Tokenization Is the Digitization of Value with Hayden Adams

It's really crazy how far Uniswap has come from, you know, my like side project that I was hacking on in Brooklyn. One thing I sometimes compare it to is people think about like people want to be like, well, what assets are Uniswap for? And I'm like, what videos is YouTube for? Like, it's an expressive platform and the point is, and certainly they focused on like, well, we're focusing on creators or we're focusing on gaming and you can do these focus areas, but I think people underestimate finance, like programmable value in the form of tokens and how much things it can be used for. And so Uniswap v4 and hooks became this project that was like, how do we create extreme expressivity while also retaining safety and scalability per use case and per need at a speed that people kind of couldn't believe. It's now doing more volume. It's the highest volume Uniswap deployment right now and it's doing like a, I think it did like a billion dollars in trading just on Robinhood chain yesterday, something like that. And so it's been pretty unbelievable and I think it's just a really good sign of the things to come.

No, no, it's really, it's both. I mean, it's really crazy how far Uniswap has come from, you know, my like side project that I was hacking on in Brooklyn, you know, a couple blocks from here, nine years ago to, you know, it's done $5 trillion in trading and it's being used for millions of assets and across the globe. And yeah, it's pretty unbelievable. That's starting to be adopted by, you know, we have like these various partnerships and people are using Uniswap across like, you know, Robinhood and BlackRock and the Fidelity stablecoin trades in Uniswap and the PayPal stablecoin trades in Uniswap and you have all these like, it's just crazy how far DeFi has come. You know, I worked on Uniswap since before DeFi was a word, right? Didn't say open finance or just crypto. And then we kind of pioneered, you know, we were part of this early contingent of folks that pioneered a lot of the early projects in crypto didn't really have the same level, like a lot of the projects built on Ethereum didn't have the same properties of Ethereum that made it unique, right? The decentralization of it, the kind of level of permissionlessness. And kind of we were part of this early crew of people that said, well, every application built on top of this technology should have these underlying properties and benefits.

But at the time, I mean, you know, Uniswap was like, I had a $50, $60k grant and then we had, you know, Bancor that had its $150 million on their ICO and I never thought we'd be where we are. But I think the thing that has, you know, I've spent almost a full decade on this now and I see no, you know, and I'm like maybe the most interested I've ever been in it because I think what we found is that this technology has just so many interesting ways that it can advance the world and I think that for me that's really exciting and motivating. So I think that like, you know, various folks in crypto have burned out over time, but I've just found that it's incredibly exciting to be working with, you know, like we were almost in this sandbox of early crypto adopters and engineers and all the early Uniswap users were other software developers and now we're in this world where we're having bigger conversations with bigger organizations and at a bigger scale and I think that's part of the point of why we did it in the first place is to have this greater impact. So yeah, for me it's really fun and really interesting.

Yeah, I think that, you know, people underestimate that one of the biggest value propositions of crypto is how it accelerates, or DeFi is how it accelerates how quickly you can build and customize. And to do that you actually have to scale up your ability to do that. And so like Uniswap v4, it's, you know, so recently Uniswap v4 hooks, which are basically full, you know, I think we learned, so Uniswap v2 was like this early simple version.

That's funny. Yeah. So, Uniswap, I mean, v2 was like this early simple model, but it worked. And then we, you know, v3 we took on the next biggest problem, which is how do we make it much more efficient and flexible. And v3 was almost like our best version of an very opinionated implementation of an AMM. And v3 has been incredibly successful. But then from there I think the thing we realized, you know, four-ish years ago now was that we're thinking about how can we advance this technology and automated market making has all these different ways and I'm sure we'll get into them in terms of how it can unlock interesting new value propositions and value for the world. But I think we realized that like, how do we do better than v3? The question, it became a question of like, well, there's so many ideas but there was no singular one and I think we realized that the things that further advance the space might be better for some market makers and not for others or some liquidity providers and not others. Some assets and not others. Some trading pairs and not others. And so what we realized is that the best versions of automated market making would be very different for different use cases. And so from there we were like, okay, we need to build an expressive platform within which we can very rapidly iterate and customize market structures. And so Uniswap v4 and hooks became this project that was like, how do we create extreme expressivity while also retaining safety and scalability. And that's how we got to this, and so hooks are like, I can sort of within the lifecycle of a transaction I can kind of customize any part of it but it's sort of done in this way that is easier to verify the safety requirements and anyway so we kind of, that's sort of how we got to v4 is realizing we needed way more expressivity.

And so now we're in this new world where we have v4 out and it's starting to unlock so many different use cases we had never even imagined. All the top use cases of hooks that we thought about when we built hooks, we didn't build any of them. Like there was like five ideas we had. We were like, 'Okay, this is worth building because we can do these five things.' We did zero of them, but we've done like 20 other hooks and they're starting to have real value unlocks. And it's letting us customize markets per use case and per need at a speed that people kind of couldn't believe in the past. And so that's kind of, and for us it was also, it's been very gratifying in some ways to see that recent adoption and traction of it because it was something like we made, this is all downstream of decisions we made four years ago and we had to put, and v4 was an insane project to kind of get through. And I think that kind of where we got here in this conversation was that just like, it kind of speaks to like, you can't, if you want to win in DeFi you can't stop innovating, you can't stop building because it's way too early. The technology is way too nascent. And so I think how we've maintained our edge, like if we had not built v3, I don't think we would be where we are today. If we had not built v4, we wouldn't be where we are today. If we hadn't built our, you know, some of the qualities of our front end, if we hadn't built our API, there's so many things that we had to build.

Yeah. And you don't know how fast it's going to go. That's something I've been, it's funny and it's good we were here talking about RWAs in part because, you know, earlier this year RWAs were actually, like people saw them coming a little bit but they were much smaller than they are now and, you know, I was talking about our strategy to the team and I was saying like, you know, like we can't, like there's this kind of, when you're in a company there's this desire to, everyone wants you to predict the future, everyone's like let's figure out what assets are coming on chain next and how do we be ahead on them. And so the way that I kind of encourage the team to approach it is like, well, part of the point of the technology we build is that tokenization is very scalable, like as long as these assets are tokens our technology can support it. Like let's figure out, let's stay on the pulse of things and when we see something start to be adopted or used early, like let's very quickly work on that and improve it and kind of iterate on it. And so when we see RWAs start to take off, like our main focus last year wasn't RWAs but this year we're seeing RWAs taking off more and we channeled all our focus into like, okay, let's make sure Uniswap is serving this use case of RWA the best it can be.

And so we've kind of worked on various hook projects and we've kind of been partnering with folks like Robinhood on Robinhood chain and that's where we've seen, you know, I think you saw it passed a billion dollars in tokenized stock trading and now we have liquidity pools for all the top stocks and those are kind of, and so we have this kind of interesting, yeah, it's like the mentality people don't, one thing I sometimes compare it to is people want to be like, well, what assets are Uniswap for? And I'm like, what videos is YouTube for? Like, it's an expressive platform and the point is, and certainly they focused on like, well, we're focusing on creators or we're focusing on gaming and you can do these focus areas but I think people underestimate finance, like programmable value in the form of tokens and how much things it can be used for. And like, you can't, and then this is also an internet-style technology where it moves at the speed of the internet and so you can't just predict, oh well this asset class is the biggest today and so it's going to be, and part of the value proposition for YouTube was that smaller creators can create new things. And so we've been very focused on that problem of how do we make our infrastructure useful for as many people as we can. And so it's been an interesting kind of...

Yeah, I think that, you know, look, they had been working with the Arbitrum team on their chain and were kind of excited about, they had this vision around RWAs and then for us we were just excited to see new assets coming on chain and the potential of their user base and their brand. And so we pushed to really prioritize our deployment of the chain there and kind of the ecosystem there. But I think none of us anticipated, I don't know if anyone, I think it far outperformed our wildest hopes and expectations there in terms of the traction and adoption. I think that's really good for the industry because it kind of shows that a player like Robinhood can come into the crypto space, partner with crypto-native teams, build something and ultimately get real adoption out of it. I think, you know, look, certainly a lot of the traction has been around memecoins, but there's also been increasing adoption of the RWAs. And then there's been this funny thing where crypto has often been memes and then Robinhood wanted to focus on RWAs. And then one of the things happening on Robinhood chain is it's like, it's RWAs and memes, right? RWAs and memes just smashed together in Uniswap liquidity pools. Yeah. And so that's, you know, for us it was us trying to meet the moment and make our technology useful to more people at a greater scale. And to see it now doing, it's now doing more volume. It's the highest volume Uniswap deployment right now and it's doing like a, I think it did like a billion dollars in trading just on Robinhood chain yesterday, something like that. And so it's been pretty unbelievable and I think it's just a really good sign of the things to come.

Yeah, it's such a great question. I think that I, um, I question, I got to it eventually and also will probably catch my answer eventually. It requires some stage setting. I think that I start with tokenization as, you know, and I view tokenization as almost like digitization. It's so, like, most information was digitized and, you know, why was it digitized? It's like because you can bring it on the internet. It increases the expressivity and the accessibility of it, right? Most information is available to most people in most places instantly. And that's a really incredible thing that we got with the internet. And so the same way most information was digitized, I fundamentally believe, it's a core thesis that drives all of my work, is that most value will be tokenized and for the same reasons, which is, you know, it makes it more programmable, it makes it instantly global and more expressive and kind of more accessible. And then I think that when you kind of, I think everyone in crypto is guilty of repeated internet metaphors but it's really hard not to. And it's because, you know, when you think about the internet and how the internet evolved, there was a good duality to it which was that there was existing businesses moving onto the internet, right? And that's your, you know, your like Amazon replacing Barnes & Noble. And then you have internet-native businesses and that's like social media and things that weren't possible before the internet, right? So you have old things being done more efficiently and then you have new things being done that weren't possible and then you have the convergence of the two. And that's kind of how you have to view tokenization. And that's why you have so, and to give names on them, like you have Uniswap is an example of something that is crypto-native or DeFi-native and wouldn't be possible without DeFi. And then you have RWAs are like the existing world of assets starting to move onto the internet or moving onto DeFi and in the same way that moving on the internet unlocked new capabilities for existing businesses, that's what DeFi is going to do for existing assets. And there's a lot of the kind of obvious ones that people talk about. The obvious, by the way, isn't bad. Like I'm not negging, you know, I'm not being rude about it, but like, I think that the obvious ones are, you know, like 24/7 and instant and global and lower cost and these are all true and all part of the story, but there's this broader thing which is programmable.

Yeah. Right. Like what the internet did is it made information, it created new ways to consume information that were new, but also made information ephemeral.

Yeah. So I think that one thing, and it's funny you can go back and watch early videos about people predicting the internet and some people got it really well. You have like there's like a David Bowie interview or something where he's like, well, it's going to be like this crazy. But I think that there's part of it is like this, but I think that there's some clear ones which is like, it will be more global inherently, right? It's not going to be as siloed by, like right now just like it's very siloed by jurisdiction and asset class and country and certain apps work with certain types of assets and it's very siloed by region and that's clearly going to go. I think that another thing that is, I think that there's going to be a lot less gatekeeping in who can participate in systems. And I think that's really critical. Right now like it's just very, there's a very high bar to having an asset and then having that asset traded on infrastructure that is easy for users to use. And so I think that a lot of it is like lowering the barrier to being an asset issuer, lowering the barrier to being a market maker. Like again the same way that YouTube lowered the barrier to creating content and having it distributed globally, blockchains are lowering the barrier to creating assets and having them trade and distributed globally. And I think that that's a fundamental part of it. It means that a lot of assets that are very poorly served by current markets might not be because, you know...

I think that I don't, so I weirdly, another, I sometimes I think of internet metaphors, sometimes I think in physics metaphors. But when I think of, you know, like, and to get, like sometimes people think of trading like it's a form of gambling. People talk about, people negatively say it's just speculating when they talk about trading. But when you, I think of it in terms of like almost like physics, like how do you, if you can more efficiently convert, so the mission statement of Uniswap Labs is unlock, you know, it's like basically unlocking value through universal exchange. And what I mean by that is that, you know, the same way that so much energy is held in a potential state, right? Like if you can more efficiently convert household electricity to, or like sunlight to household electricity, you've created a greater abundance of electricity in society and you've lowered the cost for more people. And that's not, and I think of exchange of value as similarly, like challenges to creating liquidity, challenging to creating markets, challenging to accessing them, friction points, fees within them, all these things are like attacks on the exchange and flow of value. And by doing so, and by kind of creating friction, you're essentially making it harder to realize the potential value of things. And so I think that, you know, I don't, you know, I think exchange of value as a physics flow problem is like, of course we want to, no one would ever dispute that you want to make it more efficient to convert sunlight to electricity, like that's clearly a good thing. And that's what I view as the underlying thing here. And that's a little abstract and I can kind of try to talk about some of the more efficiency unlocks of automated market making in particular. I think that, you know, with automated market making, that's the thing that we've most pioneered at Uniswap, it's not the only thing we pioneered but it's, you know, and the way I think about that is it's dramatically expanding who can be a market maker or who can be a liquidity provider. And that doesn't mean folks like GSR don't exist in my world. It means that it's not the only types of things that exist. And I think that market making firms have played a very specific role in markets. It's been historically a very important one, but there's a lot of room for efficiency improvements. And I think that when you think about, like I wrote this piece recently on correlated trading pairs and something I'm trying to tease out in that, and I think I need to write some more pieces because that one is talking about it through a specific lens but really what I'm partially talking about is that if you, part of what automated market making has done is it's separated out, it's decoupled things that are very bundled together in traditional markets, right? Like traditional markets all have to settle in dollars because that's the glue that connects them to each other. And traditional markets all have to kind of, and like most of the market makers are hedging all their risk and they're only, they're all delta neutral, meaning they want to have this exact specific exposure and then if a new asset comes along, they have to pay them a lot of money to market make on their asset. And there's this interesting thing which is that I think that something that has happened organically in DeFi is that market making has not evolved that way purely, especially on Uniswap. A lot of the profiles of market makers has changed and I think that's why it's succeeded, right? People look at sometimes AMMs back then they're like, well you can't just, you know, like there's inefficiencies so it must not be good and they think about high frequency trading firms as well these things are way more efficient so it must be good. But they're just different, and there's also very different efficiencies and inefficiencies and things that are not being well served. And an example of that and that I kind of tease in this post is just that, you know, like most market makers or a lot of market makers don't want the exposure to the assets that they're market making. If you do not want, and that's called inventory cost, right? And if you don't want your inventory cost then that's a thing you have to hedge and you have to hedge the risk and that has a cost too. And when you look at crypto and AMMs because we've automated the custody and the settlement and all you need is capital to market right now. And yes strategies can have an impact on your returns but again the return profile looks different if you have a different perspective on the market. And so what you have is like let's say that someone is LPing like ETH to a DeFi token like UNI or AAVE or Morpho or whatever, you know, you might like the people that are LPing those are often people that want exposure to ETH and want exposure to the DeFi token. And so the inventory risk that is a downside for a market maker market making ETH or market making AAVE or whatever is actually viewed as a positive for these people. And so partially what we're trying to do is segment kind of, so that's one part is that inventory risk. I think the best example of it and I think is stable pairs right now but I think that stable pairs are a look into what's possible which going way beyond that and that's kind of where the correlated pairs comes in. But like, you know, stable pairs so like the best, you, I highly doubt GSR is heavily market making on USDC to USDT. Not because GSR can't.

It's not because they can't market make it more efficiently than Uniswap. They actually can. Like let's say that Uniswap LPs are earning like a 3% return or 4% return LPing USDC, maybe a market making firm can do a 3.1% return or 3.2% too, but the delta is not worth the...

The juice isn't worth the squeeze. And that's what we call, you know, a lower cost of capital. And when you kind of think about that, when you think about it in terms of cost of capital and then you think about, like part of what automated market making is doing is it's letting us segment markets. So that's what even correlated pairs are talking about how not everything is paired against dollars now. Things are paired against ETH or things are getting paired against SOL or things are paired against stablecoins or against each other. And now we're starting to see tokenized stocks being paired against indexes or like SPY or QQQ or you could have specific stocks paired against specific market sector ETFs or you could have stocks paired against commodities like an oil stock against oil commodity. And this allows you to kind of segment your...

Yeah. Or like the probability of someone wanting to be long oil and long an oil stock is much more likely than someone wanting to be long oil and dollars at the same time. And so you can kind of find, you can source liquidity from people that already want to hold inventory which essentially lowers their cost of capital. And that's one part of it. The other part of it is just like when I talked about this delta, right? Like again the most efficient market makers on earth can market make USDC USDT more efficiently than Uniswap. But that delta is not worth it, right? And so our goal, you know, is to just raise the bar of automated market making such that you can kind of source liquidity from new people with a lower cost of capital and that makes up the difference and the efficient and potential. And so I think that there's sort of this really interesting kind of dynamic there. And so it's, and that kind of gets at like changing the profile of, it's not just like is it retail market makers or is it extremely, is it massive multi-billion dollar organizations that have servers that are plugged directly into the stock exchange servers because they have business deals with them which by the way is, and so I think that there's that dynamic. I think there's also dynamic of this more kind of open system that is easier to participate in and has more, is also creates more competition.