Tokenomics and Ecosystem Growth with Tom Schmidt of Dragonfly

In this episode, Cobie & Ledger talk to Tom Schmidt of Dragonfly and talk about bunch of topics around token economics, building communities, growing protocols, and more.

Audio Version


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Show Notes

Tom Intro

 ⁃ Partner at Dragonfly Capital (@dragonfly_cap)

 ⁃ Owner of elusive Gauntlet x Nike hoodie

 ⁃ Formerly product at 0x and PM at Instagram

Dragonfly Capital & Tokenomics

 ⁃ East/West focus. Crypto is very different from Web2 in that you can’t really launch locally, you’re global from day 1. Dragonfly help bridge the East/West gap for teams and products

 ⁃ 2019 was harder to do deals remotely, people would meet snd pitch in person. Not really a thing anymore – your reputation precedes you online

 ⁃ Day to day work is 25% team calls, 25% portfolio support, 20% research and staying on top of what’s going on in the space

 ⁃ Cobie: How much of your previous product experience has helped in your VC Role? Tom: It was a bit of learning curve from IG to 0x. A lot translates over but the token aspect changes how you think about product, it can be the growth mechanic, the same product but with different tokenomics can have a huge difference in outcome

 ⁃ Cobie: Even having a token as a defence mechanism is a requirement now

 ⁃ Tom: Prefer the method of building a great and sticky product then adding the token on top of that otherwise you run into leaky bucket theory once the incentives run out

 ⁃ Dislikes revenue to token holders early on, ideally it should be used to make the product better and grow but treasuries have gotten so big that teams probably don’t know how to spend it

Airdrops & Sybil Attacks

 ⁃ Divergence Ventures farmed 10% of RBN airdrop

 ⁃ Returned following being found out and the following drama

 ⁃ Tom farmed it personally long before the airdrop email, continued to farm after that point and so has since voluntarily returned all farmed RBN from his account

 ⁃ An individual exploiting via sybil isn’t as bad as an investor that then also dumps day one

 ⁃ Teams are experimenting with different ways to achieve fair distribution but there’s still a lot to work out, it’s a really interesting design space

 ⁃ Need to hold people to a high standard to self-regulate in the industry

Trends in the next 6-18months?

 ⁃ Product structure

 ⁃ Derivative products

 ⁃ DAOs & DAO tooling

Ethereum Scaling

 ⁃ ZK-rollup maximalist

 ⁃ For some applications and purposes even the rollup won’t be cheap enough and so maybe there will be room for other chains

 ⁃ You can also rollup a rollup e.g. Mina. Cobie: “Inception was a warning, don’t go too many rollup’s deep or you’ll get stuck there forever”

 ⁃ Heterogeneous blockchain future but unsure what path it will take

 ⁃ Cobie: Should L2s have tokens? Tom: Decentralising the L2 could rely on having a token and also it’s a case of trying to protect against forking or a competitor

 ⁃ There will be a fee for L2s but unsure who will pay it, token holders, users, maybe the L1?

 ⁃ Solana has been surprising with the amount of developer activity happening there

 ⁃ Cobie: When chains are EVM compatible you get a lot of copy-paste projects to grab money over and over. Potentially means that the teams are less sticky, opportunity over legitimate drive. Solana is more novel, the product designs maybe aren’t all novel but there’s a lot of work there being done to make things sticky. Those ecosystems that do that are much more likely to perform in the next cycle

Why won’t my 0x go up? (– Ledger)

 ⁃ It’s structured as a gas rebate which doesn’t really scale proportionately to the size of a trade

 ⁃ Reworking a token is a sensitive topic

 ⁃ 0x we’re extremely early on a lot of things like governance

Bitcoin Projects?

 ⁃ Lightning network seems like a real path forward for Bitcoin, they’re building a real developer network

 ⁃ It’s not incentivised the demand to use it is natural either by need or by people who love Bitcoin

Working in Crypto?

 ⁃ It’s a great time to be a founder, raising funds is super competitive right now

 ⁃ Passion about the space and research is desired when hiring

 ⁃ Crypto is much more exciting and intellectually interesting than traditional tech jobs

 ⁃ Taipei is a solid place for crypto in Asia alongside Singapore

⁃ 2017-2019 had SF as a central crypto hub but it’s not really the case anymore and teams are becoming more geographically spread out

Final Alpha

 ⁃ Invest for strength, not for a lack of weakness

 ⁃ Focus on your sleep and getting high quality sleep

Notes by Luke

Music by GiovanniPickle