Welcome back, this week Anita and Lucas interviewed MC Lader, COO of Uniswap Labs, the entity managing the world’s largest decentralized crypto exchange. A former managing director at asset management firm BlackRock, Lader explained how her management team oversees a fully decentralized protocol and shared her thoughts on the exchange’s future path to profitability. Subscribe to the Chain Reaction newsletter to dive deeper: https://techcrunch.com/newsletters
Welcome back, this week Anita and Lucas interviewed MC Lader, COO of Uniswap Labs, the entity managing the world’s largest decentralized crypto exchange. A former managing director at asset management firm BlackRock, Lader explained how her management team oversees a fully decentralized protocol and shared her thoughts on the exchange’s future path to profitability.
Subscribe to the Chain Reaction newsletter to dive deeper: https://techcrunch.com/newsletters
Helpful links:
https://techcrunch.com/2022/06/21/uniswap-acquires-nft-marketplace-aggregator-genie/
https://techcrunch.com/2022/04/15/uniswap-labs-coo-says-mainstream-crypto-adoption-hinges-on-accessibility-and-ease/
https://techcrunch.com/2022/04/11/defi-giant-uniswap-launches-venture-arm-to-invest-in-other-crypto-companies/
Lucas Matney 0:00
Hey everyone, it's Lucas and Anita. Welcome to chain reaction where we unpack and explain the latest in crypto news drama and trends breaking things down block by block for the crypto curious. Every Tuesday, we interview an expert in the web three space.
Anita Ramaswamy 0:19
This week, we talked to MC Latur, CEO of uniswap. uniswap is a decentralized exchange that listen prices, crypto assets, and it essentially enables peer to peer market making, which means that the platform allows people to trade crypto without the need for a centralized third party.
Lucas Matney 0:34
So that's different from stuff like buy Nance and Coinbase. Because those are directly run by these management teams like companies and uniswap has a bit of a different structure. So we got into what exactly makes it different with MC Yeah, and
Anita Ramaswamy 0:46
I really want to have MC on the podcast this week to help us make sense of some of the chaos going on with different defi protocols right now that we've all heard about before joining uniswap last summer MC was actually a managing director at BlackRock. So she was able to share her perspective on defy as someone who has a really good understanding of the traditional finance world as well and helped us sort of sort through some of the themes that we're seeing unfold in that space.
Lucas Matney 1:06
Yes, let's get into it. MC, it's
MC Lader 1:13
great to have you, and thanks so much for having me. You know,
Lucas Matney 1:16
I guess I wanted to start stuff off a little bit. Could you walk us a bit through the structure of uniswap? So I know they're different entities. There's like the protocol, the labs, the venture side, can you give us an overview?
MC Lader 1:26
Yeah, it's really not as complicated as people think it's just different and new. So uniswap Labs is a Delaware C corporation, the team is based in New York City, it's a team of people come in every day and build products on top of the uniswap protocol that make it simple and safe to use. And a few members of that team developed the uniswap protocol itself. So uniswap protocol itself is an open source protocol. It's a series of self executing smart contracts on the Ethereum blockchain, a few other chains, and that is open source technology. And if uniswap Labs disappeared, and if all of our team went did other things, then the Enigma protocol will continue to exist. And the key decisions with respect to the uniswap protocol, like whether you introduce new fee levels, or whether it's deployed on other chains, those are decisions made by a community of token holders to people who own what's called the uni token. And the uni token was created in September 2020. And given away to everyone who ever use uniswap, as well as the people who invested in its original development as well as uniswap Labs, as well as the various small holder. So all that is to say people always ask, Are we a Dao? And first of all, dowels are kind of broadly defined, poorly defined in general, decentralized autonomous organizations. But yeah, the uniswap protocol is effectively governed by a Dao. It's governed by a community of token holders who then vote, one vote per token on major decisions. And uniswap Labs, as I mentioned, is a normal Corporation of people come into frankly, we actually come into an office every day because we like hanging out with each other, and who are building stuff on top of that, but there are many other teams that are also building the uniswap protocol,
Lucas Matney 2:54
I guess, if like the uniswap protocol would continue going on without uniswap Labs, what's the point in having uniswap labs and raising venture funding in the first place?
MC Lader 3:02
So first of all, the first uniswap protocol, the first version was funded by a grant from the Ethereum Foundation. And I think that's pretty important in defining the ethos of the protocol, the community, and then even the company itself. So Hayden Adams founded well, he first invented the uniswap protocol, in 2018, funded by $100,000 grant from the Etherion foundation at the time, there were two other decentralized exchanges that have raised a ton of money, one by a venture capitalist and the other in an Ico and they had no product and hated by himself with this small grant, develop something that basically just worked better. And it was at a time when there was a lot of fatigue and frustration with how many ICOs hadn't necessarily delivered on some of their promises. And so I think that's a big part of its initial product market fit hidden, then raise some pretty modest venture capital just because you have to pay people salaries. And certainly in America, it's still a little bit easier to do that and fund initial software development through a corporation. What's exciting about crypto is that that is starting to change. And they were seeing lots of new models to fund the development of software, especially open source software, why does the company still exist, it doesn't need to exist for the protocol. It exists because there's now a team of people that are really excited about all the things that we can build on top of the protocol that make it simple and safe for people to trade to buy and sell tokens to access the prices, for example, through our the Oracle are now going to start offering NF Ts. So starting in September, you'll be able to buy and sell NF T's aggregated from all the major NF T marketplaces on the uniswap web app that has nothing to do with the protocol. And so it's not so much that the company definitely doesn't need to exist. It's more that we now are a group of people led by paid and as a CEO, who are excited enough about the potential to bring more people into web three and more people into crypto and start building products to do that. Got it. I want to say one thing, though, it's not that we I mean, we still do some development on the protocol, but we're just not the only team that does that. But the protocol itself to be really resilient and to outlast Hayden and the original A handful of people who coded it, there needed to be many, many teams who are working.
Anita Ramaswamy 5:03
Right. Yeah. And, you know, I've spoken with you before about this. And it seems like a lot of the differences in sort of how uniswap operates versus a lot of these other crypto lenders that people talk about is the fact that it is a decentralized versus a centralized exchange. And I just want to talk a little bit about that, if you can sort of explain for our listeners, what is the difference between operating a decentralized exchange like uniswap, versus some of the centralized exchanges that we've seen have a lot of troubles lately,
MC Lader 5:26
exchanges almost a misnomer. So when you think about an exchange in an entity that is centralized, it lets you buy one thing, for one thing for another, typically, those have a central limit order book, they have some kind of order book that like tracks the buy, and the sell, bids and offers, and then matches them. And then the centralized exchange takes a cut of that, right? That means that you're dependent on their technology, you are dependent on their business model, you are dependent on them to determine what has a price and gets to be bought and sold. And you're dependent on them to determine what that price is. And the fundamental difference in core innovation of uniswap is that it let anyone create a market for anything, and anyone become a market maker rather than relying on centralized and specific teams to be market makers being exchanged. So what that means is that that whole activity that I just described, of letting you exchange things, instead of it being managed by a group of humans, and the technology that they've developed, you just swap with anybody create a pool on this sort of open source software on the Internet Protocol, and deposit two assets. So you could do a need a token and Aetherium. And then Aetherium, has a pretty liquid traded price. And then the supply and demand of a needed token and Aetherium will determine the price based on an algorithm that's I think, the core of defy, it's taking things that historically have been done by people and proprietary opaque software, and making them open source software systems in the same way that like SMTP, for email to an exchange of information that happened in many different forms, and not necessarily transparently and created a single open source protocol that could allow you to exchange messages for each other. And then you can build lots and lots of stuff on top of that. But that's a fundamental shift in markets. And in financial services. We really haven't lived through this before, where core functions of how financial services and markets work can now be done by code.
Anita Ramaswamy 7:10
Got it. So uniswap is like the SMTP. And a centralized provider of defi services would be like a Gmail
MC Lader 7:16
uniswap is like the SMTP. And the centralized providers like the post office, okay? And not just because one is slower. Sure. But because Gmail then is like, if you notice what protocols smtp gmail is, like, you know, swaps web app, is it's like the right and then there's, there's hundreds of different websites that let you access the uniswap protocol. So you have the sort of the protocol layer, and then the application layer that allows you to access it makes it simple and safe filters out spam organizes your inbox gives you a nice UI makes it usable for a normal consumer.
Anita Ramaswamy 7:44
Got it. That's super helpful.
Lucas Matney 7:45
I'm curious, like, how do you guys approach risk management, so you want to ensure that yeah, some of these liquidity challenges don't happen on uniswap, like they might on Sci Fi.
MC Lader 7:53
So first of all, uniswap and Ethereum, which is that sort of initial version is on have never gone down. So that's a major difference between a centralized exchange, there are times when you just can't trade in a centralized exchange, right now, we actually have even better market depth, which is kind of like a metric or indicator of liquidity than the major centralized exchanges, then by Nance and then Coinbase, in certain pairs. And I think that's just a testament to how this incentive structure and this market structure works so well, when I didn't explain is that instead of uniswap, taking fees, the protocol or the uniswap, labs, any fee to swap using uniswap protocol is redistributed to the liquidity providers who provide the liquidity to support that swap. And that trade. Now, that makes it a two sided marketplace. That's what incentivizes the provision of liquidity. So again, it's sort of exploiting what has been a proprietary profit center and making that available to anybody. And it really kind of eliminates the natural benefit to scale, there's still a benefit to expertise and to people who may have you know, more experience, right liquidity, but it really does mean that anyone can be a market maker to go back to your question risk management. So if you go back to the the smtp gmail analogy, there really isn't kind of risk management quality control, if the SMTP layer necessarily. It's up the Gmail layer, right, that's where your fifth spam gets filtered out, you still get a terrible message sent to you at your Gmail address, you just don't have to see it. And so what we do is through our web app, we do try to protect users by things like warning buttons. So if you are about to place a trade on a pool that has insufficient liquidity, and it's going to cause you to have a price that you absolutely would not expect, or which is another way to put that as like slippage, meaningful slippage, then we'll have a big red box that pops up in front of you to let you know, right, or we block some tokens that are problematic or suspect or and we're transparent about the rules that we use to do that. And then one thing that we're developing that we're going to launch this fall is token warnings. There's now enough data on what kinds of behaviors indicate a token might be particularly risky or might be subject to a rug bull. Yeah, I know that term. And we now filter tokens for that and we're gonna flash red, yellow. A green warnings so that people know the kinds of risks that they're taking. So that's one of the things that we're doing to just create like a safer user experience. So people don't feel like they're in the wild west all the time when they're engaging with defy, but in terms of like, how do you avoid sort of not having liquidity? If you think about what happened this spring with Luna? Yeah, when you're training with a centralized exchange, you couldn't see the depth of the order book, you didn't know what the liquidity was on uniswap. There's a visualization effectively, of like, where the liquidity is deposited. So you have transparency as to where you have liquidity and where you don't?
Anita Ramaswamy 10:30
Yeah, so I do want to talk a little bit more about this liquidity question, because I know there was some big news this week about uniswap, sort of making this collective decision through the protocol so that uniswap, token holders will be getting a percentage of transaction fees, which, from what I've read, it seems like that sort of might jeopardize some of the profits that liquidity holders are also making on the platform. There's obviously some pros and cons. And I'm wondering if you are concerned about liquidity providers sort of getting upset about this decision that, you know, I know, has been voted on a bunch and then finally sort of went through like, are you worried they're gonna start leaving the platform, so it actually
MC Lader 11:00
has not been approved? There's a couple stages to the process. So there's sort of like a temperature check, get a sense as to whether people might be interested in putting forward a formal vote. So it actually hasn't been approved. Okay, okay, you're right, that is actually the first time it's ever been voted on, there's even been like that level of that kind of what we call snapshot assessment, whether it should go through this is a decision for the community. And for the token holders, this is a decision for those who have the ability to participate in the decision that they're making uniswap Labs doesn't actually participate in governance, we actually don't vote in the governance process, because we really want to support the decentralized decision making of the overall community. But let me just explain what we're talking about, because people may have no idea. Yeah, absolutely. And it's an interesting example of the kind of decentralized decision that a Dow or a community governing software like the swap protocol can have. So I mentioned that today, there are no fees that go to, you know, swap labs or anyone other than the liquidity providers themselves. Sure. So the you know, swap protocol does have embedded in it, the ability for the token holders to vote to turn on a fee switch, where a portion of the fees from trades would then go instead to token holders. There's a lot of open questions. If you look at the discussion on the Governance Forum, part of what the community has to decide, is that should that be for all tokens? Should it be held in a central place or in a treasury and reinvested in some way? Or should it be distributed to the token holders? So there's a lot to be discussed, and I think what specifically been proposed is actually some research. But look, as a general matter, like we don't comment and offer an opinion, I just wanted to explain sort of what the context we're talking about is, yeah, and just underscore that like, that's the part of what makes the protocol decentralized, is that this is all happening transparently in the open and a Governance Forum where all the people who would benefit or perhaps be affected by it can weigh in.
Anita Ramaswamy 12:51
Got it. Does anyone from uniswap labs or the entity itself hold any of those tokens, though?
MC Lader 12:56
So uniswap labs, the company and employees do hold tokens, but we have a policy where we don't vote then.
Anita Ramaswamy 13:03
Okay, got it. Got it. Yeah, that makes sense.
Lucas Matney 13:05
Yeah, I guess I'm just generally curious, this SEC stuff against Coinbase. And some of these unregistered securities, I think there was like, generally guidance that they were like, it doesn't really matter how its marketed. It's how it looks in practicality. So I guess like when you see some of this stuff, and obviously, some of the tokens that they took aim at are kind of a little on the where the Bitcoin side. But when you look at some of that, what is uniswap Labs think as like a central entity tied to in some capacity, a protocol waving that the whole
MC Lader 13:35
space needs some regulatory clarity. And we think that the uniswap protocol itself, the ability for anyone to have a market for anything, the ability to represent different forms of value that aren't represented in today's market. These are like forward steps, these are important steps forward for the world, and that we need new rules to address them. So like when I look at the insider trading case for Coinbase. Like I think the Coinbase blog post actually really was really smart and thoughtful in response to it, they were pretty clear, they were like, look, this was in violation of an internal policy they had they cooperated with lawmakers on it was not the kind of behavior that they were engaging in. But that this is not the way to make policy by going after a specific bad activity at a specific actor. Instead, we need to assess given that technology has completely changed how we can represent value and how we can exchange value. What are we solving for with all of these rules? And if we're solving for protecting investors from taking risks that aren't disclosed to them, then we need to address disclosure? Well, the great news is blockchains are generally transparent. And so you can actually have a much better and improved disclosure regime wine, you could have instant real time disclosure of certain key metrics for major protocols, right? That's what happens. You think about you see total value locked, or you see the total amount traded on the uniswap protocol all the time. So if we're talking about disclosure, there's like creative policy solutions and ways that we can like move forward, the whole space or all markets and that if we're worried about investor protection, I just gave you the example of the token warnings that There are ways that you can identify what's risky, that doesn't require like quarterly disclosure and like interpretation of accounting principles. So like there's a lot of opportunity for improvement on today's rules to address the core risks. But I think we need to talk about what activity are we worried about rather than classifying different forms of value, but in different existing bucket? Does that make sense? Yeah, I mean, I guess it's kind of like one last thing, I'll just say it's kind of like saying that every token is a security is kind of like saying every piece of paper is an equity stock certificate.
Lucas Matney 15:28
Yeah, certainly a lot of like examples of things that probably will need to be regulated in some capacity going forward. But I guess like on that note, it just kind of seems like sci fi has found its way into like a definitive path towards regulation after like, so many retail investors got screwed here. So I guess like, are you concerned in any capacity that they're going to be some lawmakers who are just going to ham handedly scoop defy into some sci fi rules.
MC Lader 15:52
Like, of course, we care about having smart regulation, smart policy, because I think in particularly, as a company, it's based in New York City, it's chosen to operate in New York City. And for me, as an American, you know, America has led in financial services and in technology, and this is the intersection of the two. And so I just personally hope that we end up with legislators, regulators, listening to try to understand the technology trying to understand like what kind of responsible innovation is going to be good for the country, they're regulating much less like more broadly, but it's impossible to shut some of this down. And so I don't worry, I worry instead about like unintended consequences. I worry about overlooking bad actors, because there are some virtual and we've seen that kind of shakeout over the past few months, and instead trying to curtail, like responsible innovation that has the potential to allow people to have much, much more access to markets and to kind of redefine how we think of value.
Anita Ramaswamy 16:45
One thing I wanted to ask you about, as you know, you're part of uniswap labs, and I'm wondering about two things specifically, which are sort of the considerations that companies would have to deal with. And the first one is profitability. I'm wondering how you're thinking through that just given I know that you have some pretty high costs with these payouts, liquidity providers, so you know, how are you thinking about achieving profitability? The second question, which kind of goes hand in hand with that is about m&a. I know that Yoona swap labs acquired Genie, which is this NFT marketplace aggregator. So I guess just as you kind of go through some of these decisions that you know, regular company would have to make, what's the difference in how you're thinking through these things.
MC Lader 17:18
So we don't actually have costs, we don't pay anything with liquidity providers. So going back to where we started, you've got a swap protocol, which has no revenue stream associated with it, but has the redistribution of fees to liquidity providers, that's just straight from the person who's swapping on the protocol to liquidity provider. So it doesn't actually cost anything, you can think of it almost more like like the payouts, liquidity providers are more like earnings in a system that actually has no cost. Got it. But the company like uniswap, labs, I mean, we pay people salaries, and we pay rent in our office, and we pay for their laptops. So you know, we have some costs. And over time, you know, we'll think about ways to make sure that we can cover those costs and grow our company. But there's a lot of established business models and revenue streams for the kinds of products that uniswap Labs is building and that defy companies are building on top of the decentralized protocols. So it doesn't need to affect the protocol. So to speak, for example, many people actually charge already today to trade on top of swap protocol. So Coinbase wallet when you swap on Coinbase wallet, or when you swap on meta mask, you're swapping using an aggregator across protocols, but because the swap protocol typically has the best prices, almost 70% of the time, you're swapping on the swap protocol. And that percentage really, really varies. But let's say very frequently, you're swapping the swap protocol, and they're charging you like 100 basis points or 87 basis points. So people are already making money on top of it by providing a convenient way to access it. And there's a lot of things that you know, swab labs could do to drive revenue and become profitable. But what's most important to us is we think about all the different ways that exist to make money from products is that what we do demonstrates that web three companies can be different, and that you can be profitable without relying on like data and compute as a moat, to still let people hold their own data and their own assets and to still really champion open source software and transparent products. So it's really more of a question of your second question. So we bought this company called Genie, that is in NFT aggregators, so they aggregate across the different NFT, marketplaces, open sea, wearable, etc. We bought them this spring, because our mission as a company is to unlock universal ownership and exchange, you know, what we are excited about is making it easy for anybody to own their own assets and to exchange value well beyond how we kind of conceive of what things that have value today. And it seems like an FPS have become a really important on ramp for people to get involved in web three to sort of get excited about crypto. And it started to seem a little bit odd that there wasn't a single destination you could go to and buy and sell off tokens and all the NF T's ultimately if you use a web app doesn't matter. To place for digital value and digital goods, then why distinguish based on like the underlying file format? Sure. Some things in the ERC 20 fungible token and some things ERC 721 A non fungible token. So that's why we acquired Genie. And so the direction of travel there was like, who are the users who are coming to our web app? And what do they want? And where is there too much friction in their experience of web three? And how can we improve on that? And so that's why we're integrating NF t's very, very soon starting this fall.
Lucas Matney 20:26
Awesome. Hey, well, I know we could jam on some of this stuff for hours. But I appreciate you coming on and kind of talking through some of the stuff that human swap Labs is up to. So thank you.
Anita Ramaswamy 20:35
Yeah. Thanks so much, and it's
MC Lader 20:37
totally My pleasure.
Lucas Matney 20:42
We'll be back every week with interviews with the experts in the web three space. Catch Anita, Jackie and myself every Thursday for the latest in crypto news. You can keep up with us on Spotify, Apple Music or your favorite pod platform and subscribe to a companion newsletter also called chain reaction. Links to the newsletter and more from our guests can be found in our show notes and be sure to follow us on Twitter at chain underscore reaction. Chain Reaction is hosted by myself. Lucas Matney along with my co host and Anita Ramaswamy. We are produced by Yashad Kulkarni and our associate producer is Maggie Stamets with editing by Cal Keller Bryce Durbin is our Illustrator Alyssa stringer leads audience development and Henry pic of it manages TechCrunch his audio products thanks for listening