeFi, how decentralized trading works. We are going to be speaking with Hayden Adams. He is the founder and CEO of Uniswap Labs.

He is the inventor of the Uniswap protocol.

And this is basically a trading system that runs on top of the Ethereum blockchain. And it is a very big deal.

As of right now, we are recording this April 27th. Over the last 24 hours, one and a half billion dollars of trading volume has been done over Uniswap. That's about half of Coinbase. So here is this decentralized exchange that's half as big already as the preeminent crypto exchange. It's a very big deal, growing extremely fast. But I don't think that most people have any understanding about how this all works. And I would include myself in that. And so we are going to learn about Uniswap and decentralized trading and what decentralized finance is with Hayden. So Hayden, thank you very much. Thanks for joining, coming on Odd Lots.