Introducing Gurnoor Singh Narula

At Placeholder, I hope to relate the blockchain revolution to historical technological trends as I explore how the methods of past technological evolutions are mirrored (and can be utilized) within this cycle. More specifically, I’ll be focusing my research interests on exploring the Institutional DeFi stack, the development of on-chain treasuries, and the modular vs. monolithic debate. I’ll also start tackling the intersection of game-theoretic auction design, consensus, and MEV, while researching LVR mitigation and methods that increase LP profitability, especially with the imminent launch of Uniswap v4. On top of all of this interesting work, I’ll keep in touch with my engineering roots as I explore zk-enabled tech (everything from zkVMs to zkApps, and more) as applied research and applications catch up to the theoretical use cases being explored. 

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Institutionalization = Network Success

“Better technology doesn’t always win” is an old adage in entrepreneurship with numerous well-studied examples from business history: standard vs. wider and more performant railway track gauges, combustion vs. electrical engines for inner city car transport, Qwerty vs. Dvorak as keyboard layouts, VHS vs. Betamax as videotape formats, etc. Similarly, while it is true that solving technical problems related to scalability, privacy, cost, and user experience is essential for driving the adoption of blockchain networks, the long-term success of individual networks is not only – and, in some cases, not even primarily – a function of their relative technical merits. It’s also a function of their relative institutionalization.

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Rollups as Virtual Blockchains in The Modular Era

The pioneers of new technology must raise a lot of capital to create foundational infrastructure, which can lead to over-investment and speculative bubbles. When these bubbles burst, weak firms fail, and market power consolidates around industry leaders and their paradigms. Through this consolidation process, we can identify the common elements across applications and isolate them into standard, modular components that can be open-sourced or sold as individual services. These abstractions make it easier to build more complex applications and enable a shift from capex-dominant to opex-driven cost structures that allow new products to launch faster and with lower startup costs. This pattern is now unfolding in web3 as new “modular” technologies, such as rollups, accelerate development and unlock an era of lean startup innovation. 

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AI Belongs Onchain

As the cost of producing artificial intelligence models decreases, the population of AI agents will grow exponentially. Agents will soon outnumber humans online, creating, consuming, and exchanging multitudes more information than humans ever could. But if we get, say, a million-fold increase in digital activity, and 99% of that growth comes from machines, it will be hard to cope with this transformation without adopting onchain infrastructure and business models that both empower agents to reach their full potential and allows us to identify, control and audit their actions. 

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Ethereum and Solana

Ethereum and Solana are like Android and iOS. Android values modularity: it runs on many different types of devices made by hundreds of manufacturers worldwide; Google only makes 1-2% of them. This approach made it the world’s most popular mobile operating system, with an estimated 60-75% market share. Android’s flexibility has been a boon for hardware companies making anything from smartphones to televisions, as they can bring new products to market without investing billions into building bespoke operating systems. However, such diversity also makes it more difficult to develop apps that seamlessly work across many devices with different specs, screen sizes, and the various versions of Android these devices run.

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Placeholder is Hiring an Analyst

Placeholder is a venture capital firm that works with entrepreneurs and decentralized information networks to better distribute data, wealth, and power. We are seeking a highly motivated Analyst to join our team for a 2-year term. As an Analyst, you will work under our Head of Research, Mario Laul, to analyze private companies, public networks, and emerging trends in our industry. You will also regularly interface with the Partners – Brad Burnham, Chris Burniske, and Joel Monegro – on deal and portfolio specific items. 

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Progressive Compliance

The road to progressive decentralization runs parallel to – and will eventually intersect with – the road to progressive compliance. The challenge is that, while “decentralization” in crypto has a broadly global definition, regulation is and will likely remain a national, or at least a regional, matter. Thus, there is no universal playbook towards compliance beyond what should be obvious to anyone. But the most important task at hand is to ensure that all of the above does not come at the cost of freedom to create and maintain open-source technologies, nor at the cost of what’s essential to the value proposition of blockchains: public verifiability of information, reduced reliance on the subjectivity of human administrators (automation), and tilting the power balance between institutions and individuals in favor of the latter (self-sovereignty).

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Internet Financial System: Infinity Exchange and Beyond

When we combine expert knowledge from TradFi with an intimate understanding of blockchains, we can better tackle the institutional shortcomings of the current financial services industry. Infinity holds the core tenets of IFS central to its product roadmap, which include transparency, efficiency, and scalability. At the same time, its regulated KYC/AML front-end will open up the IFS to new pools of institutional capital. Once interest rate markets are sufficiently mature, we unlock the market for at-scale, efficient, and transparent credit, which may ultimately be benchmarked off Infinity’s yield curves. 

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Across Thesis

Across is a bridging protocol on Ethereum that transfers value between Mainnet and Ethereum layer-2s, and soon will connect to any EVM chain. It differentiates from other bridges by its fixation on efficient value transfer, and combination of financial and technological engineering to make the experience seamless for the end-user. In a space that has a tendency to over-engineer solutions, the protocol is refreshingly minimal in its approach while also providing strong security properties.

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Moving on from FTX

Like many of you, we were surprised to see the rapid collapse of FTX, one of the largest crypto exchanges in the world. The complete details of what happened will take a while to unravel. We already know it’s not good. But we also know that crypto is bigger than any single company, no matter how large. And given what we’re discovering, it’s better this collapse happened now, and not years from now.

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Gyroscope Thesis

Nearly four years after releasing our MakerDAO thesis, we believe another stablecoin, this one powered by Gyroscope, has the potential to complement Maker & DAI’s formidable achievements. With the US government proposing to ban “endogenously collateralized stablecoins,” crypto would do well to get more serious about resilient, decentralized stablecoin designs, if it doesn’t want to eventually rely on central bank digital currencies (CBDCs) or centralized stablecoins for stable value transfer. Everything in the Gyroscope protocol has been designed with long-term stability in mind, from the resilience and liquidity of its decentralized stablecoins, to the forms of governance that are implemented to sustain the system.

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Middlemachines

To understand Web3, one needs to recognize not only how it aims to differ from the previous generation of web-based services, but also the functional equivalence between traditional and digital bureaucratization, or manual vs. automated bureaucracies. Both are based on formal rules of procedure (protocol) but whereas the former relies on human intermediaries (‘middlemen’) to perform administrative functions such as keeping information records and facilitating transactions in reference to these records, the latter pushes humans to the edges by replacing manual administration with computers and software. This results in more technological intermediation or, as I’ve come to call it, middlemachines.

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How Crypto Is Shaping the Digital Revolution

I have previously categorized ’crypto’ – a catch-all for blockchain- and Web3-related innovation – as part of the Digital Revolution that started around the late 1960s to early 1970s with the invention of packet-switched networks, microprocessors, and other digital technologies that enabled the proliferation of personal computers and the Internet. I would like to expand on that by:

  1. Providing a brief theoretical outline of the two main stages of technological revolutions;

  2. Comparing the organizational and institutional shifts of the previous revolution (centered around oil, automobiles, and mass production) with those of the current one (centered around digital information and communications technology) as imagined during the dot-com era (late 1990s, early 2000s); and

  3. Discussing how ’crypto’ as a techno-populist reform movement and innovation cluster is shaping global institutions and governance as the Digital Revolution matures.

Throughout the text, I will be using ’ICT’ as a shorthand for digital information and communications technology, and ’ICT Revolution’ as a shorthand for the Digital Revolution. From here on, quotation marks around the word ’crypto’ will be omitted, while still referring not just to cryptography, but to all blockchain- and Web3-related innovation. Readers familiar with Carlota Perez’s theory of techno-economic paradigm shifts may skip the first section.

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Scaling Ethereum with zkSync

zkSync best preserves the properties that have made Ethereum successful thus far: decentralization, security, composability, capital efficiency, and instant withdrawals. At the same time, it minimizes the disruption faced by developers who are used to building contracts for the EVM. As a result, we believe zkSync is the L2 that paves the smoothest path to scaling DeFi, NFTs, and all other innovations happening on Ethereum. Before we get into specifics, it’s worth reflecting on how we got here. This discussion points to the conclusion that the challenge ahead is not only to scale, but to do so in a way that safeguards the core properties that got Ethereum this far.

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Element Thesis

Yield is one of the most important primitives in financial markets. Alongside gains, it’s an expression of investment profits. But where gains stem from changes in the price of an asset – and are only realized when the asset is sold – yield is a measure of cash flows generated and distributed to the asset’s holder. While they are separate phenomena, yield informs the price of an asset and vice versa. Element is a protocol that allows developers and investors to harness the power of yield in their applications and strategies.

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Isomorphism in DAO Governance

The term ’institutional isomorphism’ refers to similarities in the structure and processes of independent organizations. In the past, the spread of information and the adoption of similar practices was slower and often limited to organizations within a single country or region. But in the newly emerging institutional field of blockchain networks and decentralized autonomous organizations (DAOs), which benefit from near-instant global communications via the Internet, isomorphism develops much faster.

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The Original Sin

We are working to build permissionless, open tech. Most of the process is open, but the part that remains the most closed and shrouded in secrecy is the early-stage financing. While this is in-part regulatorily and social norms driven, the more sinister component is insiders can disproportionately tilt the scales in their favor while keeping the details hidden from public view. The more early-stage investors get away with edgy behavior, the more emboldened and empowered they become, to the point where this power becomes detrimental to the health of the space as a whole.

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Replicating Market Makers

We present a method for constructing Constant Function Market Makers (CFMMs) whose portfolio value functions matches a desired payoff. More specifically, we show that the space of concave, nonnegative, nondecreasing, 1-homogeneous payoff functions and the space of convex CFMMs are equivalent; in other words, every CFMM has a concave, nonnegative, nondecreasing, 1-homogeneous payoff function, and every payoff function with these properties has a corresponding convex CFMM. We demonstrate a simple method for recovering a CFMM trading function that produces this desired payoff. This method uses only basic tools from convex analysis and is intimately related to Fenchel conjugacy. We demonstrate our result by constructing trading functions corresponding to basic payoffs, as well as standard financial derivatives such as options and swaps.

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Systemic Risk Mitigation in DeFi

DeFi is not about rebuilding finance as we know it; it’s about building a better finance. History has shown that without appropriate rules, safeguards, and behavioral norms, financial markets become more prone to fraud, pro-cyclical excess, and crises. Occasionally, these crises take systemic proportions, threatening the stability of the economic system as a whole. A popular analogy for thinking about systemic risk in the financial sector is fire and building safety. While the analogy is far from perfect, perhaps there are lessons that today’s financial innovators can learn from the historical evolution of fire and building safety?

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A Note on Privacy in Constant Function Market Makers

Constant function market makers (CFMMs) such as Uniswap, Balancer, Curve, and mStable, among many others, make up some of the largest decentralized exchanges on Ethereum and other blockchains. Because all transactions are public in current implementations, a natural next question is if there exist similar decentralized exchanges which are privacy-preserving; i.e., if a transaction’s quantities are hidden from the public view, then an adversary cannot correctly reconstruct the traded quantities from other public information. In this note, we show that privacy is impossible with the usual implementations of CFMMs under most reasonable models of an adversary and provide some mitigating strategies.

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