Layer 2 Stage | Operating Advice: How L2s and NEAR Built Through the Bear Market

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   all right next up on our operating advice session we're gonna have Dave Balter from Flipside crypto talking about how l2s and near built through the bear Market he's from Vermont and fun fact about Dave he both loves and hates music so please give it up for Dave Balter okay okay so let's uh let's roll back the clock to May of 2022 uh everyone's talking about being in a bare Market largely precipitated by our

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   uh friends at Tera slides clicky clicky clicky there you go okay so largely precipitated by our friends at Tera now this didn't feel very much like a bare Market it felt fat and lazy and soft and cuddly and kind of cute so you fast forward now 18 months later here we are today this is a little bit more like what a bear Market feels like it's a bear in a bag now the last 18 months

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   have been brutal SPF FTX Celsius blockfi tourists have left regulation by litigation countless startups have failed and among others l2s their protocols blockchains have had to do a lot to survive during this era so what I've been asked to speak about today is how did l2s perform in this bare Market or if you want to think about it differently why blockchains are like grocery stores with sports teams that

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   operate like Banks now bear with me on this I promise you it's going to be interesting so like all good stories this Story begins with milk rolls if you don't know what milk rolls are they are a soft round British bread they're created in 1863 or so most associated with Blackpool out of the UK and if you live in the UK you may go to Tesco to get your milk rolles now about 20 years ago two decades ago uh Tesco was doing an evaluation of all of their products

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   in across all of their stores and they noticed something pretty obvious milk rolls sold really poorly nobody wanted to buy milk rolls so they went to pull them off the shelves they were going to get rid of milk rolls across all stores until one analyst internally did a study and found out that the top 1% of all buyers in the store people who bought the most most often came there solely to get milk rolls and so you can imagine

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   what Tesco did they left the milk rolls on the shelves and the lesson is your most loyal customers are likely to behave differently than others which brings us to sports teams and speaking of the UK we're going to talk about a sports scham called Derby County now some of you might not know Derby County they go on record for their 20072 2008 season which was the worst record ever they had one win eight draws and 29

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   losses it got so bad that the opposing team would stand at the Midfield line and they would kick goals in from the Midfield line just to make fun of the opposing team now what's amazing about this is that even with this history 23,000 attendees showed up to every single game and in 19 out of 23 Seasons they were the top 20 of attendance he so what's happening here that even in bad

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   markets your loyal fans are going to remain loyal which brings us to the last piece which are banks now we've all been through 2023 most of you probably remember earlier in the year svb was the third largest bank failure in US history some some background on svb they were founded in uh 1983 or so in 2015 they supported 65% of all us startups and by December of 2022 56% of their loans were

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   to venture capitalists 85% of which were uninsured so now due to some poor risk man management decisions due to Rising interest rates uh the VC they got in trouble and the VCS went out and told all of their portfolio companies to take their money out of svb and so the classic Bank Run was on uh and svb had a bit of pain and by March 17th of 2023 they declared bankruptcy and the lesson here is that banking the only thing that

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    matters is how much liquidity you have okay now you may be wondering why I'm telling you all I'm going to remind you again that the data shows that blockchains are like grocery stores with sports teams that operate like Banks okay now the data I'm about to show you you're going to ask where the hell did you get this data the data comes from Flipside crypto there's 140,000 analysts in Flipside crypto they produce 88,000

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    queries every single day they produce 123 dashboards every single day you might ask why they do that the first reason is is because the data is entirely free so anyone can come use that data to do whatever they want with it they can download it to their heart's content run queries do everything they want to do with it and in the ultimate bare Market hack if you're an analyst you can come and get paid by us to run

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    queries okay now let me show you how this works um we take delegations from our blockchain partners we stake those delegations we turn that into yield and we take that yield and we break it break it into little bite-sized Bounty payments and we use those to incentiv analysts to build on demand whatever is needed so if we want to go ask a bunch of analysts what happened to l2s in a

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    bare Market um they will actually give us all sorts of insights that we can begin to base this on so let's get to the data so the first thing we're going to show you is that truly in a bar Market l2s acted like Banks and they pursued liquidity so here's the first bit of data none of this is going to be a surprise you've got arbitrum at the top 1.8 billion in assets 400 million

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    from GMX uh you've got optimism at 600 million um they have $68 from me so that adds to the tally there you have base at 300 million eror which is ZK Sync has 115 million and near which is not an L2 has 70 million that's really important okay liquidity is essential it's critical for solvency for most l2s it's the thing that powers Defi and lending and dexes and everything in between but there's also a problem which is liquidity is a fomo shell game he take

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    for example ZK sync ZK sync as we all sort of know has been a Hot Topic lately they raised 458 million in capital three and a half times out of arbitrum uh and everybody's waiting for a ZK sync air drop if you go online you're going to see all sorts of blogs that say like oh here's how you do all these things to get your ZK sync air drop when it happens and now what does that do that

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    means that people in this space who have liquidity in other l2s are shifting them around so at the right here you've got a z a a sanki chart which shows that 550 million of ethereum outflowed into ZK sync last month alone okay that is assets sloshing around and so while these liquidity pools are critical they are very fleeting and so much like a bank which you might change for customer service or points or some other reason you're going to watch this money move

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    around it's a bit of a dangerous game which brings us to sports teams if you think about near there fans might be developers and if you look at what their developers are doing on GitHub you can see it's a pretty powerful story at the top you've got repos 100 repos top 100 repos and beneath that from March of 2018 or so going forward how many developers are starting to contribute to the ecosystem so here's some fun stats 1. 8,000 or so 1,800 or so uh developers

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    have contributed according to Electric Capital there's 20,000 developers in the whole Space so you've got nearly 10% of the audience 2,000 repositories created 5.4 new repos are being created per day now with 1.12 commits per day on average so pretty stellar information now what happens when developers start behaving well on chain is they begin attracting users and the way that they do that is that they those developers build old applications so yesterday we heard from

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    Cosmos AI uh 3 days in August and September a million new users were added to near from cosmos's technology now Cosmos if you don't know is Omni Channel shopping it sort of helps retailers predict exactly what Shoppers are going to do and the way that they did this is they built an app called Kai Kai now Kai Kai is what they call shoer tainment it gamifies the idea of shopping you might

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    download some wallpaper and it shows you ads you might get a drop for a special product that only shows up for a 100 seconds and you got to buy it right away it's got celebrities and all sorts of other stuff and it's driving people right in to want to buy more and more and they get rewarded in crypto for that okay now you might be asking yourself like loyalty shopping I've seen this

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    before it's called Groupon how many people shop on Groupon today yeah you zero this guy almost gave me one that's true most of us don't shop on Groupon anymore we don't really care about it it's good for whale watches by the way if you want to go on a whale watch that's where you might go Groupon has 1.42 billion in assets right now okay so when you talk about loyalty all of us I mean me included I don't shop on group on nothing against Groupon but I don't job on Groupon but holy crap that's still pretty big all these years later the most loyal fans remain loyal

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    over time okay now this whole time you're probably scratching your head and say but what about the goddamn milk rolls I care about those milk rolls top one 1% of Shoppers how do we think that the loyal customers who are hanging out within near how do we think they're behaving maybe differently from others which is true on average the customers or the users in near who are doing five or more transactions that's happening

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    four to 10 times more often than on other chains okay so four to 10 times more than on other l2s or blockchains so about 2 million rolling last quarter you got about 2 million wallets with five or more transactions in near and in other comparables they're less than 500,000 less than 200,000 okay so what does that look like from a retention basis which becomes the ultimate question are people

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    sticking around for near year you have about 28% retention over two months and other chains 23% 15% lower and lower okay so what does this really mean if you want to think about this users who show up to blockchains for liquidity behave very differently than users who show up to take part in daps and other types of programs and if you're looking for long-term retention and engagement you're going to go after folks who are

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    developing products that are going to sustain users for the long run so let's summarize a little bit here um liquidity is important but extremely high risk those are your Banks okay so you got to have liquidity but it's very high risk creating developer loyalty is critical those are your sports teams you want developers to be there your fans are going to stick around and your best users will behave differently once they start to engage much like the milk roll

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    bu in a grocery store okay so the lesson here if you haven't figured this out yet is you well if you if your bank doesn't have enough liquidity then there's not enough money to buy milk rolls to put on the Jersey of your favorite sports team possibly okay but this is crypto so if you stake the Jersey you're going to get milk R socks nobody wants socks okay it's probably not true okay if you want

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    more data on layer 2's tkv research is an amazing analyst he built a dashboard on flip side called layer 2 Wars um it's at FS crypto.com layer2 definitely go check that out updates in real time pretty amazing stuff um and I was asked a little bit since we're talking about bar markets I was asked a little bit to sort of summarize what it might be to like to build in a bar market so I have four

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    tips for you if you're building we have all got sort of gone through the last 18 months four tips for building in this recent bar market so the first is avoid building for the bull we heard a lot of people actually trying to build products waiting for a bull market to come back you got to build whatever product you build you got to build for the time you're in at the time you're in it otherwise you're at problem two which is you are going to struggle to survive if

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    you're not here you're not going to be able to get into a bull market so you might have to do some things you might have to reduce employees you might have to churn out some stuff but you got to size your business to survive number three let the tourists leave hey this is really important both your users many developers many users might go elsewhere that's okay okay they were here for a period of time they're gone and some of

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    your talent that maybe were recruited in from big companies during the last bowl Market they're going to go that's okay because the last piece is you want quality wallets to stick around quality users and wallets will stick around for the long run okay so the last thing I'll leave you with is I if you're like me the last six weeks are felt a bit different sort of like a maybe a nicer bear is coming and maybe we're heading towards a bull and this should be this

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    should be a good thing for you because if you''ve realized it by now the best companies actually get built during bare markets thank you