ETH Is NOT Ultrasound Money with Jon Charbonneau

Transcript

for you today eth is not ultrasound money I can't believe I said that almost choked on the words David why is that the subject of today's episode what in the world are we talking about isn't the sacrilege yeah so we have a new framework on the scene for understanding eth the asset and this is coming from John chobino Charbonneau who is proposing this this alternative uh perspective on understanding ether the asset and these that he is starting to push back against some of the Frameworks that you and I have proposed Ryan uh things like blockchain profit ability inflation versus deflation eth as ultrasound money so there's a new framework on the scene that John is bringing to the table and so John

perhaps has a thing to teach us about ether the asset our beloved asset Ryan and so we're going to investigate this new framework this this new model for understanding ether uh as put forth by John and that is the topic of today's episode I'm not sure I'm ready David yeah I'll have to really open my mind on this one um but uh yeah really looking forward to someone who's been down the rabbit hole and gone pretty deep pretty quickly I remember the last time we had John on he taught us a thing or two about ethereum's roadmap talked about the different um execution uh the the different layers of ethereum data layer execution layer consensus layer and kind of the road map for each so um he's definitely gone deep down the rabbit hole with ethereum and he's someone whose opinion I've come to respect about

this so I'm excited to hear what he has to say so stay tuned for that bankless Nation why eth is not ultra sound money ah I said it again uh it pains me but we're gonna get right into that topic right after we tell you about some of the Fantastic sponsors that made this episode possible including Kraken which is our number one recommended exchange for 2023 go open an account these guys are the best Kraken has been a leader in the crypto industry for the last 12 years dedicated to accelerating the global adoption of crypto Kraken puts an emphasis on security transparency and client support which is why over 9 million clients have come to love kraken's products whether

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one of your wallets has a new airdrop for it to make sure that you never lose an airdrop ever again you can also upgrade to earn five premium to unlock access to airdrops that are beyond the basics and are able to set reminders for more wallets and for just under 21 a month it probably pays for itself with just one airdrop so plug in your wallets at earnify and see what you get that's e-a-r-n-i dot f i and make sure you never lose another airdrop bankless nature and I wanted to introduce you to John Charbonneau formerly research at Delphi digital but now a recent co-founder of DBA doing business as a new york-based crypto investment firm John here I think holds the record for the fastest person perhaps down the crypto Rabbit Hole

going from the entrance of the frontier of crypto to the uh going from the entrance of the rabbit hole to the frontier of crypto faster than I've ever seen anyone go before and now John is at the point of making new definitions and new contributions to the frontier of crypto knowledge and he thinks that he's got something to teach us about our beloved eth and so John you recently put out an article titled ether is not ultrasound money part one subtitled why you're wrong about blockchain profitability so first John how dare you second what is the high level argument that you're putting forth in this piece can you kind of give us a road map of your arguments

sure uh so as a good level set I love the starting place that you guys have uh used for like the triple point asset I already used that in here I definitely agree with that um so the simple idea being like something like ether's this weird new mix of it's Capital asset like stocks and bonds consumable transformable asset like commodity where people analogize either ethereum or similarly other blockchains and protocols um to a company um so I think that is uh we probably all agree I think the company kind of analogy is almost entirely accurate for a lot of stuff like Dows which have like a very simple model of you know we run this protocol we take a certain amount of fees you know a DCF is like that kind

of framework is a very accurate way of effectively assessment discounted cash flow yes discounted cash flows of like that's a pretty sufficient way to measure those things um I would say for something like ethereum that is a helpful component of looking at it and understanding it valuing it uh but I think we would all agree that's only part of it so my disagreement has been over that portion of when you do analogize either ethereum or something else to a company the notion of profitability that most people have I think is incorrect um where most people would basically generally say certainly it's the ultra of sound money type argument of if you're looking at the profit of this you know decentralized company you have

income either in the form of fees or some people only consider burn as effectively the income and then the cost the expenses to this company are the issuance that it puts out like to its validators as block Rewards um so that's the generally understood and then to be sustainable you know it's a business you need to be profitable So eventually you need to get to a point where you know you're not net inflationary so you're offsetting whatever issuance you have such that you know you're profitable sustainable business um I just that's the portion of everything that I disagree with um so on the income side I think everything is effectively Revenue that comes from external to the protocol actors so any form of fees whether they are burned or not

um and any other forms of MVP that occur to validators I consider all of that Revenue like that is all being paid by outside actors who are not um accruing to the who all of that is accruing to token holders and to stakers in one form or another however you want to distribute it between stakers and token holders um and then on the cost side I disagree that the issuance is in explicit costs in like if you're analogizing it to a company um it's rather different and I think the simplest example to understand and it is let's imagine I have a chain and I own all of the tokens I have all of them staked over the course of the Year people are paying transaction fees so for Simplicity I'll say that in my chain

I charge transaction fees in usdc so that's what you use as the gas token or um anything else that you want to pay with so over the course of the year I take a million dollars in usdc as revenue from transaction fees because I'm the only one who's taking all that goes to me because I am the only person who's staked and I have 100 of the tokens staked whether the issuance is zero percent or one percent or ten percent of my token it doesn't actually make any difference to me it's napkins versus if I played out that same year made a million dollars and I issued a bunch of tokens the only difference is from the beginning of the year to the end of the year is that there are more tokens in the second scenario that exist but the market cap of the asset should

effectively be the same it's effectively acted as a stock split um you diluted the shares but I still own the shares so the price per token should go down but the market cap should be unchanged so effectively my profitability as that operator at the end of the year is very simple as I made a million dollars in usdc and then what did it cost me on the physical cost side to like literally run the boxes so what did I have to pay in Hardware costs compute costs Etc to like actually run that Network that's the profitability that I'm going to make and in this case I am the network because I own all the tokens and I have all of the mistaked so that's an important distinction um and it is I would note very different also than the issuance and something like proof of work

um or a bit similarly for like a D5 protocol that pays out say token incentives to LPS in the corporate context what that look looks much more like is effectively stock based compensation where you are paying out to employees and those additional shares that you're giving out are not going to existing shareholders so you are forcibly diluting all of them and you are effectively just paying that out as a non-cash expense like via Gap accounting so that is very different and that was a very big change when ethereum moved proof of stake that I think people actually like under appreciate which is an interesting part of this is while I have probably upset a lot of people with the title

um the core of my argument is actually something like eth is significantly more profitable than I think most people have been saying it is by that traditional framework because I consider all of it revenue and I don't consider that issue it's to be like an explicit cost for something that is analogized to a company in the scenario see ethos uh John tricky right there he thought you were getting uh you know somebody who is um anti-eth uh profit value accrual and really he's actually more bullish than we are and than we should be um John you said a lot there and I think that was like um you encapsulated kind of the core of the post and core of the argument but I think probably some people um listening to this and watching this might be like whoa like they feel

like they just we just waited all the way down into the deep end of the pool 400 level content I want to like go through this a bit more methodically and kind of break this down so even for people that um maybe start at the beginning okay the triple point asset thesis this is an idea that I think we played some hand in helping to popularize actually we created the triple point asset hold on David's taking full credit for it um actually I stole this from uh and we stole this collectively from um Chris berninski who stole it from uh Robert Greer and now it's here and so Robert Greer uh put together this idea of their there being three different types of

assets super classes he called them and you talked about at the very beginning the store value Asset so that would be something like a money has some sort of monetary premium like a precious metal or a currency or fine art how do you quantify these things it doesn't have a cash flow you can't use art for anything but some for some reason humans value it and so it's a store of value people store their wealth in a classic car for example might be for some people and then there's this consumable transformable asset man we haven't talked about this in a while have we David which is like a consumption type of um good it's it's more like a commodity you put it in to a system something else pops out like wheat for example to make bread that would be a consumable

transformable asset energy is like the best example of a consumable asset a barrel of oil is a consumable asset then we have Capital assets which are things like equities and bonds and income these things that produce uh cash flow for us these are the three types of assets Capital consumable assets and store value assets now we have contended the idea of the triple point asset thesis is that ether is all three of these at once and there was a time where that was um actually uh not the consensus view for sure um there were a lot of people who who didn't think it could be any of these three assets actually didn't understand maybe maybe a consumable transform rule uh was something that people said eth is

gas for example but no idea no notion of it being a store of value no notion of it being a capital asset okay we said it's all three at once now you said John the place where you agree with us is those those two categories a store of value Asset so you do think ether here cat holds some sort of a monetary premium in a way that Jewels or precious metals do or gold does is that correct yep yeah okay so we're in agreement there if there's this magical thing called monetary premium and do you also believe that that's like the way that this is created is kind of through social consensus in a way like it's the squishy human consensus layer that decides what the money actually is and

generally kind of the the most liquid sorts of of monies can tend to win in this game but it's it's hard to pin down it's just kind of this magic medic value as uh Justin Drake has called it is that is that your idea too yeah it's definitely I mean a social consensus of what we decide to accept at this thing um but I would say that is obviously very heavily influenced by people tend to pick the thing that is fundamentally has the good qualities to be that store value so while it is social consensus that social consensus is a result of building this very useful thing that you know fulfills all the needs that we want out of it you wouldn't want to store your value in strawberries because they brought and wither away and you know you can't lock them in a vault and uh you

know they'll be mush the next time you open the vault even when your favorite influencers saying strawberries or ultrasound money it doesn't really matter if the strawberries aren't truly ultrasound Joe um is there an influencer saying strawberries are also I know then we got uh consumable transformable assets of which we think eth kind of occupies that and I think there's actually a deeper view of this where um actually I think a block space ethereum block space is the true consumable transformable asset and Ethan there is just money to pay for that block space that's another layer of Distinction that that I would paint so ether itself is not the barrel of oil the block space is the barrel of oil but

ether is the unit of account for the barrel of oil that makes sense so my analogy here is it's I know we as a shortcut say it's a consumable transformable asset but really it's a bit more like the petrodollar which became the unit of account for barrels of oil and thereby energy because if you want to buy oil it's going to be denominated in dollars right that's you know 1970s Petra dollar came into kind of existence I think it's the same here but that's almost the same well hang on if we're going to get into it before the nuances of this though a Petro Dollar in theory you can kick out the dollar and replace it with the Euro or the Yen that is a totally possible thing to do uh with ethereum you cannot kick out either to buy block space it is enshrined as

the only currency that can buy block space and so you can make a stronger transitive property statement I think because block space can only be bought by Ether the properties of ethereum block space are truly properties of ether as a money so I want to make that distinction I think that's I think I totally accept that distinction that it's got a stronger pull on the Petro on the the each block space as kind of the unit of account and yet it's a different thing I think sometimes think that ether and ethereum block space are sort of the same assets and they're not ether is just the money that you use to purchase ethereum block space is the distinction I make are you with us so far on that John yeah I like that distinction because the

difference that you're kind of highlighting there is like kind of effectively when you use oil um I mean you're burning it you're getting an output out of it um whereas with ethereum you are burning it potentially in some sense but that value is transferring to somewhere else you're not actually just you know it's not just disappearing away even if you do literally burn it that value does effectively transfer to someone else via deflation okay to keep on moving in this conversation uh consumable Transformer will we cover that store value we've covered that uh these are not areas of contention according to your new framework it is explicitly the capital asset nature of ether that you think uh we could understand ether better if we uh

understood it in a different framework and so it's really all of the area of contention is contained inside of this vertical correct yeah and I I think it's a particularly important one because this is also the area that's applicable to almost everything within crypto um whereas the capital asset part of ethereum is effectively the Baseline of ethereum value even if it had no monetary premium or value as a consumable asset Etc you would still value it fundamentally based on its you know cash flow is the same as you would any other project ethereum just goes above and beyond that because of those additional factors which are arguably the majority of its value um but the the corporate Capital asset type part is equally applicable whether you're understanding you know an app

chain to roll up anything like that okay so now let's get into this part that we disagree uh that we might disagree I'm not even sure that we do because I just want to make sure I fully understand the argument here so there's this idea of maybe what could Loosely be called block space profitability and bankless listeners will have heard uh David and myself say as a mental model Apple produces iPhones blockchains produce blocks that's the thing that they sell so blockchains are in the business of producing and creating a product that product is blocks that the market will want to buy and the more demanded those blocks are

as denominated by um because they're going to be scarce blockchains cannot produce infinite amounts of blocks they have to be scarce in order to remain decentralized or they're just a database so um the Val the like you can kind of Judge almost like the the revenue I would say and the quality of those blocks based on unmarked demand and how many iPhones are being sold and the value of which they're sold so you can go to like something like cryptofees.com which uh I'm sure you've been here and you can kind of look over the last seven days ethereum sold 6.6 million dollars worth of blocks so that is a marker of its Health it has a

product and it's selling that product um are we like do you disagree so far or what is the point of a disagreement on this piece yeah I I totally agree with all of that on the the kind of incomes yeah okay so income side where your disagreement is more on the profitability side of things so tell us about that yeah so well I'll say on what you said I agree with um there are I've seen two different arguments on what is considered income some people consider all fees effectively income I've like seen that very popularly um other people as you can see in this here um like that picture that Justin had from um his Devcon presentation is profit equals burn minus issuance here so

that's only a subset of the fees um and I think if I recall that's what was similarly showed in like effectively the token terminal table of like the financial statements um so there are two popular arguments I would say on that I disagree with both of them um but yes um I I would say that everything is is income to it whether it's base fees priority fees or any Mev that occurs to validators so you see say all of this right here in crypto fees plus Mev I don't know if crypto fees um actually tracks Mev so some of it would be um because Mev is at least partially captured by priority fees like one of the simplest ways to show and this is

how a lot of Mev is expressed is I I express my bid via I put a really high priority fee on my transaction um so that would be captured in the fees but you can express it in other ways like if you put a direct coinbase transfer transaction in there where it's not expressed as a fee but uh I added a transaction which just sends you the money so stuff like that might have captured or out of band payments but a lot of it's captured in priority fees so this really sounds like um a semantics conversation as to what is revenue what is profitability more than it is uh a statement not Revenue right because we agree on Revenue it's more like cost like in order to get profitability are we disagreeing about cost on the cost

side of the equation Revenue Minus cost what is the cost well I'll ask you guys which part you do agree with what what what would you consider the revenue would you consider it only the burn as showed in the picture here or would you consider all fees so effectively including priority fees and like other MVP payments that go to validators because that's my beliefs I believe all of it is my economic analysis is aligns with what you said Justin Drakes is which is the soundness of the asset is a function of how much of that asset is issued versus how much of that asset is burnt uh and so like most blockchains are only issuance and no burn ether has some amount of issuance some amount of burn and lately the burn has been higher than the issuance and it's really just

the Delta between these two things that illustrates the soundness of the money in question all all other things are related to blockchain sustainability but not not necessarily soundness of the asset that's that's how I would Define these things that's how I think about it yeah to be clear that that's the important point is all of this matters um as far as like soundness for money um the issuance matters a lot like which is why in reality yeah absolutely issuance can negatively impact um the value of ethereum over the long term because it hurts the monetary aspect of it um what I'm arguing is if you value strictly the corporate you know analogy part of it because a lot of Protocols

are just companies where there is no monetary soundness component like there's no monetary premium to like Lido like their token it's it's just an asset to capture the revenue for the most part um so it's just a capital asset to user earlier it's not a store of value so much doesn't have a monetary agreement exactly and for anything that's looked at as a company which is effectively like what this part is showing here is the Baseline for the income side I would consider all of an income not not just the burn as like as a joke here I would consider all fees all other other Mev that occurs to validators on any form right okay and I think that is uh because of there's two different perspectives here there is like what about the economics of ether is relevant

to me as an ether holder who uses my ether and defy versus what is the economics of ether related to me as an ether Staker and so as an eighth Staker you get extra things and extra things about the ethereum economy are relevant to you like Mev payments like tip payments and the burn but the burn is only the thing that's relevant for people who aren't staking so if you have your ether as collateral and compound you do care about how much ether is burned because that is actual value flows to you you don't really care about like how much is paid to stakers or how much Mev payments there are because you're not getting those but those numbers are relevant to you as an ethereum Staker because you do get the Mev payments and the tip payments as

well as the base fee and so like one a conversation is like how sound is the asset and I'll say that that is the burn minus the issuance is that function and then there's like how sound is the protocol which is what are the net payments paid towards validators which is the burn plus the tips plus Mev all right I think we're aligned on that right John yeah that's the important point is like these matter a lot on your individual basis of you know if I'm a holder versus if I am a Staker how much money will I make over the course of the year like it absolutely has a gigantic impact on that um but the the key point is whether that Revenue goes to uh validators via a

priority figure it's burned and it goes to all holders that makes a difference for the monetary aspect of it it doesn't change the fact that ether as an asset as a whole is accruing all of that it's not like there's a voting share class of you can only stake this Heath and this like isn't unstaked like if there is a lot of payment that is going to stakers people should rationally pay more for if and stake more of it it's not like the value of unstaked eth is different from the value of Steak teeth so if there's a lot of payment going to validators all of a sudden because there's a ton of priority fees people should be willing to pay more for that asset even if they're not going to me as a unstakeholder that's the same amount separate I think I'm still confused by

this uh different definition of profit or what is your definition of profit so here we are on the screen income minus expenses let's let's ignore burn minus issuance that's more of a monetary policy thing just ignore that for a second block space sales minus security budget um we've already kind of agreed that yeah all block space sales whether it's Mev or any any form of kind of fee is income all right so I'm with you there minus security budget equals profit what's wrong with that isn't it yeah correct so exactly so the security budget is the part that is agree with there again as well I don't think that issuance is a cost explicitly in this context because again eth's uh I mean or

any similarly protocol is a function of the entire tokens value capture so it matters a lot for individual stakers versus individual holders but you need to be able to understand what is the value to the entire network and in this scenario any issuance that is directly going down from unstakeholders is equivalently equivalently going up to stakers okay so let me make sure it's a transfer of value it's not just going out the window like as if you are paying it to minors but let's so let's be clear on what security budget is security budget is um I guess total fees paid right uh security budgets here is issuance yeah

like blocks just issuance yeah that's that's what it is here is like that's why you see minus security budget in the line below okay so security budget here is just issuance and you're saying issuance isn't actually a cost to the network so are you saying profitability is just block space sales minus the cost of like running a validator let's say and you know your internet connection your Hardware whatever you know if it's ethereum it's just a laptop if it's your Solana maybe it's you've got some hardcore machines in a data center somewhere that would be the cost to you is that correct that is yes that that is the more accurate measure of it if you are looking at the profitability of effectively an overall protocol or

network right and you're you're viewing this through the lens of a capital asset primarily right so like you're not viewing this through the lens of a store value Asset then you might be like well if you think this is a money then dilution matters right and that the amount that you're inflating the underlying asset above zero actually matters a lot but if you ignore that side of the the triple point asset completely and you just focus on the capital asset what you're saying is we double count things if we say profitability equals block space sales minus issuance that's double counting in your book my uh it it's it's not necessarily double counting it's I I think that the

issuance is treated as a call the issuance is the part that's treated as the cost here and if it's treated as a cost that's effectively saying it's leaving the company in this scenario but it's not actually leaving the company it's just being transferred from one shareholder to another shareholder I see and also and all shareholders have equal rights to stake and receive that thing if they want it's like class is really a re-articulation and correct me if I'm wrong John if I'm understanding this but this is the main difference that is being brought to the table here is the difference between proof of work and proof of stake and I think what perhaps you're saying is that proof of work issuance is a cost because issuance turns into electrical consumption and overhead for these Miners And So It is a cost because when you issue in proof of

work that goes into the electric uh electricity budget that miners have to pay for and so that becomes a cost because miners have to sell and I think you what you're saying is this does not count in proof of stake because when you issue ether there is no cell pressure there's no net cell pressure what you're saying is that it's not a cost because we're transferring wealth from non-stakers to stakers and there's no actual net cell pressure from the protocol based off of that transfer of value correct so I disagree with the cell pressure part there absolutely can be cell pressure from this but whether or not there's cell pressure is that's a tangential issue to whether the value is leaking like cell pressure could be like

in the form of you receive the staking income and you have to pay your taxes your government taxes exactly right exact natural cell pressure exactly so there is still cell pressure in that form and like that is something that I would expect if you jacked up issuance incredibly high and which is part of why a deflationary asset is likely more tax efficient um as compared to a highly inflationary one where you're rushing out a lot of rewards it's similar to doing a buyback as opposed to a dividend where a buyback will increase the price over time so you'll end up paying higher some capital gains when you eventually sell that asset but you're not paying money you're not paying taxes on the dividend as income as it comes in right right so deflation is more tax efficient most likely depend I mean not tax advice

unclear how staking income is traded you know based on tax laws Etc but if you operate by that framework work of assuming it is comparable to a dividend but yeah but yeah the point is that um proof of work is very different in my mind um because of effectively where that is going like it is effectively leaving the system of all of the shareholders where it's much more like stock based compensation that I am paying out my employees because I don't have the money to pay all the miners and dollars so I just print new Bitcoin and I give it to them I don't have enough money to pay my employees because in the startup so I just print a bunch of equity and I pay them in that so to treat it as a non-cash expense because like that that is effectively what it is

um it's very different than issuing shares back to existing shareholders and all shareholders are entitled to receive those if they so choose to and that is largely what you would expect to see if you see a network where the asset has very little utility it's not a store of value it's not any of those things you've seen incredibly high stake rate unlike ethereum which is why this stuff does matter a lot for ethereum because the the room's not purely a capital asset but in that purely Capital asset part that is what you expect to see because it's not a use a very useful asset other than the capital asset part so he's 100 stake then the issuance is going back to you it's it's not even diluting you you're just reducing the price of the asset and keeping the market cap the same time leaving the

system what do we do with this okay so it's crypto fees what do we do with moneyprinter.info um are you saying that this doesn't matter this whole thing in the center issuance rate issuance rate of Bitcoin right now is 1.94 issuance rate a salon is 6.32 if you uh quantify the cost of this issuance the security budget then Bitcoin is paying 25 million dollars a day in printed Bitcoin in order to secure itself Salon is paying 2.2 million dollars in printed sold tokens to secure itself and on down um ethereum of course is um kind of negative you can see that on ultrasound money most days and over time are you

saying none of this matters when we're looking at this through the lens of a capital asset and the only reason it starts to matter is if you're actually looking at these things as a store of value is this what you're saying uh not quite it's still important there but it's not the same as a direct cash cost to a company there there is a difference I mean in the same way that a dividend versus buyback you're still returning value to shareholders but they mechanically do make a difference for example for the tax efficiency point that I just made of it does make a difference how you reward them so it does still matter but that is very different than assessing what are the cash flows in and out of the system and the point here is that it's not leaving

the system it's not being leaked out to random people in like a proof of stake chain whereas mining it is and that's because Bitcoin is not a capital asset in any way so people are fine with that because they're not holding it to generate revenue on it they're fine with being inflated a little bit because they're holding it as a store value and the inflation does matter as the story value a lot as well but aren't all of these so this is part of kind of they're like maybe part of the bank list thesis right which is like aren't all of these layer ones we would argue trying to get if you're layer one you're kind of in the business business of competing for base money you're competing for monetary premium that's kind of how you win Bitcoin certainly is in that race ethereum is certainly in that race if

you're a layer one you kind of are in that game and I I wonder if we're making uh too much of the mistake of comparing these to companies to begin with like part of our ideas like they're a little bit like companies but also they're a lot like nation states aren't they um now you know what does what does a government that's in trouble um do if they want to fund their military for a war their security defenses for a war and they don't have the actual money what did they do they print more money and then they pay the military that way and that dilutes that inflates the value of their currency um at least uh relative to harder assets like commodities for instance and so maybe applying the the model of a company just goes a little bit too far

maybe these layer ones are a bit more like kind of nation states and so if you're comparing something like Lido to ethereum maybe your compare like a company type of equity type model to a nation-state type of model and when I when I see a whole bunch of layer ones and I see sort of kind of the block space sales their revenue their tax revenue if you will and then we see kind of the the expenses how much they're paying to their military and they're paying more in their military than they're bringing in taxes that's not a good thing for the value of the underlying token if you're a layer one if you're in that game if you're not a layer one if you're Layer Two selling value-added a seller of block space maybe you're not in that game so much maybe you're operating a bit more like a

company maybe if you're a dow if you're a Lido if you're a uniswap if you're a mkr token or something you're also not really in kind of the nation state game how does this um you know square with your ideas what would you say to this so I don't think there's as clear of a layer 1 versus layer 2 distinction is my main point that I would probably disagree with on that um I think there is certain there certainly are L ones that are very analogous something like Solana where the end game Envision of something like Solana if it is to be very successful is basically what ethereum hopes to be but we jam it all in one chain and in that kind of world you see Solana acting as a money in some form if that were to work um but for example if you look at Cosmos

app chains I would definitely disagree that all of them are looking to be monies you're not going to have a million different monies I think those are all protocols that are very well aware that they're effectively a business for the most part um and they're just segmented on their own chain just because you have your own layer one doesn't mean that you're necessarily competing for money and similarly for layer twos a lot of them will just look a lot more like a capital asset particularly as you have like app specific Roll-Ups that you're you know it's treated the same way as if you were on a layer one it just changes the accounting of them there's a quote from your article John that I want to pull out here because I think this can uh I think this is the the next question I have for you the

quote goes uh a net inflationary network is not inherently unsustainable if there is sufficient demand for the underlying token based off of various utility and value capture mechanisms holders may be perfectly fine with a reasonable amount of positive net issuance so when I when I read the sentence um my the the way that I interpreted it is that there are different chains with various levels of Delta between their issuance and their Burn Right In fact I think really only ether ethereum really has any meaningful burn other chains have like eip1559 integrated but they don't really burn a whole lot but and and so like the idea that Ryan and I have put forth on blockchain profitability is really to emphasize that Delta between issuance

and burn and trying to uh optimize for how much more burn you can have for issuance because that's you know ultrasound money blah blah blah blah what you're saying here is that if there is sufficient demand end of a layer 1's token based off of what you say various utility and value capture mechanisms may be collateral and D5 we see Soul as collateral on Solana D5 apps for example would be example of this if there are sufficient stuff like this holders may be perfectly fine with a reasonable amount of positive net issuance so even if you don't have the most perfectly optimized uh Delta between how much burn you have versus how much issuance you have you're saying that a blockchain can be totally sustainable even with a sub-optimal Delta if there is sufficient reasons

that holders may be perfectly fine with to experience it as some amount of inflation is it this is the correct interpretation right yeah I mean the the simplest thought experiment is say ethereum changed its issuance policy tomorrow such that issuance is effectively calculated on a trailing basis of whatever the burn has been recently and the issuance is calculated such that it on average over time is set to like point one percent positive so for whatever burn there is we're going to offset that in like a little bit more we'll start issuing a little bit more um but if over that period eth is an incredibly just useful asset in part

because one because it's you know it becomes money um slash two it's increasingly a profitable asset because ethereum keeps getting more Revenue there's a ton of money going to stakers and people want to buy youth because they want a stake and capture that Revenue it's not like everyone's just gonna sell their eth because oh we guaranteed that it's now positive 0.1 percent inflation forever um because it has sufficient utility and value capture such that you're okay to get diluted a little bit um and it like that that analogy Works similarly across even stuff that is very just basically a corporation if there is sufficient value for that thing it's totally fine to do that um Bitcoin is the simplest example of that it will

never be neutral until well until 2140 um or a little bit earlier probably in reality but it will never be flat until then um and the reason people are fine to keep getting inflated is because they derive futility from it and it is a growing asset and they want to hold it and so they're okay to get diluted a little bit on that thing and I would argue that I think a lot of people would probably agree on this actually is bitcoin's monetary policy would probably be better if they added a one percent inflation tail from the start like I I honestly do believe that I don't think that bitcoin's real narrative was a supply cap I think it's real narrative was reliability predictability and

assurance and if you added a one percent tail on the back of that you would effective you would effectively fix the security budget issue and you guarantee that holders are diluted by one percent um in perpetuity but if people are okay with a very minor amount of inflation that's very predictable and they derive utilities of story value they'll keep holding it I I totally agree with that take but I also want to push back on the uh idea that the ultrasound money thesis requires deflation and Ryan and I talked about this in the first few weekly Roll-Ups post um proof of stake when there was inflation there when ether was inflationary for a time being like the question was is ether still ultrasound money if it's also inflating like does that make sense and my answer is like

well yes because ether the economics of ether are designed in a maximally optimized way to capture value to like capture value for like whether or not it's deflating or inflating it's capturing the value that it can from ethereum block space and then using that value capture uh and again by preventing value leakage it is pulling down on the supply of ether because it's it's burning that supply of ether even if the net effect of that is inflation it's still ultrasound money because it is at its theoretical maximum in terms of value recapture because of proof of stake in the IPA one five five nine so I will I'd say the ultrasound money never actually thesis never really requires deflation it just really requires to

have that maximum value recapture circulatory mechanism and and so and then so that'd be like my one pushback is like the ultrasound money thesis doesn't actually require deflation it just requires a theoretical maximum amount of deflation given some certain amount of economic activity and then the other argument is like okay so like there's Solana it doesn't really deflate at all in fact it only inflates but it's still a sustainable Network because the Staker base epsilona are okay with uh accepting inflation because they get you some amount of utility for soul and I'm like I don't I don't think so like Solana is totally gonna like hyperinflate into economic unsustainability that's not my conclusion and that wouldn't be the ultrasound monetary thesis either at least by my interpretation and like but

the the pro scenario I'll present you with is that say there are two ethereums clones of each other equally identical but at some point in time these these two ethereums diverge and one just grows more in value and the other one doesn't I mean like ethereum classic David sure but but now in a post ultrasound money state right got it and so like one ethereum has more economic activity than the other one ether gets a little bit more burned than the other the the other ether is inflating more than the one that's deflating and eventually these networks will diverge and it will always tilt towards the deflating more ultrasound version of ethereum whichever one that one comes to be and then the one that starts to inflate like those discrepancies will grow and grow and

grow over time and like if you look back 5 10 20 years in the future one was clearly the better asset to hold in one network ultimately is the more secure higher economic activity Network and the other one is ultimately like the loser between those two things because of divergences in the soundness of the monetary policy and so that'll I'll apply that exam argument with ethereum versus Solana sure Solana economically sustainable it's not going to go down but when you have ultrasound money to compare it to in the future like it'll always you the network activity will always tilt towards the favor of the chain with the most sound asset so those are my two core quips that I have with with what's being presented here so I'll

give you a moment to react to that I if you agree that it is not strictly required for ethereum to be deflationary to be ultrasound money I would agree with you on that um I will not name names then but a lot of people I have seen who have very explicitly and loudly said the opposite of that so I would disagree with that take yeah okay okay and so what about the idea that like uh if so Solana inflates more than ethereum if it's providing equal value that ethereum is is also uh providing but it's inflating more the ultimately the winner will be ethereum is also my my claim if they have the exact if you assume

that they're effectively the same chain same amount of utility economic activity provided is what you're saying um and they just basically have different monetary policies right this one has a one has a stronger Delta between value recapture versus value issuance yeah it makes a difference to the monetary value of the asset like very significantly and and that's the important point is that ethereum is not a company like like that that is the key point is that understanding how these cash flows work is a component of the system to understand how cash flows in and out um and that is a very wholesome analysis for more application specific types of things which are effectively businesses um for a theorem it's only part of it and the money is arguably the more important part of it and it has a very

big impact on that so I actually don't really see too much disagreement here do you run I I don't see I don't see a lot of disagreement um I honestly uh and I hope bankless uh listeners are hanging with us here I just have a lot of fun geeking out over this stuff because what what you're witnessing basically and what we've tried to do over the past since the birth of crypto really and then and then in particular for ether trying to understand it is we're trying to understand how to Value these new assets that don't they're not quite like Nation States they're not quite like company Equity there's some new type of thing and so we're trying to um use analogs from Trad find the old world and apply them here and we're all

figuring it out as we go um one thing that I think is useful is John is adding some Nuance to this uh idea of ultrasound money that I think is important and would probably largely agree with I think I do in particular if you kind of um you sort of look look at the lens of ether as a capital asset purely and ignore the kind of the the store of value then yeah then issuance really isn't a cost to the business if it was kind of viewed as a company I think I mostly agree with that now let me ask John because we got some more stuff to talk about but just to kind of tie this uh up in a bow here um you said this concept that you're kind of presenting these subtle differences

between maybe what you perceive as canonical ethers ultrasound money uh kind of mimetics and what you're proposing you said your ideas even more bullish how is it more bullish uh so what about your the concepts that you've we've just been talking about for the past you know 40 minutes or so what about that is even more bullish than kind of just going to ultrasound.money and and you know getting real excited real real excited about the burn as I'm told that ethereum people do uh why is your model even more bullish than that mostly because I don't treat the issuance as harshly as most people do like if you check the financial

statement quote unquote of something like token terminal for ethereum um will explicitly have like very large losses in the past um implying that ethereum as a network is effectively losing money by operating because it's issuing and I would strongly disagree with that um I think that it is perfectly sustainable even the way that it is um my general motivation for wanting to do this was less even about value in the asset and more just trying to impress more what are the actual things that matter in terms of sustainability particularly because increasingly upcoming ethereum upgrades are a lot of them are going to be economic

um either tangentially or like explicitly in their nature stuff like me V burn um so I when ethereum is a protocol is making decisions going forward I want to like make it very clear to people um what the accounting is such that people don't have this notion in the back of their head that whatever we do eat must be deflationary in the long term if like an option doesn't do that we have to throw it out um and I I think that is like a very dangerous thing to like misunderstand those economics and I do see that frequently that's also naive because as ether burn again can continues to get burnt it becomes harder to burn ether it's on the ultrasound money website that this a new equilibrium is discovered over time like as we're not going to zero East Supply

that would be naive the only reason why we're stoked about the eth burn now is because uh with the introduction to proof of stake the supply of ether is the easiest it's ever been to burn because of in nature of how it's at it's The Ether Supply is the highest it's ever been the more Supply there is of ether the easier it is to burn the lower Supply there is of either the harder it is to burn so like to think that we must be deflationary now and for forever is naive and you're misunderstanding about how these Economics work you agree with that yeah I agree yeah and the thing that like wanted me to try to impress that more was the types of things that are upcoming that I like are going to get talked about a lot more stuff like Mev

burn um which is an explicit proposal it's on vitalik's roadmap now that it's at least being considered and a lot of the argument for that is for to capture more value for ethos yeah um and so to the extent that ethereum is ever considering any changes to its economics in the future like the burden of proof in my mind is you better have eip1559 level Assurance formalization study of it broad understanding we all agree on it um and I think something like this is very far off on the understanding of why issuance is important I think it's incredibly important um but the nuances make a very big difference in when you're like making future changes like that does it also John uh that this idea uh cause you to

treat alternative layer ones issuance less harshly than maybe let's say bankless has in the past like we see something like this and we're like oh that's a lot of burns six percent inflation and no recapture top line revenue that like but maybe in your model you're like well that's not an expense to the business that's not a big deal at all and you're just maybe you're more excited about um like this and it's not about how much how much they're uh issuing Ryan and David it's about you know what their what their growth in their uh block space revenue is uh is that accurate as well you're willing to treat a alternative layer ones less harshly from an issuance perspective yeah and I

think that's naturally what you see with even Bitcoin and ethereum they had higher issuance to start like much higher in the beginning and it was fine because they were growing at a high rate and that's how you bootstrap it um and as your growth eventually tapers off and you mature you have to lower that um because it does have negative effects um but it's not like your protocol is just lighting that money on fire and everyone is losing that money every year as if it's a profitability loss to everyone who's participating in that is like the key distinction I want to push back on that because actually I do disagree with this um it is not a cost to the network that Solana is issuing six percent it is a cost from one side the sole holder base of six percent to the soul stakers and

so the soul stakers are getting six percent the Solana holder base are losing six percent because Solana has to pay the stakers that much that is a knock that's a that is a negative Mark to Seoul as a store of value Asset because it because the long-term holders are losing six percent in favor of the stakers and so this is why ultrasound money there's Network there's Tailwind effects there's Synergy effects for having strong store of value properties because if your asset has strong store value properties it will incur further buying from the market because of those properties and when the value of ether on the secondary Market is higher the if it's more sought after as a capital asset to the stakers and so more stakers want to stake because the dollar value

of ether's higher but when that happens like and there's more economic burn like the store of value the the Delta effect creates more demand for long-term holders of the asset and it makes it so that the protocol doesn't actually have to issue as much because the secondary market value is stronger and so I'd say to ignore the value of a store value Asset in the capital asset equation is missing the force for the trees like you have to you have to view these things as a holistic system another way to summarize what David just said is we call it ultrasound money not ultrasound Equity yes exactly and and I don't think that you disagreed with me in that at all actually right um because cost in this line item scenario is an explicit

like cash flow item that is very different than does it negatively impact the network because it hurts its soundness and sustainability that it does um that is very different than understanding like how cash flows in the system and like how to strictly value something on cash flows like that that is an important Nuance which matters in the sustainability thing in the long term but I do agree it is a it is a highly negative thing for a blockchain like this to have a long-term High inflation rate it would be bad if ethereum had a long-term very high inflation rate that would be very very negative um well I think we've come to an understanding Mr Charbonneau uh I appreciate this this has been a really uh interesting

topic of conversation it's been a while since we talked about the ultrasound money in depth and uh you're adding some much needed Nuance to it that's not all we have though right David what do we have coming up no John has also made a very dense Excel sheet that is a piece of an Excel sheet modeling the future economics of ether as it relates to the ethereum scalability roadmap uh and so this is some really Frontier level knowledge of Frontier uh uh Excel sheet modeling out uh the throughput of ethereum uh and all the other things that are related to that as it relates to Ether the asset and so we are going to walk through all of these details and more because uh I'm not very good with charts Ryan's much better than than I am

but even Ryan would like I think some guidance just scared me yeah John they need help so uh that's going to come up in the second half of the show we're going to look at the future state of The Ether economics as it relates to the ethereum scalability roadmap but first a moment to talk about some of these fantastic sponsors that make the show possible uniswap is the largest on-chain Marketplace for self-custody digital assets uniswap is of course a decentralized exchange but you know this because you've been listening to bankless but did you know that the uniswap web app has a shiny new Fiat on-ramp now you could go directly from Fiat in your bank to tokens in defy inside of uniswap not only that but polygon arbitrum and optimism layer twos are supported right out of the gate but that's just D5 uniswap is also an nft

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similar staking features for ethereum and polygon but that's just staking Phantom is also the best home for your nfts Phantom has a complete set of features to optimize your nft experience pin your favorites hide the Uglies remove the spam and also manage your nft sale listings from inside the wallet Phantom is of course a multi-chain wallet but it makes chain management easy displaying your transactions in a human readable format with automatic warnings for malicious transactions or fishing websites Phantom has already saved over 20 000 users from getting scammed or hacked so get on the Phantom waitlist and be one of the first to access the multi-chain beta there's a link in the show notes or you can go to phantom.app waitlist to get access in late February hey bankless Nation if you're listening to this it's because

you're on the free bankless RSS did you know that there is an ad-free version of Bank list that comes with the bankless premium subscription no ads just straight to the content but that's just one of many things that a premium subscription gets you there's also the token report a monthly bullish bearish neutral report on the hottest tokens of the month and the regular updates from the token report go into the token Bible your first stop shop for every token worth investigating in crypto Bank list premium also gets you a 30 discount to the permissionless conference which means it basically just pays for itself there's also the airdrop guide to make sure you don't miss A Drop in 2023 but really the best part about bankless premium is hanging out with me Ryan and the rest of the bankless team in the

Inner Circle Discord only for premium members want the alpha check out Ben the analyst Degen pit where you can ask him questions about the token report got a question I've got my own q a room for any questions that you might have at banklist we have huge things planned for 2023 including a new website with login with your ethereum address capabilities and we're super excited to ship what we are calling bankless 2.0 soon TM so if you want extra help exploring the frontier subscribe to bankless premium it's under 50 cents a day and provides a wealth of knowledge and support on your journey West I'll see you in the Discord we're back we've got uh John Charbonneau we are learning a thing or two about ethereum which is always really fun this is what Dave and I love to do it's

really where beckless started I think so back to Our Roots this might be like 300 400 level content though and I definitely know that the next data model the spreadsheet that we're going to get to is because I've never seen anything as sophisticated as oh yeah yeah as you've kind of Applied the economics of either the asset also to like the ethereum roadmap and future block production in a really interesting way and so what are you calling this this model that you've come up with John is this a um Theory of Everything for ethereum like what is this spreadsheet actually called ah yeah that's about right Theory okay every future protocol upgrade

that's uh critical upgrade So like um this tape this tab has look why don't you just guide us through this because I'm gonna make a mess of it what should we look at and by the way bankless uh listeners there will be a link in the show notes where you can open this in Google Sheets and see what we're seeing yourself if you're on YouTube then you can see what I have in front of my screen but do you want to walk us through this and what the goals of this spreadsheet are and your conclusions here yeah sure so all the like words and stuff at the top is basically just a high level explanation of this is basically intended as primarily an educational slash understanding tool of like how the ethereum protocol works and what future upgrades will change in like how the numbers in the economic engine

and everything changes underneath looking at throughput all of that kind of stuff um it's not intended as evaluation model at all like I as mentioned before a DCF is not a full analysis of each so I don't derive an evaluation based off of uh like what the cash flows that come out are I literally just hard code in dollar values for each that basically just go up in a straight line um so take all of the economic dollar stuff in there with a lot of hopium straight line up type of stuff they're not intended as valuation types but the road map is based on real world basically the the latest graphic that vitalik put out which is the most comprehensive roadmap we've seen this one is from November of last year yeah so that's the primary purpose for

like going back to the model the main stuff is so you can play around with all of the future protocol what those upgrades kind of look like so this whole issuing section here is very simple we have a current preset ethereum issuance curve the formulas are just pre-loaded in here anything throughout the model when you see like the light blue box with the blue text on it that means that's basically just any kind of hard-coded input so that's the kind of thing that you play around with different assumptions you could change them um all the stuff in white those are formulas and stuff that you like you don't need to change so this is roughly the current um ethereum Supply and amount state so you can look at you know what does it look like if I double the stake then what does the issuance APR

start to look like that kind of stuff but this is all very simple stuff here um so it can kind of go down to the next section the execution layer um and this is basically showing the different options of what the execution layer is um these are very Loosely made up numbers on the state list and try and roll up stuff but the basic idea is um our current ethereum um execution layer has a gas limit of 30 million gas per block which is just the amount of effectively resources that you're giving out but it targets 15 million gas on average that's just how the few mechanism eip1559 works so on average you know this is saying this is the gas per block that we're providing is 15 million gas from there you can

look at like those number twenty one thousand fifty thousand hundred ten thousand for the transfer um and transactions basically different types of transactions use different amounts of gas really simple stuff like if I send you if uses very little gas so with 15 million gas we could do a lot of those if I do really complicated transactions that use a lot more gas then we could do less transactions per block um so these formulas are just saying based on what you assume the average gases per block um what's kind of the implied amount of transactions that you could do there um so you could do like 60 TPS if we're just doing roughly um ethereum transfers when in reality it's much lower because people do a lot

more than that um and then the stateless and then try and Roll-Ups those are proposed future upgrades that would in theory allow you to increase the gas limit of the block so that would increase the throughput of the L1 itself on the execution layer basically statelessness and potentially like a zkevm and shine roll-up or future things you might have had discussed on the show before but they're basically ways that make it much easier for validators to validate the chain that they don't need to carry the State anymore and then eventually they don't need to validate all the transactions I actually didn't know statelessness would increase the gas per block it could so that's that's part of what I want to note here is I put I put 50 million and I put 100 million those are just

ballpark kind of made up based on discussions if you like look at comments from like whether Justin vitalik any of them before of it's probably safe to increase the gas limit by like 3x or something like that um but that's a very loose that's not a scientific thing that could be totally and different yeah stateless is kind is on the rid map that we saw earlier with fatalik and trying rollups feel like it's a more of a hypothetical future maybe probably is that that's about right yeah yeah they're very far out um this is the kind of thing that Justin has primarily talked about um and I have a bit written on them in like the complete guide to roll ups thing I wrote last year

um but I mean you could basically think of the zkm as turning the L1 into a roll-up in a way yeah um at like at the limit what you're effectively doing as a validator if you like play that all the way out is to validate the chain all I need to do is check a proof and then check the data availability of that block totally that looks like a roll-up at that point it's just that it's enshrined in the layer one as opposed to being a smart contract it is totally the same this whole category execution layer throughput that's all main chain stuff right and yeah but let's also remember this distinction because sometimes we've talked about this before that we've said like the execution layer in a modular blockchain kind of world is moving outside of the main chain which is also true but that's not what you're

referring to here like our concept of the execution layer is kind of moving a bit more to Layer Two um that's a different way to define execution layer throughput that you're talking about the this is the ethereum protocol execution all right the L1 that we're used to using today like what does that do um and then this is the data availability layer um so here is basically the planned upgrades um that we'll see the first one being EIP 4844 so that'll where we finally have an actual segmented data availability layer where it will no longer be rollups just jamming call Dan data into the same execution layer and competing with execution transactions we're creating a segmented environment

with a different fee Market blob space blog exactly exactly what are the numbers that we're looking at here so in this total useful da what what number what is that actually uh measuring yeah so the it's yeah 262 144. um that's the number of bytes it's roughly a quarter megabyte is basically what's that saying is like that's the amount of blob space that's that is two blobs um is the initial spec for four eight four four um is that's the amount of bytes you'll be able to post blob space is the new block space yes am I right for Roll-Ups it is yeah um and then the 4844 plus is a hypothetical of I would expect this to happen is that en route to doing full

dank sharding you can easily kind of juice the 4844 parameters such that you could just allow for you know some more blobs and then the effect of that is you're just providing more availability it's just that we don't need it today so there's no reason to just Mass flood it from the start but you could easily tune it up a little bit if you know dank charting is going to be years out you know you could just tune up 4844. like they actually lower the initial 4844 parameters from what they were talking about what's crazy about this right compared to execution layer throughput which we go from current to stateless and that's what like a 3X above a 3X increase in in gas per block we in in data availability we're going from zero to uh 262 k for like with EIP

4844 which let's remind folks isn't actually not that far away I mean there has been some talk maybe you know more about this John about potentially this year I don't know if we're gonna hit that but like it's on the fact that that's on the table is pretty crazy and we go from zero to um you said about a quarter of a a megabyte so 260 uh 2K which is absolutely incredible in terms of the increase yep how big is it that should be later this year help us reason about like 262 bytes per slot or 22 000 bytes a second uh bytes a second it was like a hard metric to understand in terms of like

actual throughput is there can you help us reason about this yeah so if you scroll down below this table now um so to all of this stuff here this is what matters so yeah so now we're thinking of bytes because like that is what ethereum is providing but what we really want to know is okay how many transactions can roll ups effectively do with those bytes so what matters is you need to be able to reason about on average how many bytes of layer one data will an L2 transaction take up on average will an L2 transaction when we post it down does it take 10 bytes does it take 50 bytes does it take 100 bytes of that so then from that you could back out how many transactions you actually get from the Roll-Ups down there

um so that's what this is showing here is like what is the data impression of Roll-Ups going to be and that is a very very big factor because if Roll-Ups are very poor compressing data well then they're not going to use that data very effectively and you'll have low TPS if they get really really good at compressing it optimally then you'll get really high TPS and we've seen them get a lot better exactly launched like was like arbitrones kind of 90 like Improvement in compression optimism similar yeah optimism and arbitrary are massively improving it um and then at the theoretical limit ZK Roll-Ups are probably the best at compressing it if you want to take the little bit of a shortcut that they're kind of allowed to do in that you don't have to for a ZK roll up you don't have

to post the full transaction data it's sufficient to uh just to post the state diffs so what is the difference in state from you know State one to state two um so that can let you save a bit for the simple example of like let's say we trade back and forth a million times I only have to post what was the difference after that where in the naive case you would have to post like all of those trends actions back and forth so that allows uh like much better compression for a lot of transactions we only use very little data on the layer one um yeah so then the like run scenario thing is basically um that box was like you could choose What scenario do you want to run you know of like our rollups really bad at compressing are they optimal at

compressing them and then what type of transaction are you running like really simple transfers um stuff like that um and then basically what it does is I just set like a preset timing curve of assuming you start at say current compression very broadly it varies and eventually we get to Optimal compression is what this says so like by the end of this model you get to Optimal compression and it kind of just evens out that we progressively get like a little better every year um is what that does and then the the output section is basically where you decide what it is that you want to run um so for like the top of the execution layer Revenue section is that's where you get to pick every year you know what execution layer do I want to run so

you're basically kind of forecasting okay uh what year do we get statelessness like what year if ever do we get a zkevm um I added like a toggle for what happens to the revenue if you turn on if you do start to burn all the Mev because that obviously will change the issue is this right now is this preset to your kind of yeah case yeah your expected case I would I would say very Loosely on the technical side it is ballpark what I would expect on the economic side I would like I'm not going to try to make any projections around what is the average transaction fee for an L1 ethereum transaction in like 10 years like I I don't think anyone can reasonably predict that because we have no idea what the hell it's going to look

like or what people are using it for um so basically what I did for the like uh the base fees and stuff like that of what is the fee changing per year um I basically just made it kind of grow really quickly and then like start to taper off with big divots when you have like a big increase in throughput so you would expect that you know when we if like assuming that you know we go from today to we suddenly increase the gas limit to from 15 to 50 million sorry that the average Target you would expect that transaction fees go down on average because we just added a bunch of Supply um so I kind of just reduced the average fees in those years where like there's a big output jump to kind of just like

Smooth out what it looks like so John what what are the conclusions of all of this I think people can fool with the parameters but um I I think a lot of people listening will be like well John you sound like more of an expert than me so um tell us when you input these inputs in this model what does this spit out um does it tell us transactions per second per year does it tell us uh amount of block space does it tell us the revenue where do we get to that in the model yeah so if you go to the model output part um like the part at the top which it says in each terms that's the TPS table right here okay um so that's basically showing with the assumptions that you like decide to select underneath this is the implied transactions per second that

you get while running those assumptions so if you you know assume that we provide this much data and this type of compression like this is the amount of transactions that you will get um and then the role of that is that feeds into the stuff below where you get to set you know what do I think the average transaction fees are going to be and that's what spits out what the total revenue is the implied number of transactions versus what is the amount that people are paying for those transactions and that's where you get like the revenue stuff at the bottom of what would be implied transaction fees in aggregate so and then we could take applications can we take like a the year it's the year 2025 so two years from now uh give us some of the headline numbers with these model inputs

uh I probably think that's a that's overly conservative to be honest what I have here um so part of it is that like you'll notice that this is like it gets very jumpy like you'll go from 90 TPS to 690 TPS like the the year after that um in reality I wouldn't be surprised if people start to increase like if ethereum starts to increase like the 4844 parameters slash there is better um execution like I don't necessarily think that it's going to just like immediately jump up like the reality is it's going to look smoother than this because these are full years and you have a full upgrade um but the reality is yeah you'll start getting in the hundreds of TPS on Roll-Ups certainly within the like the shorter term and then at the limit uh

well there that's part of it too is like the current proposed Bank sharding spec is not necessarily the limit of like what you can actually provide particularly as like Hardware upgrades Etc um but if you look at something like the current um proposal and you're looking at like pretty concern I would say a relatively conservative assumptions on like what is the compression they're not super simple transfers like yeah you get well into the tens of thousands of TPS um between all the Roll-Ups so but could certainly go higher the year 2030 were probably uh looking at in the tens of thousands of transactions per second on Roll-Ups is a a reasonable scenario then my confidence interval for what ethereum looks like in 2030 to be clear is plus

or minus 90 yeah uh probably probably more than that but yeah uh yeah but the road map gets us there if the road map is implemented and if the demand is there yeah like yeah the important thing on all of these is any of these parameters between like now and when they're done like the amount of data that's provided by these or how well a roll-up can compress data slash how much demand there is like those can literally change by orders of magnitude in a heartbeat um so the numbers here not to be taken certainly as like actual predictions is my main point um but rather to be able to play out under the different assumptions what does it look like and like be able to

reason about what are all of those different things cool and there's some graphs at the bottom ethereum manual supply chain where you can see the issuance the burn percentage and net Supply it's like this model forecasts negative uh deflationary eth I guess um into you know 2030 and then you've got an ethereum annual revenue as denominated in eth as well um the bulk of this coming from base fees it looks like um yeah it's really cool really cool job on you know for for people who um like I said this is 300 level 400 level stuff but to be able to model this is incredibly cool thank you for putting the time to to go do this um I remember a time when the ethereum road map wasn't

like clear enough to just even describe in a in a graphic like this the vitalicas now the fact that we can actually apply numbers to these things which are based on assumptions of course those assumptions could change but we have the power to kind of do that is incredible to see uh just reminds me once again of how far we've come on this journey to understanding this this um incredibly cool Network and this uh this asset behind it so thanks for all your time today and thanks for putting out all this fantastic work on ethereum of course it's fun as always awesome well bankless listeners we will include of course some links in the show notes with uh some resources to um John's articles that he's written in the past uh in this model of course and

uh gotta end with the way we always do give you you a reminder that none of this has been Financial advice neither John myself nor David have any idea what's going to happen to prices in the long run of course crypto is risky so is default you could lose what you put in but we're headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot thanks I'm just going to leave then so it's not like awkward for salon and streaming sound good Dave thanks Don this has been awesome

appreciate it man thanks guys see you guys later bye