Bitcoin’s Macro Status, Ethereum’s Cultural Reset, and Solana’s Growth Risk | Jon Charbonneau

Transcript

Once you get a very clear signal from like literally the largest most powerful country in the world that no hey Bitcoin is the special one uh this is just like these are not the same thing. These are just fundamentally different categories. One is this going to be completely different digital gold macro asset and then hey all of you guys can go fight out a tech platforms that's just a completely different market there. Um and so that that is I would say like broadly a lot of the rerating that obviously Ethereum has had over the past few years is people are realizing Bitcoin is over there, Ethereum is over here in this bucket. So that's a smaller bucket now. And then there's also that mix of like okay now you need to fight for the market share within that bucket and obviously Salana has gained market

share. What's up guys? This is Bacio the bad host and the better host Danny. Uh today we have a very very important announcement for you. We are hosting permissionless in Brooklyn. Um, what dates? It's going to be in June. June 24th through the 26th. Very good. Um, you can use code 0x10 to buy your tickets. Uh, we're going to do lots and lots of stuff. Um, dinners, games. You'll get to meet the whole crew, the OX Research crew. Hopefully a bunch of the Block Works research and other Blockworks crew. And, uh, maybe a dunk tank.

We're going to have fun. Uh, whatever we can smooch off of Yano and Meo, we're going to do it. So, if you are a Zerx Research listener, make sure to use code 0x10 to buy your tickets. Danny, any parting words and we'll see you there. [Music] Nothing said on Zox Research is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Pokio, Ryan, and our guests may hold positions in the company's funds or projects discussed. What's up, guys?

Welcome back to another episode of Xerox Research. Today, I'm joined by Daniel Smith and John Charbano. Um, John, thanks for coming on. Yeah, awesome to be on. I I also want to Did I say the last name correctly? I'm not a French speaker and I assume you're not French, but it comes from some French root, right? I don't think anyone has ever gotten my name exactly correctly on the first try, but you got like 95% of the way there, which is perfect. Okay, that makes me happy. Um, so today I think inevitably we're going to do L1's, L2s, but I think before we get started, John, I actually want to hear a bit of your thoughts on where you think we are. I know you mostly do VC, but I'm sure that you also have liquid market thoughts. So

would love to hear kind of a take if you want to. Yeah, sure. Um, yeah, I we we we do a little bit of both. Um, I mean like primarily the the vast majority of our time is spent on just typical private venture investing, but we do hold liquid positions as well. Um, I mean particularly our I would say our v our liquid positions end up looking like venture positions for the most part where like they're multi-year hold kind of things that end up looking like similar underwriting for the most part. Um, it's been interesting. I mean I I would say that uh particularly at least on the venture market things have been slower uh in the past few months than I'd say like a year or so ago. But a lot of that isn't even a lower amount of quality deals. I would say I would say

it is just the, you know, 90 plus% of stuff that was just you're getting a new AI agent deck and whatever buzzword thing like every other day. Like most of that stuff has gone away. Um that because that stuff's just like not getting easy funding anymore. So it is a it is a quieter market that I much prefer where it is less deals but I would say a higher percentage of deals that you're seeing are like are actually somewhat interesting. Um and then existing portfolio companies are just at important and interesting points where you know either they're uh pivoting from a thing before going into a new product you know building out just like a more sustainable business that they did have.

I mean a lot of them are just like early stage. So I it's it's been a fun time. Um I would say on the private side uh just like not the over hectic bull market where most of it is kind of garbage all the time. Um, and then on liquid markets, I mean, uh, like my honest answer is it's anyone's guess at this point what is going to happen in the next like few months or so. I mean, there there is one person out there who could send out a tweet, tell you to buy and like the market could just be up 30% tomorrow. He could also tell you to sell everything tomorrow and then like the market would go down 30% tomorrow. Like in in practice, that's the the main practical uh short-term driver of all the liquid markets right now is just like what's going on with macro? Um, and

the fingers crossed. We'll see if we don't keep jinxing ourselves of will Bitcoin like actually magically manage to decouple. Uh, it seems like we're finally getting away with that in the last week or so where we didn't like completely shoot ourselves in the foot like may maybe it's decoupling a little bit. Um, so I mean if that trend continues to play out where people like actually do start to see Bitcoin as this kind of neutral safe haven, um, there will be some degree of positive effects from that to the rest of the alt space. Um, but at the same time it like it's it's not one to one. the dollars flowing into Bitcoin and alts right now. I mean, you're seeing just more and more of that dispersion pretty steadily over the past few years that Bitcoin and alts do trade quite differently at this point. Yeah, I

mean on that note, you know, you just kind of described this landscape where Venture is slowing down a little bit, but is still active in the right ways. Uh, and Bitcoin's at 95K, uh, which is kind of further evidence of exactly what you're talking about. This this idea of decoupling. You know, I'm kind of with you like let's let's keep our fingers crossed for now. But nonetheless, you know, we are at a a pretty interesting point where markets are relatively calm and yeah, again, Bitcoin's at 95K, which I don't think most people would have had on their bingo card, if you will. Yep. Yeah. Yeah. This the sentiment just continues to not feel like it matches Bitcoin price. And that just keep that that dispersion that like disparity between those two has just been going up and up over the past year of like you

read crypto crypto Twitter and then you look at the Bitcoin price and they're they're just not the same thing anymore which which tells you that more people should own Bitcoin. Um the avid listener of this podcast is probably sick of me bringing up this one tweet but there was the Gwart tweet from I don't know probably like two or three months ago now that was like yeah I think Robin Hood's going to come in and say thanks for building all your open source code we're going to take that we're going to build on top of it. Um, and then so like that thing everyone that concept lurking in the back of everyone's mind plus stable coins really being like the the hot ticket right now. Uh, I think that kind of plays into the the poor sentiment like you can't do anything on Twitter right now and not get yelled at,

which that's like always kind of been the thing, but it feels really bad right now. Um, I don't know, crypto folks are like even getting dunked on by non-crypto people like, "Yeah, don't you know, don't talk to a crypto bro right now." And it's true. Like I I honestly have I'm like being on Twitter is so negative EV right now which is strange because that that part I I think is fairly new for me at least personally. Yeah. I I would say I I have started to realize that over the past few months and I've been you I've been starting to use Twitter on and off less over the past couple months because it's probably the at the peak of where I out of any point where I've been on Twitter where since I've been in crypto where I think it is providing the lowest value of just

like reading through what's actually going on on there as far as like giving you an accurate sentiment of what's going on and what's interesting like the the signal is definitely degraded. Um hope hopefully that returns and everyone is not just terribly pessimistic all the time at some point. But where has your people I agree and so I'm curious where has that uh you know like I used to check Twitter for that what's going on in the market thing right now and I'm curious like where has that shifted to you? Um like where are you going to get that quick update on just what's happening in markets more broadly? It's been tougher. I mean, as far as like sentiment of real things that I mean, for for markets, I I just I just don't honestly care that much. I it it is just like not my day job or what I

try to spend time on guessing, you know, is the ETH price or soul price going to go up or down in the next week. I I don't know. Like we we just don't day trade those things like we take very long-term positions. So, as trying to figure out, you know, what what is happening with, I would say, real projects, um, like what like what is actually happening on a longer term time horizon, it shifted much more to just more direct and in-person kind of communication with people. Um, which has thankfully, I mean, benefit of living in New York has also just gotten easier and easier over the past year or so. Um, thank you for bringing all of your conferences to New York this year. I I'm I'm very happy to go to them this year.

um like more of that trend has been happening honestly of more inerson um events. I mean more there are more people coming to New York I think in part for that reason more people who just like visit a few times a year um as opposed to this kind of just like scattered comfort circuit. Um but yeah it's like it's a lot more of just speaking to people directly speaking to in person because yeah I mean like most of crypto Twitter is just like it's just angry rambling at this point for the most part. Yeah, I I imagine projects um start doing more formal letters and invest like building out investor relations on their site and I think most day traders have moved into Discord and Telegram like small groups and chatting to each other as opposed to on Twitter.

Um talk Dan, you brought up a Gore tweet. I'm also going to bring up a Gore tweet. Um specifically the one with Hib. I don't know if you guys um watched that pod. They did a two-part pod. Um, and one of the things that they chatted about was that VCs should not benchmark to Bitcoin. Um, and this spurred up a lot of discussion on Twitter. I think liquid investors think that it should be benchmarked against BTC. I do see the point of having like a decorrelated asset. Like it's a decorrelated market. It's completely different. You shouldn't focus on BTC returns. Um, John, I'm curious what you think.

So, uh, for I mean just for context for me, um, I like knew I heard that this was a clip that got like sounded from it. I listened to the first podcast of the two, um, where they fought more over like kind of value capture and how to think about tokens. I didn't, uh, listen to the second podcast. Um, but but understand the premise of the question. Um, yeah, I mean, my my general view is that I I don't think a benchmark against BTC is a thing that makes sense. Um and and I think what people like rightfully call out against that is like oh like can you guys even beat Bitcoin on a riskadjusted basis you know blah blah blah like that like all the conversation that follows from there and I think it's like a totally valid point and which is why I and I believe that his said this

in the interview like at least based on replies is like why he and why also same for me is like yeah we like we tell LPs like if you want Bitcoin exposure like you should go buy Bitcoin like like I I hold Bitcoin that that is the majority of the crypto that I hold in my PA is it's just Bitcoin. Um but these are just like fundamentally different markets at this point. Yeah. Like if you if you want exposure to digital gold, macro asset, like all of these things um in uncertainty going ahead in the year like you should buy Bitcoin. And I mean it may also be sensible to have a manager do that for you. Um I mean I mean as part of a broader strategy slash if they are you know providing meaningful value on the timing of those and how to size

those positions and think about that that like could be value but by and large I mean like I I recommend to most people like yeah if you want Bitcoin exposure like you should buy Bitcoin. Um this is just exposure to a different market you know like Bitcoin can go do its own thing but if you want upside to what is stable coin like what what is what are stable coins going to do for the economy going forward? like like is this going to revolutionize the way that like tech startups work? That's just a completely different exposure to you than does Bitcoin work as digital go like it's very easy to see one of those thesis playing out in full and the other one just completely going to zero and vice versa. Um they're just like different areas at this point. So yeah, I I generally saw it on what I assume

was Seam's point, which is what I kind of gathered from their replies of like they probably shouldn't be um generally the benchmark. It's probably something like some basket of alts, which is I like I think a reasonable benchmark of like are you beating a a weighted average benchmark of ETH and Soul and B&B and like whatever and all of these other tokens like that is what I think that you're actually trying to get exposure to with uh kind of the venture investments. Yeah, I think that makes sense. Um, okay. Diving into some more maybe potentially technical things. I want to hear since we also have Daniel Smith, I'm also going to include Salana in here, but um, John, some updated thoughts on Celestia, which I still don't understand the value proposition of, and that might be because I'm stupid, but um, and Salana um, I like

Salana, but just curious about how you think those are going to play out. And then maybe we can talk a bit about um, Ethereum, unfortunately. But m mix of things. I mean Salana is the I'd say like the the easy one. So I'll start there of I mean like this is one that I've been talking about for I don't know a couple couple years or whatever at this point. Um I think it like makes a ton of sense. They are currently the leader in like a single decentralized execution environment. I think that my base case is that continues to hold. I think that they are the best team building like the exact type of product that they are trying to build right now.

Um they're really good at that. That continues really easy to understand. The difficult part for underwriting something like Salana at this stage starts to become more in the question of okay what what what is the outcome that you really need to believe and what am I underwriting to say that this thing is going to be worth half a trillion dollars more which was like what what you start to need to say if you know you're you're underwriting this on a venture outcome and if you are underwriting it on anything other than a game of chicken of I think someone will buy it higher from me over the next few months which is like it's totally valid thesis just a different thing um soul is just getting to the stage which is honestly been the largest drag on Ethereum over the last few years, which is it's just getting closer to being

like it's a really big asset and it's really hard to move a hundred billion dollar asset. Um like you are just talking about one of the bigger assets in the world at that point. So like how do you justify that? Um and the the fair point at this point I think is like that that actually is still a fairly open risk um of you know if these things end up just continually converging toward a cash flow basis. No one really knows what the cash flows are going to look like at the end of the day for these things. I mean like right now soul is generally priced on like an aggressive but you know defensible multiple of what you look like look at what like rev is where it's a few billion dollars a year run rate and it's you know priced at what like 80 billion or something like

that. Um it's aggressive but like like an understandable multiple. Um and but the practical point there is like all right well I think that margins on what is actually getting a few billion dollars of revenue there are going to compress like 90 plus percent over the next few years because that's just like not a sustainable rake. app store is going to want to capture more of that the market's going to get more efficient, etc. And so you're betting on, okay, well, I think that the market's going to grow, you know, 10 100x more in the next few years. And like the the practical reality is we're just talking about orders of matter, like multiple orders of magnitude in both directions where you're actually just completely guessing like where the scale of this is going end going to end up, which is like a perfectly fair

venture bet. You know, you just want to bet on the thing that like I think is going to be the winner. Um, Celestia is I mean like total opposite of that in many ways of obviously it has like absolutely zero revenue today. It is you know what like worth like 30x less than soul and like I I think that it should be it should be worth a lot less than soul. Um it's probably the simplest uh purest venture bet like in this kind of like liquid market category of what do I think is the thing that is going to be the best bet on let's say the like the the kind of like strong crypto hypothesis or whatever you want to call it like works out over the next five years of you know the world is just going to continue to hyper like financialize more and more stuff is

going to go on chain AI agents or whatever going to be doing a gazillion transactions that it's impossible to reason about one chain is obviously not enough like what what is the single chain that is priced at like a reasonable point. Um, where you think that like they their architecture is the one that's probably going to be the opinionated one that will most likely benefit from that. Um, I I think Ethereum is just obviously out of the running in this kind of world of just like it's it's a simple numbers game. Like you could look at the math like what is Ethereum trying to do on scale? Like the these are like many many many many many orders of magnitude apart of like even the Ethereum like bold case of how much throughput they're going to do on blobs in a few years from now like

it's like it's nothing. Um something like IDA is more of it's actually just like a like sidecard deck kind of service. It doesn't actually have a consensus itself. It's not trying to provide interop and like a full switch set of services like it fundamentally relies on something like Ethereum. Uh same thing for like arbitrage many trust. Um and like the alternative is like all the extreme end of like bases doing the S3 bucket thing with like their centralized chains. Um, and so like basically if you believe this world where like all right, we're going to get end up with a bunch of chains and there's going to be some like reasonably coherent unified vision of someone that's going to benefit from that. I think Celeste is probably the best positioned on that. Um, so it's not a like very simple underwritable cash flow bet of you know I think that they're

going to produce like 30% cash flow yield for the next few years. It's not that. Um, it's very much a my base case is like actually that this investment like probably doesn't work out on a multi-year basis. Like I think it's more likely that it goes to zero than it has the supreme bull case. Um because that that's what like most venture underwriting investments do look like is like I think more likely than not your average position that you're taking if you're try doing a true venture underwriting outcome is probably not going to work out. But what is the weighted probability of this thing having that 100x versus what the market thinks it's going to do. Um, and that's my like general framework on this is I think that they are by far the best positioned in like this kind of world out of really kind of any of the

existing incumbents. And so if you're looking at, you know, Celestia versus look at the other L1, L2s, whatever that are priced in that comparable range, whether it's like the major L2s or a lot of these alt L1s, which of these do you see as a much higher probability in five years from now? Like if we looked back and we're like, "Oh, this thing 100x and like this was obviously the way to build all these things. This was the right opinionated architecture." I I don't see any reasonable outcome where that happens for most of these other like kind of comparably priced L1's L2s versus something like Celestia that's like actually a very plausible outcome to me. I found like a very meaningful non-zero probability of that happening because if this was the right architecture like they're obviously the ones who are building it. Um so it it's

it's gotten to the point at this point where like I mean it's off like 90% or whatever from its highs where it's gotten into the category where you can start to underwrite it again as a venture investment. I think that makes sense. I um Daniel, unless you have something you want to ask or add, I'm going to move on. No, I I thought both of those were really interesting thesis, John. Um on the Salana piece, yeah, I think you know, you hit the nail on the head. I think the thing that gets debated there is the s the sustainability of priority fees on a on an L1. Um the ability for there to always be contention, right? I think uh the app player obviously wants to bring that contention to themselves. Um and even if you get something like application specific sequencing live then uh that kind of alleviates some of

that as well right again that's another way to pull those fees into their own uh revenue streams. Um so I you know the I guess like to concretely put it like the counter thesis there is yeah you can survive off base fees if you 100x scale. Um, so you know going from a thousand TPS to 100,000 or a million TPS obviously like the the the you know the flag they have planted if you will is a million TPS that seems uh like we need a lot of uh tech improvements to get there. Um but Anza has committed to a 2x before the year end uh and we are in you know the end of April which is pretty interesting. So CU block limits have increased from 48 to 50 already and there's a feature flag in the current release to jump to 60. Uh, so honestly

making pretty solid progress there. And um, yeah, it's pretty interesting to kind of watch this play out because I don't know, I think my base case is priority fees last longer than um, the market wants to give it credit for. The the easy thing to point to, and this is certainly reasoning by analogy here, but everyone said the same thing about Coinbase fees, and I swear every time I make a trade, they only went higher. Um, so I don't know. It's uh it's tough for me to really want to like buy into the you know, oh, we're going to fix everything. Um I think you need pretty solid uh censorship resistance before you're going to get uh anything like application specific sequencing to work.

And it does feel like we're still a couple years out from that. But in that world, I definitely acknowledge that priority fees are probably not how you want to be generating the most of your RE. Yeah. Yeah. Mo so many of these questions end up being just a really tricky timing question to really answer where is it going to end up and I think this is a very strong tendency within crypto. I don't know if this because of the prevalence of more academic and research types that like and a lot of us think that way but so so many people very often just play things out to the extreme efficient outcome and say okay based on this like this this is what's going to happen and then completely ignore the fact that okay but like that's going to take 10 or 15 years to work out and markets are super

inefficient and you you know you're going to miss all these multi-billion dollar outcomes in the meantime like yeah if if everything ends up being a perfectly efficient market well honestly like proof of stake doesn't work and like mo most of the economics of most of these systems like actually just completely don't work at all and nobody makes any profit because profit should be complete should be competed away in a competitive market like like all of these things don't work out. Um you it's and it the thing is it ends up being very difficult to assess okay like where are we on that curve of how inefficient the market is versus we are going towards this outcome and like where the scale of outcome is going to be. Um that that ends up being the tricky thing that you kind of need to figure out for most

of these. And then on the Celestia piece, like do you think it's at odds in some way for like a world, you know, you play this out a decade, let's say, and like let's say crypto works. Um, do you think Salana and Celestia can exist or do you think it's kind of either or there? Oh, I definitely think both of them can exist. Yeah. Yeah. Um, I the the the like the difficult part ends up being trying to estimate, you know, what what percent of the world is like a single execution environment kind of thing. Um because yeah, it could totally be the case that Salana is even the biggest execution environment out there.

You know, this is the dominant permissionless smart contract platform. But if that ends up being, you know, a small or like meaningful but nowhere near all of the market, well then there's a gigantic mark that that is left there to be served by all of these other architectures. And you know, that long tail can be like rather profitable if you're talking about a meaningful market. Um so yeah, there's definitely a world where both of them can be successful long term. Yeah, that makes sense. And then, okay, last thing on the priority fees part is obviously memecoin trading drives a significant portion of this um like north of 80% probably uh across all chains, not just that's not like really a uh sana specific thing. Um it's it's it's memecoins and and arbitrage and that's largely the only

reason there's priority fees today. Um do you think with the idea that you know everything will be tokenized uh and we're going to get like you know anthropic equity on chain uh you know that I think Vlad Tenev has mentioned that a few times or the idea of that like more assets and more assets and more assets just come on chain like do you think that those will drive priority fees anywhere in the same capacity as memecoins or will that almost look more like a barbell where you have these you know memecoin like assets that trade in indexes is uh that we know and like see today. Uh versus, you know, you have these more uh let's call them regulated assets where they actually are onchain equity. Um the SEC kind of put out

another set of guidelines around like what disclosure there would potentially look like. Uh and then those probably trade through like new ATS's that come online and they can't interact in the same capacity as a lot of the uh you know more decentralized exchange type assets we see today. I'm curious if you thought all about that world and like what that means for uh the onchain finance system today. Generally, I mean my expectation is as you bring a lot more of these regulated financial assets onchain over a long time period, they should be able to produce a higher scale and more sustainable revenue. But that is going to take a serious scale. Um because they like people are just not going to put

Apple stock on chain and get sandwiched for like you know 4% and just like just yoloing it in a telegram bot. Like that's just not going to happen. Um the the only way you're going to make that up is by orders of magnitude more volume. Um and so I my my expectation is that's going to happen over time, but that is really going to take time. Um and so yeah, my general expectation of what's actually going to be driving the majority um of fee capture for stuff like Salana, Hyperlick, whatever in the like short to medium term is going to be people like us just like trading on chain and like yeah, I'd like you know I'm just going to go buy memecoins or do whatever on chain pretty quickly and just like have fun with it and those users are going to have a much higher

willingness to pay higher fees. My guess is that's actually where most of the profit is going to be for a pretty meaningful amount of time. Hopefully in the long term that's not the case because the other stuff hits such scale but that's it's going to take quite a while. I think that makes sense. Um, in terms of Salana, do you think I guess two questions one is do you think these SPM the new SPM chains um I think it's Eclipse, Fogo and Atlas um would they potentially pose an issue or do you think that it's about network and not um the execution environment? And the second thing is then this is kind of a jab at you. Um, Fire Dancer only has 5% adoption across um, validators and they gave 4% of tokens to jump for that. Do

you think that's just going to increase or is there a conversation to be had at some point about was this useful? Can I answer the second one first since I just caught a stray here? Um, it's Frank and Dancer and that is an intentional limit because it's not production ready and they don't want all stake to be running on a new client. So fired is not ready yet. It's not live yet. It's only on testn net. Um it's still using the agave networking stack and then they've rebuilt the other half of the client. Um focused on execution.

And so those are the two pieces that you kind of morph together, hence the name Frank and Dancer. Um so yeah, it's an intentional limit just for security and safety. Okay. So my job is not good. Um correct. That's me on this. Cool. So, uh I'll take the other one then. Um uh so yeah, I mean I I think those are the three main SPM chains. There's the other one uh like Bullet 2 I know is building um like they're building a salon roll up like they had an app uh they had a per exchange that they're building to roll up. Um yeah I so I mean we're investors in Eclipse we own a bunch of salt like we've been public about that for a long time. Um yeah my my general view is at minimum the two approaches are going to coexist

for quite a while. Um, general view is there there is meaningful merit to both approaches. There's a good chance both of them just fully exist in the long term and at minimum I don't think anyone can tell you with a straight face with 100% confidence like which one is like actually going to be the right endgame architecture for all these long term and like how's the how's the market actually going to play out. Um, broadly I would say that that pretty much covers the full spectrum uh between all of those of what is the right degree of kind of permissioning and architecture to get the right type of features that we care about for users. Um, in general I I mean like this is a broad trend that I've talked about for a number of years. I think the L1 versus L2 thing is BS. Like

it does like it doesn't matter. Rollups are L1's or L2s. It's all the same thing. These chains are execution layers. That's the practical difference that matters of them versus like a Celestia or rollup base layer or whatever. They're all execution layers. They're all competing with the same apps, the same users, same kind of things. So like broad brush strokes. Um what ends up mattering between them is what are the architectural changes that you make on this kind of like modular versus integrated spectrum very broadly of what degree of kind of permissioning um and technical choices do you make on uh the operators of this to provide certain features is what I was saying.

And so like going concretely into that in general what you see most of these kind of like rollupy type architectures do um is you know all right we're going to post all the data on this you know this other big decentralized data layer of Celestia whatever pick the Ethereum pick your data layer um and as a result of that that lets us take a like you know short-term security trade-off basically of all we're going to have this like just solo permission sequencer where hey like even if we screw up you know the where our sequencer is located in Spain and sorry the power is off for the next few days don't worry, you got your fall back. Like, you know, everything's going to work fine. You just like, you wait a few seconds and got the fallback path. Like, everything works fine. You get your money out,

everything's verifiable, blah blah blah. Um, as a result of that, you get to lean into a very permissioned and tighter control over your real time guarantees, which is actually the thing that primarily dictates like user experience and a lot of these other things. Um, so concretely, what it makes uh what it makes it easy to do. Um, one of them is just like literally IPRL like even more than a decentralized chain makes it super easy. I just could beef up beef the hell out of my box. I'm gonna have a really big box and do even higher throughput than your decentralized consensus and I can do even lower latency because like screw the leader rotation and all this like like one box just instant confirmations. I'm just going to give out stream of confirmations that makes it super easy.

Um and then the other part I would say is like broadly over kind of like transaction control and ordering basically MUV management. Um where again it makes it super easy to be like hey uh trader like you don't like getting sandwiched on Salana come to my chain don't worry like everything's private first come first serve like you're not going to get sandwiched. Uh it lets you do things like verifiable ordering which make it really easy to do memory distribution. That is a more difficult thing to do on a permissionless chain that these chains will increasingly need to compete on over time is like hey you know your app on Salana is like leaking all this MVV to those uh to the soul holders to the stakers like come deploy here we have this permission staker that like does this verifiable ordering rule based on this we could see the priority

fees that are being paid for your application we return all that value to you great your margins just went up now a bunch like come deploy here because like we're going to help you out with that. um like those are meaningful things that these chains are going to be able to compete against these kind of like big permissionless L1s on. Um I would also say that like there's that that kind of middle area of uh like Fogo fits this and like I mean on the more like EVM or like just general app side Hyperlid fits this of saying like we're going to do the permission thing but like we're not even going to bother with the rollup thing you know we're just going to get you know 15 20 validators whatever we're just going to keep them permission and like hope we can trust them and like hope it works. Um,

hyperlquid it's also different because like I don't know like one party owns like a very large super majority of stake anyway. So like I don't know a number of validators how useful that is. Um, but broadly like you're going to be able to compete on these different features of like broadly IVRL even more and offer better UX around like uh transaction ordering control. You know we could do things like uh prioritize cancels. Like this is a thing that Hyperlid does at a permission environment. Can't really just like do that very easily in a permissionless environment because it's not incentive compatible. Um, and so the these are important things. Um, and I think that you'll need to compete on these fronts over time. And so the question is going to be can the L1's actually compete on these things over time or is it going to

be you strictly like you need a permission party that like we trust this guy to run the box and they're going to do it for us. Like Coinbase isn't going to frontend me. I trust them to run the sequencer. Um, on the IBRL side, I mean like basically what this comes down to is if it I mean one is is this an important feature? um because it's it's not a userfacing thing like a user doesn't care if they have 1 millisecond latency or 100 milliseconds like they can't tell the difference and the question is is this important for market structure basically like does this uh like end up produce better spreads because this is better for market makers better for HFT firms that ends up providing better spreads for users um which is possible um like people will argue like how important that is or if

you just should have fast batching in auctions um but let let's say it is valuable can an L1 compete on this what this basically ends up looking is like some form of transaction ction streaming service. Um, and I mean Salana, this is like literally what shreds are, where the block the block producer, the current leader is like you're streaming out shreds in real time as you're uh kind of constructing the block. You're not actually just sending out a discrete chunk every 400 milliseconds. Um, and another side like like on Monad, you know, you could have the current leader like uh could do pre-confirmations effectively where it's the same exact idea like you're streaming out throughout. Um, I mean like we're invested in Monadab, we're also invested in fast languages basically vermonad more or less. like this is one of the things that they intend to build in

addition to like the MEV auctions and stuff is like this kind of pre-MP sidec car where it's the same idea you know you're streaming out the pre- formations um and so question there ends up becoming like in these like kind of more integrated decentralized consensus architectures does that decentralized pre-MP architecture work as well as like hey we just gave one party a permanent right lock on the state and they give you confirmations or is this like really hard to do because I don't know some of the validators don't opt into this service because streaming continuous block production as in shreds is like not necessarily actually incentive compatible. Maybe people decide not to do this. Um slash, you know, you're doing leader rotation and like a couple percent of the time a block gets dropped and so this is the less reliable

guarantee for apps to get state updates. Is that like a good enough? If it's, you know, it's 98% of the time, does it need to be 99.9? We don't we don't really know. Um so broadly on both of these like there are these very clear areas where this additional permissioning of these environments is going to be a product advantage for them today. Um is that going to be able to overcome you know the high network effects on like Salana today slash will be Salana be able to introduce these kind of things and monad and these other chains over time um such that they can compete with the L2 such that there isn't really a trade-off. um that that ends up being the tough question is like how how important are these features um and on what time horizon can you kind of uh adjust them in the different

architectures. Yeah, I'm I'm glad you brought up Fogo and Hyperlquid being kind of similar because I think they're the two examples of having a limited validator set and having some form of decentralization um despite the hyperlquid team like you said having a vast majority of the foundation having vast majority of the stake. Um, I think that's probably what we've seen, but we've seen this for a while. Like people said Solana wasn't decentralized and clearly like there was it benefited off of it compared to Ethereum. What's up, guys? Today we're joined by Antonio from Dydx. Antonio, thank you so much for coming on again. Thank you for having me. Something that I wanted to ask about is um offering more markets um maybe not

spot but uh in terms of I guess real world assets or anything that is being traded on um not not crypto not tokens. Is that something that you guys are interested in? Yeah, it certainly is. Um and there's considerations overall here in terms of what can be traded on the platform. um and comm uh just from a kind of legal perspective. But overall, it's something that we're very supportive of. And the cool thing about Gydx is it's really the users that are in control, right? And now we have this thing called permissionless market listings. And there's still work to be done in terms of adding more types of things that can be added using permissionless markets, but after that, it's really up to the users to to add

these things. So, and and I think it's kind of the cool thing about this permissionless market listings, and this isn't necessarily like a novel feature within DeFi. Like, this is literally what every DeFi platform has made their buck on. Um, from unis swap to a pump fund. It's just like come to the platform and tell us what you want to trade. The cool thing is it's never existed in per before and that's where DYDX comes in. So, I think it's it's really our job just to enable the most types of things to be able to be traded on DYDX and it's the user's job to add those things and trade what they want to trade. In terms of I think I asked you this last time as well, but I want to get your opinion again because we've had a lot of things change. Um, in terms of

how DeFi has changed and how crypto has changed um with regard to regulation, with regard to institutional adoption um how are you guys thinking about this at DYDX? Is this um something that's worrying because regulation might um be more in favor for I guess centralized exchanges or is this something that you guys um think legitimizes um DYDX and makes it puts it at the forefront? Yeah, I would say much more on the legitimizer side. And this is not a particularly hot take given what's been going on recently, but obviously there's been a much more permissive stance towards crypto generally, especially in the US recently. Um, and I think that's

amazing and this is something that all of us have been working hard on for a while from a policy perspective. Um, and congratulate a lot of the the efforts to some of the great people in the space for for making a lot of this happen. Um and and I think it's something that just really sets us up well in the long term. Um for two reasons. First of all, just because it makes it a heck of a lot easier and a heck of a lot more clear to build in DeFi going forwards. And then second of all, because like I don't know if it's true, but I think DYDX is basically the only per stex that's actually based in the US. Like I'm sitting in New York right now. Um, and so that's great for us even from a competitive dynamics perspective just because, you know, and I I really think

we we have taken regulation seriously forever and I think we've done a great job of treading this uncertainty in a way that that that's always felt safe from a legal perspective, but now it just lets us be more aggressive because there's more clarity and it shows you what the lines are. Um, and that's that's something that's just going to go allow us to to go out and be able to compete. And like, yeah, I won't go into all the details, but obviously there's been certain things that overseas competitors have been able to do from a regulatory perspective maybe more clearly like have felt comfortable doing from a regulatory perspective um that we haven't felt as comfortable doing. And I think those things will will normalize because of this.

That makes sense. One thing I wanted to ask is I think the most I guess obvious comparison of what you mentioned like the L2s versus the L1's and how if the L1's are going to be able to catch up is probably Monad versus MOA Mega E not Moga E. Um I'm I'm curious if you have thoughts on because Monad is not I think it's kind of difficult for people to understand that Monad is like a full software and hardware job. It's not like they're not trying to just mix one of the other um and go to market. it's like a full buildup of the stack. Um, versus Mega E, like they might actually suffer from that thing you mentioned where one millisecond versus 100 milliseconds, it doesn't matter. Um, curious if you have any thoughts on how that will shape out.

Obviously, we're going to see like you said, it's going to take like three, four years, but any thoughts? Yeah, that it's I mean it it I would say it's also a particularly hard one to tell just because I mean nei neither of them are live on mainet right now. Both of them are on test net. makes it like even harder to like actually predict anything for either of them. Um, but in general, yeah, I I mean the the world where if Mega ETH is going to do well is most likely would be the world where it ends up being super important that that ultra ultra low latency was important for whatever handful of applications.

It's better for market makers, it trickled down to users, etc. And you weren't able to reproduce that as well on an L1. Um, in absence of that, my my guess is that Monad is better positioned. Um, I I mean, part part of that is just like it's it's a sentiment guess of where do you think like applications and good teams are going to go? Like I they're they're both on test net. You're like sort of flipping a coin here honestly. Um, but yeah, I mean it's an architecture that like obviously makes sense of like they have optimized the hell out of the EVM. Like I think that they are the best team that is just working on fundamental EVM optimizations and like making the best chain in reflection of that. Um, and so yeah, the the the main disadvantage would be that world of if it ends up being that like

this ultra ultra low latency difference ended up being super important and like you just weren't able to get there for whatever reason on Monad. I I don't think that's going to happen. I think that you're going to be able to build those things slash it's already alleviated by like other designs. Um, but we'll see. Um, because that I mean very literally just to describe for anyone who doesn't know like this is what Mega E does. um is they have this notion of like every one second if they have what are called EVM blocks which is like that's a traditional EVM compatible works for all the apps etc like notion of a typical block and then they send out these 10 millisecond uh like mini block confirmations um which is just supposed to be like a lighter confirmation from the sequencer um that like hey this thing is going to get

included um and so if that ends up being super valuable like that that that would kind of be the edge um but yeah I mean like you see the monet guys like obviously arguing with them of like one I think that like these differences are either addressed by like current architectures slash it's not that important for HFTs slash we can just give pre-MPS as an L1 leader um and it's also much easier for monad to give pre-MPS versus something like Ethereum for a variety of like architectural consensus reasons smaller validator set starting from the beginning etc that you can kind of build around and customize it yeah the mini block big block system is interesting the hyperlquid also has something similar um I'm not sure if it's going to be very useful But it does make sense to have two different blocks

for two different types of users. Um, one more thing that you mentioned was the L1 versus the L2 and how it's not going to matter and they're both just chains. Um, I agree on the premise completely, but and I fought with multiple people on this. I still think that an L1 premium exists. I think it's getting compressed, but I think it still exists to an extent. I have been proven wrong, but the by the recent initial launch, but I am still hopeful that I'm not wrong. Um, curious if you think if you agree that it still exists. Um, or if you think it's stupid and I'm wrong.

Uh, I think it exists, but it's also stupid, but I like that that happens all the time in crypto. Uh, so those those are not different things. Um, yeah, I I yeah, so I think it does still exist to some extent. Um, and I would say that for a variety of reasons. One is I don't actually think it's that big. I mean, it's really hard to put like exact valuation multiples on like for like chains in crypto. The one that I've seen for this is like if you look at REV multiples on L1's versus L2s, they actually generally are in the same relative ballpark. They're not like that different. Um, in general, I do think an L1 premium still exists for the most part. I mean part of that is just if you look at the big chains there's a lot of chance in there of one is just path

dependence of like most of the early chains they were all L1 so I mean like obviously the big existing incumbent are L1's and you know you kind of just look to those and be like oh L1's are valuable um and then you have the just like idiosyncratic quirk I would say of by far the most successful L2 just doesn't have a token it's base like if bass launched a token and it was like actually a real base token I like what would that be worth like I go look at the leaderboard. It would be very high up there. Um it it would be one of the most valuable tokens without a doubt. So part of it just that is it's just kind of like weird a mix of path dependence and idiosyncratic like what chains have tokens and how long that they've been around for. Um I mean some of them it

some of it is probably the just like irrational the market still you know I don't know L1 sounds cooler it sounds more valuable like whatever uh that kind of part of it. I think that is the part of it that just like continues to go away. Um, and then the last part, which I think is the important point, which like actually gets to the difference between a lot of these L1's and L2s in practice and should lead you to a valuation discount. Um, is the technical architecture differences between what people call an L1 versus an L2 makes absolutely no difference to a user or to what you should value a chain. It doesn't matter if my chain has this like special bridge to another chain and like I post a state route there and a proof.

Like it doesn't like Salana wouldn't be less valuable if you made a bridge from Salana to Ethereum that says like oh I like I I follow the Ethereum chain and like so we quote unquote like settle there and you could in theory call this thing an L2. Same thing happens for like any chain uh like if you get rid of a bridge there like does that make the chain fundamentally more valuable? Like no it doesn't. What it actually gets to in practice is that most of these chains that are these so-called L2s, particularly the early on ones, were actually fundamentally trying to in practice act as an extension of the layer 1. Um, they were saying like, "Hey, like very literally usually Ethereum, it's very slow. It's really expensive. It kind of sucks to use. So, hey you users over there, like come to our chain, bring your ETH over, bring

your stable coins over, the stuff that you literally have on the L1. We're going to deploy the same exact apps. like please come play over here and we're going to make it look like Ethereum for you. Um in that world it obviously makes sense that you should be discounting the valuations of these things and thinking about what their upside market is because very fundamentally they are trying to act as an extension and a smaller piece of a larger ecosystem. Um they are not like generating their really their own users their unique state and owning that. um they're trying to be a pretty funible extension of this kind of like layer one that like actually owns the users and the state and the valuable stuff versus a layer one in the like practical sense something like Salana is generally saying hey no like we are going to

introduce and create all of the valuable unique state here like we're going to get we're going to get our own users on boarded all the cool new applications are here all the cool new tokens are going to launch here and in that world it makes sense that you like you assess there's a higher market value of this thing because they actually own the network effects and they have a much larger your potential investment outcome. Um, what I think that you're starting to see is these L2s are slowly starting to gravitate in that direction. You know, Bass is obviously trying to like move more and more in the direction of like honestly being like less of a hey ETH user just like bring your money over versus like we want to be onboarding new users, bringing in new people, bringing in new assets, bring everything on chain and like in that

world does does it make a difference to bases like valuation if they did have a token um that like hey we post some stuff to Ethereum like no this is just a simple service provider relationship in the background. Um so that ends up being the really important point is the the technical differences of L1 versus L2 make absolutely no difference. This is just like a background service provider agreement basically. Um the practical difference of whether a chain is really an L1 versus an L2 and this kind of like sovereignty value capture point that matters is do you actually own the state? Do you own the users yourself? Are you trying to like actually build this kind of ecosystem of your own or are you just trying to like piggy back off of someone else and just like capture a little piece of their pie. um

because those end up being very obviously different kind of investment evaluations of those two. That makes sense. Dan, Daniel, anything you want to ask add? Yeah, I want to talk about ETH1 scaling. Um I think all the listeners are familiar with your thoughts on the matter, but uh within 24 hours ago, Donrad just posted a forum post about a um I haven't read it full context. Again, this was very recent, but um the idea is to exponentially scale Ethereum's L1 execution by increasing the gas limit 10x in two years and 100x in four years. Uh I would love to get your take on the matter there from a high level and then kind of want to dive into what this like actually means in practice. Yeah. So I mean unsurprising I

absolutely love it. Um, I had tweeted back in uh I think it was like December or something when it it was when everything was it was sort of at the peak of people were getting towards all right we're gonna do this gas increase bump from 30 to 36 million which ended up getting through it was a mess of a process. People like this sat on the back burner for like three or four years and then when we finally like started to muster up the like excitement to do something even that ended up taking what like six months to a year. I think it actually took over a year from when Vitalik said like even he said like we should do this. People seriously considered like hey should we just you know maybe we push this until after petra to like not mess with anything.

And so I tweeted back in December I was like this just shouldn't be a thing. If we agree that we want to increase the gas limit like this ad hoc process like just absolutely makes no sense. You need to just like set a schedule and that should be the default. The default is hey we haven't changed this thing in years. We are clearly have like an overabundance of resources. You could increase this a pretty meaningful amount and then over these upcoming years, you know, bandwidth is going to improve at some predictable rate. Just like hardware in general is going to just get better at some predictable rate. It gets easier to run a node. You should be base case increasing all of your resource limits and just scaling with like the way that like hardware and bandwidth and all these things improve over time. So I

tweeted that out and then I remember uh Jesse had replied um uh like yeah we're doing this with base. We did it at the beginning of the year. you know, we have this linear increase now where like, you know, every week it just it goes up by one megga per second or whatever it was. Um, and I remember Donard replied to that one. Uh, exponential would be better. And fast forward a few months, that is exactly what this proposal is. It is it is saying like, hey, we should probably have this kind of default where the Ethereum gas limit is literally just set by validators voting on a block byblock basis of if I propose the next block as a validator, I can vote to just like change the gas limit. um I can create a different size block and if you have the majority of stake weight that's

doing this the validators just effectively set the gas hub themselves. the problem is like people need to coordinate and agree on this thing. And so it was like, hey, why don't we just have everyone have this kind of default programmatic curve of, you know, you just should be exponentially increasing the gas limit um over time and like we can obviously deviate from this. You know, if we have other considerations, other upgrades, things didn't improve as well as we thought they were going to, blah blah blah. But the base case should be we are just improving with the way that like everything in the world improves. It gets easier to run a node. Like that is what you should be doing. Um and so people can argue over the numbers here. I mean this one ended up being it was on the aggressive side. it was like 100x over four years is what it

would get you. Um, which like I I I think is awesome, but like even if those are not the right numbers. Um, the important point was like you're trying to send a clear market signal of, hey, we like we are serious about this thing, you know, come back to the L1 like we are going to keep scaling this. Um, that I mean and that was a meaningful part of why he at least wanted to do the little bump last year was it was all right, you haven't done this in like three or four years. No, it doesn't make a difference that the gas limit is actually 30 or 30 36 million. It matters that you're telling the market like, "Hey, we're committing to doing this thing and there's going to be more coming." Um, and this is just the perfect continuation of that of like, hey, if

you're serious about scaling the L1 and we want apps to come here, you know, we were busy telling all of them like get the hell off the L1, go on to L2 for the past few years and this is finally sending a credible signal like no, like the base case is we're going to keep getting better. Please come build here like we're open for business again, which is great. Yeah, strong agree on the sending a miss. Oh, wow. Sending a message piece. Um but where I'm like okay so then the next question is well how much throughput is enough or the right amount to have on the L1. Um in terms of like the fact of the practical reality is that it hasn't been prioritized over this number of years and uh home stakers are still on network etc etc. So right now Ethereum runs at

about like one and a half MGAS per second or about like 14 TPS. Um a 2x in two years doesn't really move the needle in terms of like what's in the market today. Right. you brought up the the bases scaling p plan and right now they're at 30 m gas per second. Uh so a 2x would still leave you you know roughly 15x behind base uh today and base is on a path to I think I think their plan was 100 million uh 100 mgaps per second by the end of the year. Um so you know that's their direction and then Ethereum would get there meaningfully over about four years like where is the where does the at what point I guess does the uh scales tip back in the direction of being like okay like yes

Ethereum will be you know have less total transaction volume than most other high throughput chains we see today but it's enough to actually facilitate the fact that it uh a meaningful amount of activity on the L1 considering it does have the most stable coins it does have the most EVL every major EVM app is deployed there. It does have like a lot of very very strong roots that it can it feels like there could be a very quick rebound all things considered in terms of activity. Um but yeah, I'm curious like where is there enough supply to kind of you know I hate the phrase but induce enough demand for there to be a meaningful activity again. Yeah. So I I mean quick on the numbers I think I if I remember correctly I think base was even more aggressive. I think they wanted to

do a 10x to 250 megga per second by the end of the year and we'll see if it get there but yeah I mean like literally orders of magnitude part um is the is the clear point. Um I I mean that that gets to why it's very obvious that I think if any new chain was trying this today this like this is DOA like this is a joke. These numbers are so small none of this matters. Ethereum is the only place that like this this might work because you still just have so much capital sitting there and it is still the default like all of the integrations are there. you just make this the easy place again of like all right I'm like I'm launching a token or I'm doing whatever broad ecosystem thing that like I want a bunch of people to go participate in it like stuff like that

like Kaido launching their token or whatever like why why should that happen on base if the if the L1 can facilitate that like just do that there like Mega E did their uh like their fluff NFT thing because like they don't have their chain yet they did that on the L1 and that was a mess um like could like could have could have been actually much worse but like not ideal to do it there um you want to make that good again you know like these big NFT mints, token launches, whatever. Like that should just be the default place where you can do at least this kind of stuff. Um, and so it like it ends up being a mix of you have a lot of existing just assets and users and all those things who you can get them to use DeFi. DeFi is going to

keep growing. You want, you know, you're bringing you're trying to get the Black Rockck B stuff onchain, you know, get the serious stuff to come there. Realistically, a lot of that just follows like where a normie user is putting their money, like what are people using? Um, and then the ongoing stuff, those unpredictable, like when a new token launches, when a project does a big NFT mint or whatever, like we should be the default place where you get to do those things. Um, and that's how you bring on like new users. There's always going to be new stuff that's happening over time that people are going to be will be willing to use the one as long as it's like decent enough to use. Um, and so there's never a black and white number, which is what like that's probably the question that I always get asked the most in relation to

the Ethereum scaling stuff, which is like a super unsatisfying answer of like, okay, but how much how much is enough? like how much do we need to increase the gas or reduce the block times for this to be good enough? And I'm like I I don't have an answer. This is a sliding scale, but like in general more IBRL is better and we'll probably get you more applications. And like honestly, there isn't really downside to this stuff. Like we clearly have capacity to increase these requirements and just optimize a lot more. Like there's so much low hanging fruit on how to improve the L1 of just like just much better gas pricing costs on a lot of operations that honestly just get you a lot of headroom. you know, delay the state route. There's all these different things um that you can do that you

should you should just do them. And does it versus the base case end up in a 2x in demand or 5x in demand or 30% increase in demand? I don't know. But I would be shocked if it's not more and like a meaningfully positive amount more that it was worth doing in hindsight. Um like so much of it is going to be unpredictable what kind of stuff you're getting forward, but my general intuition is it's like it it will make a meaningful dent and you'll get real stuff to stay there. Yeah, definitely heard on the uh no-brainer, right? You like let's let's do this immediately type thing. Uh I've been following Storm for quite a long time, but he's been really loud in the space about making this happen. Storm from Paradigm and they set up like a performance test net meant to basically battle test a lot of these ideas.

They've been posting some of their ear early results and look great. Um he actually had just an interesting tweet while we're on Ethereum uh just now. I guess there was a core dev call uh this looks like yeah just 20 minutes ago that just wrapped up and he said big update eof is probably dead due to lack of rough consensus being reached on the core dev call. Uh this is a massive milestone and symbolic of Ethereum turning a new page and evolving towards a maximal consideration of user impact. There will still be growing pains with some explicit statements heard on the call on this issue. We should only listen to core devs and not users. uh we should we should ship EOF just to respect the process and many versions of the sunk cost fallacy. Uh so I'm kind of curious from your end like EOF uh I

guess for the audience that's a very uh a very simplified version of what EF was was basically changing the transaction format um to depending on who you ask either improve or worsen the developer experience. Um and so it was debated for four years. The initial post was in November of 2021 uh and had a very long process of maybe we do this, maybe we don't do this, and then sort of seems like at the final buzzer here, the verdict was to go the other way. Um so from the outside looking in, it feels probably like this was the right move. You're going to waste a lot of developer resources on something that just doesn't impact most users. Um, but from the inside it it kind of seems like the uh consensus attitude or or thoughts on the matter was, you know, we already did

waste a lot of resources to get here. Um, and now we're just going to kind of call it dead in the water. Now, I'm curious if you have a take on this or honestly to Storm's point like sort of what this means around the culture of Ethereum actually shifting to uh wanting to improve the L1 and focus on things that actually do move the needle rather than more of the academic more science project type things. So first I'll put as like an as an almost disclaimer but like I think like actually somewhat important part of the answer is I understand EOF and the implications of it far less than I should and for any like comparable level of people have talked about this a lot in Ethereum and it's for the very simple reason of when I've like asked about it and looked at it in the past over the

past year or two is like I would look at it and like understand at a high level what it is and like I would ask people like okay but like like why are you doing this like like what's the reason like like what's the benefit of this like why is this good for users? What do you get out of this? I just like never got any simple literal answer of like here's why we're doing this why it's for users. I just fully ignored it basically honestly after that for as a result over the past year because like all right like it doesn't seem like this thing actually matters whatever if they want to go do it like I it doesn't seem like a good priority to me. Um and so it seems that we have like come full circle around to that. I'm happy I didn't spend

a lot of time wasted on it because that's exactly what the conclusion has ended up being is people realize like okay but but like why like why are we doing this? like it sounds nice, but do we actually get anything out of it that's important? Like is is this good for users or in any way or are like once again all of the users telling us just like hey I don't want to like sign twice for transactions and I want like cheaper and faster transactions because I think they're like pretty much just telling you stuff like the latter one. Um like let's go do the things that like actually get us that. And so we're finally moving in that direction where like UX improvements and scalability are like actually the things to prioritize.

Um, so I like I I think it's great that finally like yeah, we should just focus on the simple things. Like we should just scale the L1. Like if you can't explain this to a user and like none of them care, like it's it's probably not the most important thing to prioritize right now. Um, so it's good to see that we've just like come to a more pragmatic outcome because yeah, I I think it's incredibly silly to be like I saw some arguments of, oh, we should do this at this point because we've talked about it for a long time and like the devs did a lot of work and we don't want to send a message that like oh if you do a lot of work on Ethereum that like your things don't get in. Um I like I I think that's crazy. Like you should just make

Ethereum what you think is a good thing to make. Um if we don't decide that this is an important thing as a community like you shouldn't do it. Um, so sounds like sounds like a not surprising outcome after everything I've seen on Twitter in the past week. Um, but a outcome that I am happy with. Yeah, I think it really just marks the, you know, the the shifting of the tides, um, and a refocusing of priorities, right? I think the new EF Donrad posting the uh, forum post about scaling the L1 uh, and then EOF failing is like, all right, I think there's like actually reason to believe outside of just like, oh yeah, someone finally did something like I don't I listened to the Bankquist podcast and I was really hoping that would be my moment of like all right we're back baby. Um, but I don't know,

there was too many comments around like even just hearing like the them walk through the process of, oh yeah, you know, the first thing Tomas did when he came into the EF was uh just make connections between different people within the EF was like you guys weren't talking to each other, which like I don't know, I've gone a rant about I've gone on a rant about this before, but I don't know. It feels like there is sensible heads that are trying to prevail and we're actually seeing the the the results of that, right, with again those three things happening. So, I'm I'm I'm getting excited again. Yeah. Yeah, we're definitely at that stage.

And you could tell that was I mean, Don's very kind of like sober and pragmatic answer, remember in that Banglas podcast of when they asked, you know, how how are things going right now? Basically, kind of how do you rate yourself? How's the progress going? And it was like, yeah, I mean, we're I think that people are saying a lot of the right things now, but we need to prove it. Like, we we haven't actually done anything concrete to prove it. Um, and this is looking like the early stages of okay, re real actions are changing in reflection of this. I mean, this is like 1% of the way you want to see them actually do all the scaling over the next few years and all these different things. Um, but you're starting to finally see very literal practical things of the protocol is going to

change in reflection of this attitude shift in Ethereum over the past six months. Like this is not an outcome that would have happened 6 months ago that like you know any IP for increasing the gas limit continuously is being seriously considered and ef is dead like that that is a direct result of the vibe shift and we need to see just like 100x more things like that where actual protocol changes are being made in reflection of all this. Can I say something? We're very optimistic and I also get very optimistic about Ethereum because I love it. Um, I h always have a I think the EF BTC chart is like just me always getting that moment of saying, "Yeah, things might turn around and then it keeps going down." I imagine a lot of people feel that way. Um, it's the first time

I've heard Daniel Smith optimistic about Ethereum maybe in like two years now. Um, do you guys actually think this I guess it's good when Dankr is posting it, but do you see there being this having like actual legs as Because I remember and I might be mistaken, but I remember there being um some form of IBRL uh improvements being proposed. Um although I guess it's very different now because the EFS EFT dead and there's a clear shift or do you see there being legs is the main question. I guess I definitely think it's very meaningfully different than it was in the past. Um I I mean I I will still give my like realist level of take which is what I've also tweeted over the past

few days and annoyed people is like hey like I I'm really positive on the vibe shift and all these things it's going in the right direction but if I'm being very literal to be clear like I I literally don't own any ETH like still uh like that. So that should be like some level setting of the answer of there is still a difference between hey I think things are moving in the right direction all of this stuff is great and like hey do these changes still justify a 200 plus billion dollar asset that's going to go to a trillion dollars like th those are just different levels of questions and I think that lateral one is a really really really hard question to answer um and I I don't think it's at quite that level yet um but at the same time I'm like happy to like very like

genuinely happy to like see the shift and acknowledge of hey this is a much better vibe shift in attitude than I have seen at any point over the past few years like this is a real change I am hopeful that this ends up producing literal protocol changes but at the same time trying to temper expectations of okay how much does the protocol actually change based on everything that I've seen in Ethereum over the past few years it's really hard to change things always takes a lot longer than you want it to it ends up being a little smaller than you wanted it to so I mean we are at least setting the expectations really high with 100x over four years that's like that's a good starting point of the negotiation Hopefully we get like a fraction of the way there. Um that would be great. Um but yeah, I there there's

still a big level of you know justifying like I do I think Ethereum is going to look like Salana tomorrow like no it's not going to happen. But at the same time I think this is the best outcome you could hope for at this stage given where you know Ethereum has been over the past couple years or so. Yeah I agree completely John um and Picacio. Yes, I it is one of the first times I've been super optimistic because something actually feels like it's changing. And again, uh in our morning call maybe a week ago whenever that bankless pod came out, I still wasn't that optimistic. But again, now it feels like we actually see some things going from words to action which means a lot.

Um but like I guess they went from spoken words to written words in meaningful places, right? EOF actually dying and um there there being a scaling forum post is is very very it's an important start but we need to actually put those things into practice as you mentioned John and then on ETHBTC specifically like look Bitcoin got anointed by the most important economy in the world like that was the thing it needed to do for it to see success right it had small countries on board it had small corporations on board relatively speaking um but it you know that was sort of like the next chapter and I was kind of bearish on that happening thing, but it happened and you cannot like ignore the gravity uh the importance of that thing happening. Um so yeah, I

think Bitcoin is going to just keep eating uh basically everything in every chart uh when you plot it against it. And I think that's like less of a reflection of you know the rest of crypto being bad uh but more so of how how excellent Bitcoin is performing and that the the pillars it is now knocking down are monsters, right? Like I I again I was bearish on this happening and John Yum, me and Mike did a podcast. I think it was actually when we did the rev one. Um and like still a fee truther, always going to be a Bitcoin fee truther. Uh but it's actually getting to that point where it's like, okay, like if every economy and every country does own this thing, like okay, there's now that the whole mining at a loss thing becomes real because there are parties that own

the asset that would be interested in doing this. Um so I think it's I think Bitcoin's just honestly on a war path right now. Yeah. Um, and yeah, you plot that against any equity, you're going to see a similar chart as well. So, I think that's just like a difference. And so, yeah, in the Hib versus Gwart debate, like yeah, I just think it's it is a weird benchmark because it's it doesn't matter what you plot it against, right? You plot a lot of hedge funds against that, they probably down as well. Like, I I don't know. It's just the the state of how great of the asset how great uh Bitcoin is as an asset right now. Um, yeah, that's kind of my thoughts. And I guess more completely on the Ethereum stuff real quick is yeah my biggest concern is from like the Ethereum

perspective is okay like we want a 2x over four uh sorry we want a 10x over two years which is a great start but again that gets you from I don't know speaking loosely in TPS terms it doesn't scale perfectly but we'll pretend it does. It's going from like 14 TPS today to like 140 TPS in two years when Solana wants to go 2x this year from a th000 to 2,000. Um, so that's kind of like it it's still like there is a large gap. So the question of how much is enough I think is super super important. And I honestly think that curve kind of like dips before it picks back up. Right? If you just like went from uh 14 TPS to 50, I don't think you're going to convince the marginal app to come back to your chain. Uh, and then therefore

transactions will probably be cheaper. Rev will probably decrease. But then if you can jump from 50 to 100 to 150 to 200, then I think that curve really starts screaming back up again. So, it's going to be really interesting to watch that in practice, but that's probably like my one big caution. But again, like this is what needs to happen. Yeah. Yeah. Completely agree. Um and and on the kind of just like world point of like these just are different assets. I I mean very like very literally of I mean we we sold all the last of our ETH and rotate all of it into Bitcoin in that day around the election for that very simple reason of there was still a very like large contingent of the market that believes like ETH is still this special thing that can compete with

Bitcoin. Um and felt pretty confident at that point once you get a very clear signal from like literally the largest most powerful country in the world that no hey Bitcoin is the special one. uh th this is just like these are not the same thing. These are just fundamentally different categories. One is this going to be completely different digital gold macro asset and then hey all of you guys can go fight out a tech platforms that's just a completely different market there. Um and so that that is I would say like broadly a lot of the rerating that obviously Ethereum has had over the past few years is people are realizing Bitcoin is over there, Ethereum is over here in this bucket. So that's a smaller bucket now. And then there's also that mix of like okay now you need to fight for the market share within that bucket.

And obviously Salana has gained market share. Um and so you know fighting back on all this uh like increasing performance stuff. It's going to take time. It's going to be choppy. It's going to be up and down. It's not going to be this steady wave of you know where does perfectly increasing the gas limit and all the apps come back right away. Um it's going to be stops and starts and like it'll be fun to see. Um because it's going to be to two totally different approaches of where Salon is and where Ethereum is and we'll see like how strong the network effects actually are. now um coupled with some level of increased performance versus the just like obviously Salana is going to be more performant and always will be um but how much is that existing stickiness kind of help pull forward yeah and to

the whole I guess last thing on this is to the whole where you know the idea we're all building the same thing there's definitely differences don't get me wrong but one interesting point is Ethereum is working on its performance and Salana is working on its uh traditional decentralization second client launching this year and a verifying full node launching sometime hopey this year. We'll find out more at Accelerate. Uh the team from Myithroll, I think that's being led by the Overclock Labs team. Um they've been grinding on that. And again, like if if who can who can kind of hit the end state of performant and decentralized first? Is it Ethereum adding performance or is it Salana adding decentralization is kind of an interesting worldview as well. Dan, do you have anything else you want to ask or No, no, this has been a great combo.

Yeah, this was fantastic. Um John, thank you so much for coming on. This question always ends up a bit weird with the fund side, but I have to ask it. Um, well, I don't have to ask it, but what what what should people do? Like, how can they keep up with DBA or is there anywhere that you want them to go to to check out? Is there anything that you want people to read up on and focus on? Any final say it's pretty simple to follow us? Um, dba.xyz, that's our website. I will every once in a while post a short booklength post that I'm sure everyone just pops into chat GPT anyway and asks for a summary, but I will write the whole thing nonetheless.

Um, can go there and subscribe. We'll send out a post at some point again. Um, and then otherwise follow me on Twitter for much more unhinged and just erratic takes that eventually work their way into posts. Uh, what's do we have any uh topics in the holster for um your next blog post? I have two that I'm not sure which direction I was going to go in. One, I actually had a draft that was mostly done on uh pretty much just like high performance chains of like very large posts of kind of going through the full stack there TBD if I end up actually finishing it. I need to finish it if I'm going to do that. Um and then I added a couple of other like totally different directions I was considering going into um of like new like completely different

chain architectures. I was thinking about doing like token valuations. I I had a bunch. Um so TBD on the next one. Nothing about though. Okay. I would love a token valuation piece. Um if that's something that you want to do. Just fan. Yeah. I was Yeah. No, I I was thinking about it. So maybe I should [Music]