In this episode, we talked with Brandon Kumar, co-founder of Layer3, to discuss the innovative ways Layer3 connects users with blockchain protocols. Brandon delves into the origins, operations, and future prospects of Layer3, highlighting its unique approach to user engagement and token distribution within the Web3 ecosystem. Layer 3 recently raised $15 million from ParaFi, Greenfield Capital, and Electric Capital, totaling $21.2 million in funding.

The audio transcription was done using GPT, and there might be errors. Please listen to the complete podcast: YouTube

Brief Intro to Brandon & Layer3

My name is Brandon Kumar. I’m one of the cofounders at Layer3. A quick overview of my no-background: I began my career in the investment sector. So I worked at a firm called Accolade Partners, which is a large alternative asset manager. They’re actually one of the largest investors in venture capital broadly. So the firm is about, you know, at this point, 24 years old and had invested in Excel and Andreessen Horowitz, and Kleiner Perkins. And when I was there, I spent six years, but in the later part of my time there, I helped the firm build their crypto practice. And this was 2018.

So that was how I got into the space, primarily on the investing side. I was a big fan of a tech writer named Ben Thompson, and he was putting out a lot of work around aggregation theory. And the basic premise that I had kind of concluded was that there was a market for a project to come in and effectively act as an aggregator and connect the, you know, two sides of a crypto marketplace, one side being protocols, the other side being consumers.

Around that time, I had connected with my cofounder who was thinking about a very similar problem and had actually already started Layer3 under a slightly different product idea. So I spent a bunch of time with him out in Los Angeles and we decided that, you know, we’re really complementary as co founders. And so we started the business in September of 2021.

And so Layer3 today, the best way to understand it is it’s a two-sided marketplace. We call it a decentralized distribution network. So we work with a lot of the largest Layer1 and Layer2 ecosystems to help them acquire users on-chain. And then on the other side of the marketplace, we have a very large audience of consumers, about four and a half million active users who come to Layer3 primarily for discovery. So we act as a great resource for them to find protocols that are relevant to their needs and interests. And they can spend a lot of time on Layer3 exploring DeFi, AI-enabled projects, NFTs, gaming. And in doing so, they get to earn ownership.

Why Call It Layer3?

When we started it, you know, there were Layer1 and Layer2 blockchains. Our premise was that the most important and value-accretive layer in crypto is ultimately the human layer. Ultimately, none of this will be valuable if users don’t engage with it. And so we started it basically with the premise that we thought Layer3 was the human layer, right? It was the community around a specific project. It was the users touching the protocol and it was the most important, you know, part of the stack. That was sort of a play on words. You know, obviously since then, you know, like actual Layer3 blockchains have emerged. And, you know, at the end of the day, we’ll take the SEO, but we still believe that the most important value will accrue to, you know, the community and the users that are actually using these protocols.

So, our Layer3 is primarily, you know, at the end of the day, what we’re doing is we’re helping users connect with protocols. And everything that Layer3 does is downstream of how we make the consumer experience on Layer3 that much better. And that’s why I think the name, you know, is so powerful because the most important layer in crypto is ultimately the users.

Any Stories From Working With Uniswap and Base?

We are fortunate to have collaborated with some of the largest and most notable projects in the ecosystem. So that includes Uniswap, Base, and just many great teams. And the way our product works is we work with Uniswap or Base or Lido to help them reach and acquire users on-chain. And we’re able to do that because we’ve built a really large consumer audience. And the consumers on Layer3 come here for, as I mentioned, discovery. And in doing so, they also earn ownership. And there’s a really powerful flywheel there.

So let me just quickly explain the flywheel. When Layer3 acquires users, that makes it much easier for us to go out and work with Uniswap. Why? Because, well, we already have, you know, close to 700,000 users using the product every month. And then when we work with Uniswap, that then attracts more users because more users want to explore these Uniswap activations or these Base activations or Lido. And so then we get a larger audience. And then once we have a larger audience, we’re able to then go back to the projects and sell them on even more. And so there’s that really powerful, you know, almost self-reinforcing flywheel that exists between the two.

So Layer3 today receives inbound requests from roughly five protocols each day, which is really great inbound. But yeah, in the case of both Base and Lido, yeah, a lot of these teams had reached out to us to understand how we could go about supporting them. And that was how it came to be.

High-Quality Users Are Key

Layer3’s value proposition lies in enabling consumers to earn ownership in the protocols they actively use. And I mentioned this earlier, but because of that, there are real network effects at play. If a user uses Layer3, they know that they can engage with 31 different ecosystems, meaning they can interact with 31 different blockchains and over 500 protocols, many of which are issuing token rewards through Layer3. And so that enables us to build a very large audience. Additionally, it allows us to attract high-quality users for the protocols.

The way I would describe Layer3’s audience today is that they are relatively sophisticated on-chain users. They have higher wallet balances, they tend to be more engaged within a product, and that’s one of our biggest selling points: the ability to help teams like Base reach high-quality users.

Thoughts on Bots and Sybils

Firstly, there is a misconception about Layer3’s user quality. So there are a lot of, as you put it, task platforms that encourage users to do things off-chain. Follow someone on Twitter, join their Discord, and to be blunt, you know, most of those tasks just attract bots or Sybils because at the end of the day, there’s no economic cost. Now, most of the actions on Layer3 have an economic cost. You need to do an action on-chain, and then you also need to mint a credential. And so that has enabled us to attract an audience that is really high quality.

Now with respect to the type of sophistication, yes, we do have very beginner-level actions. And when you’re on Layer3, you can sort by beginner, intermediate, advanced. But we also have very advanced actions, things that are guiding even more sophisticated on-chain participants to really benefit from some of the more nuanced and exciting protocols that are out there. And so I think that we do a good job of catering to both the beginner and the more sophisticated on-chain participant. We also do a really good job of curating multiple verticals. So I think a lot of these task platforms tend to skew primarily towards just DeFi, and we do a good job of showcasing DeFi, but also gaming and NFTs, a lot of these AI-enabled protocols, getting them to and from different Layer1 and Layer2 blockchains. And in particular, the area that we’ve more recently begun entering into is the creator economy. So helping users mint to discover really interesting media on-chain. And so I think what Layer3 really benefits from is the fact that we have such diversity of on-chain experiences, which enables us to attract a really wide range of users.

Criteria for New Projects Setting Up Their Tasks

So we actually don’t do Twitter or Telegram steps. You know, we did it a long time ago, but we stopped doing it primarily because we don’t believe that it attracts high-quality users. So here’s what we’ve discovered: if you spam users with these actions to go follow on Twitter, it creates an environment where the user doesn’t, if they want to follow someone on Twitter, they’re going to opt into doing that. And if you force them to do so, it is spammy, it’s negative engagement. It’s not the best way to build an audience.

But more importantly, we view Layer3 as a marketplace to transfer value. So if you’re Optimism or you’re Arbitrum and you want to transfer OP or ARB, you will transfer OP or ARB through Layer3 if you trust that you’re going to reach a real user and that user is going to do something on your network. But you have no reason to spend money to have them follow you on Twitter, and so we’ve actually skewed away from it.

The second part of your question around, do we work with these teams to help them design really compelling activations? That we certainly do. We have a ton of internal data that lets us understand how the best campaigns perform, and then we lean into that data to help create campaigns for all of the protocols that reach out to us that are really performing and exciting for the end consumer. And that is something that I think we really excel at relative to our peer group. So a lot of these other, as you put it, task platforms, they tend to be permissionless, which means anyone can show up and use that infrastructure. Whereas with Layer3, we have a more curated approach, which enables us to create better on-chain experiences because we have a lot of data that tells us what users like to do and how you can go about engaging them.

So some protocols, for instance, really want users who have wallet balances over $100,000 to stake $10,000 for one month. In that case, that protocol might not care as much about the number of users, but they do care about the quality of users. And then in other instances, we have some protocols that say the metric that matters most to them is the number of transactions. So in that case, they’re trying to reach as many users as possible.

So there isn’t a golden formula for the right type of activation, but what we’ve discovered is we understand how to achieve the right objective. And more importantly, coming back to your question around, is it all beginners, we also have variety, right? So we have some users here to mint a lot of NFTs. We want to make sure that we have good activations for them. We have other users that are more active in DeFi. And so we want to make sure that we create great experiences for those users. And so it’s really just a balance between the beginner, the intermediate, and the advanced, and then also trying to understand what the protocol itself wants to accomplish.

Exactly. I mean, what you’re trying to do is understand what that protocol wants to accomplish, also what kind of protocol it is, and then help them do so based on the infrastructure and the product that we’ve built.

Why Should Users Be Excited About Milestone Feature?

So, you know, one of the things that we’ve observed is the airdrop meta, like the airdrop process is broken, right? It’s largely broken because when users know there’s an airdrop, they will use the protocol solely for that purpose. And then there’s no, there’s never a happy scenario because users will always expect more than they receive. And then it also creates a like basically a loss on spend because you retroactively reward users for all of these things. And it creates an environment where users, where the protocol spends more than they really should.

Now what milestones enable is forward-looking. So a milestone allows you to pre-outline or predefine what actions you want a user to take and in what sequence. And then upon completing those actions in that sequence, the user will then earn tokens. So you’re now creating an environment where users understand what they need to do on-chain, and you’re able to drive better retention. So it’s more forward-looking, and we actually believe that milestones as a product will replace airdrops over time because it’s a far more efficient way to allocate your treasury as a team.

Innovative Token Allocation Strategy & Anti-Sybil Mechanisms

We believe this is probably the most innovative distribution mechanism seen in the market because as a user of Layer3, you’re not only able to earn our token, the L3 token, but also third-party tokens such as OP or ARB. This creates alignment between the growth of the Layer3 protocol and the protocols that use us to acquire users. The bulk of all incentives will be distributed directly through our own infrastructure. This is probably the largest amount of tokens going directly to users in recent memory.

So on Sybils, we have a credential called a CUBE, right? When users complete actions on Layer3, they mint this credential, and that credential costs money. This is one way for us to prevent Sybil attacks because there is an economic cost to botting our platform.

The second method involves third-party tools. We have an integration with Coinbase’s attestation product, allowing us to target and reward users who have formally KYC’d. We also integrated Gitcoin Passport, which enables us to reward users with higher Gitcoin scores. Our anti-Sybil approach includes our native solution (CUBEs) and two third-party solutions (Coinbase’s attestation and Gitcoin Passport). We plan to integrate a few more in the near future.

As protocols use Layer3, we’ll encourage them to use some of the anti-Sybil mechanisms that we built internally. The same mechanisms we use are also offered to our partners.

Diverse Use Cases for Layer3 Token

Yeah, so we actually announced our tokenomics not too long ago. We introduced a feature called Layered Staking. Layered Staking, again, is one of the most innovative staking models out there. The basic premise is that if you stake passively, you’ll earn yield just like if you’re staking any other normal asset. If you stake and use the platform, you’ll also earn third-party tokens. And then if you stake and use the platform during the course of a season, you’ll earn additional L3, coming back to the milestones point earlier. So, number one, staking through Layered Staking. The second is that there is a burn mechanism. So there are two burn entry points. The first is when a protocol needs to deploy quests on Layer3, they will buy and burn the token. The second is that we will be periodically using revenue generated by the protocol to buy back and burn the asset. And then the third core feature of the token is governance. We will have an allocation that the community can govern through active governance, and that will be done primarily by stakers.

Yeah, so the biggest change is that if you stake on a Layer1, your yield rate is primarily determined by how much you have staked right now. But there’s no way for you to earn additional yield by being active simply by staking. Let’s say I stake on, call it, any Layer1, and I’m very active on that chain. That doesn’t change my yield rate. But with Layer3, if you stake, you get a yield rate that is proportionate to the amount staked. You also earn yield based on how active you are on the platform, which I think is a very novel strategy. Because what you’re doing is you’re saying, yes, you can stake and earn yield passively, but you can also stake, be active, and you’ll earn third-party tokens like the ones I mentioned, OP or UNI, etc., and you’ll earn more L3. It’s correlated to your activity on the platform, not just the amount that you have staked. So you’re creating great alignment between the yield that the user is earning and how active they are on the platform.

Correct, like using the platform, making transactions, your contribution to the network, how many quests you’ve completed, how many CUBEs you’ve minted to then earn additional tokens over time.

Thoughts on “Internet Beggars” Phenomenon

So ultimately, most people in crypto have a profit incentive. What do I mean by that? If you’re trading on DeFi, let’s say you’re an LP, right? You’re providing liquidity. You’re doing that because you’re putting your capital at risk and you want to earn money back, right? And then there are a lot of people who maybe don’t have that much money, so instead they’re contributing their time, right? They’re using these protocols. And in doing so, they expect to get ownership. And I think that’s actually a very healthy behavior. And it’s one of the best parts about crypto, right? Because otherwise these networks, they wouldn’t have any early users and compensating early users for their time is actually a really novel mechanism. What happened was somewhere along the way, the mechanism broke, right?

Where teams realized that by announcing an airdrop, they can then, quote unquote, farm users for a long period of time and they’ll get a lot of users to do things. And then by the time they launch their token, there’s no way that airdrop will be rewarding enough for the user, right? Because the user, in their mind, they think there’s this variable chance that they might earn, you know, this crazy outcome. They use the product repeatedly and end up always disappointed. So I actually don’t fault the user.

I think that where the industry needs to go is to take that energy that exists from the consumer audience and improve it from the protocol side through something like milestones, where you’re creating a transparent social contract with the user and saying, well, if you do these things, then you will earn ownership of this protocol. And it’s much more formulaic. So if you provide liquidity for one month at this amount, you will earn ownership versus saying, hey, six months from now, we’re gonna launch our token and you may or may not get rewarded for using this protocol. So I think, you know, “internet beggars” obviously connotes a little bit more of a negative connotation. But I believe, you know, at the end of the day, early users of protocols should be rewarded. And what we’re ultimately trying to do is create a protocol that allows those users to get rewarded in a more fair way.

Do You Think There Are Differences Between East And West?

I think that’s a huge part of it, really. I think that there is, yes, I think that there are two known arbitrages in crypto. The first is that there’s a lot of capital and a lot of, quote unquote, thought leadership in the West, but most of the users are in the East. And so there’s this gap between understanding who the real users are and what their motivation is, and the people who are building these products. I candidly think that we need to do a better job of bridging those two.

And again, as I mentioned, I don’t necessarily think that the profit incentive is a bad thing. I agree with the point that there’s never enough to satisfy everyone. What protocols can do is create a fairer and more transparent way of communicating with their audience by stating that if certain actions are taken over specific periods, users will earn ownership instead of teasing them with a six-month airdrop. So that’s point number one.

The second big arbitrage is like stated versus revealed preferences. Oftentimes in crypto, there’s a very loud echo chamber on crypto Twitter. I have found that oftentimes it’s not necessarily correlated to what actually happens on-chain. Sometimes users will express a lot of pushback, but it’s actually a vocal minority. The majority of users are doing different things on-chain. There’s just a balance between people who decide to take to Twitter and complain versus those who are maybe a little bit more quiet.

More recently, we’ve seen projects like ZKsync and LayerZero, where there’s been tremendous criticism around their airdrop. But if you look on-chain, there is some sustainability and retention. So it’s really a balance between who the loudest voices are — sometimes a vocal minority — and what the reality is. In some cases, when you receive pushback, it’s your entire audience and consumer base expressing that pushback. Other times, it’s just a smaller percentage.

Any Special Strategies for APAC Market?

We’re spending a bunch of time in APAC. Broadly, I think the most important markets for us are Korea, Japan, China, Southeast Asia. I spend roughly one week a quarter there and will be attending Korea Blockchain Week. I’ll be at Token 2049, spending some time in Hong Kong, going to Devcon, and Bangkok. We do spend a lot of time there. We’re also hiring right now ahead of APAC.

I think there are a lot of market participants in APAC broadly. You’ve got exchanges, market makers, and most of the users. One of the things we’re going to start doing later this year is hosting meetups in certain cities where if you are a user of our protocol, we’d love to meet you. We’re going to do that in Seoul, Hong Kong, Tokyo, and Singapore. So, that’s one of the things that we’ll be announcing relatively soon.

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