Is Ethereum dying or being valued wrongly?

Transcript

GM good morning welcome to the milk Road show The Daily crypto show that is irresistible as buy one get one free deal I'm your host C rad filling in for Jay while he's enjoying his Welles deserved honeymoon it was a fantastic wedding this weekend but joining me today is the legendary crypto investor lar Davis and today we'll be talking about ethereum and its struggling asset eth for context and this is actually quite wild I just looking at this up today this morning eth is down 40% in USD terms since its yearly high back in March eth is down 52% against Bitcoin since it topped out in September 2022 and now these are cherry-pick numbers so like it's a little bit whatever but Soul has outperformed eth 700% since bottoming out in December

2022 so I think many eth holders are feeling the pain uh even though funny enough eth is still up 8% year to date and 50% in the last year so like it's not that bad I don't know if we can really call it pain but either way all I see on crypto Twitter right now is ethereum has failed it's the next Myspace eth has failed as ultrasound money and ultimately eth is just this overvalued useless asset so today Lark and I are going to weigh in on our thoughts on this topic but before we do let's take a quick minute to hear from today's sponsor kelp Dow get ready because your reward farming game is about to level up introducing gain powered by kelp your dgen cierge gain is an automated Vault launched by kelp that

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check it out for yourself today just head over to milk.com slel gain and get started all right welcome back Lark let's get this thing started why don't you just tell us what the heck is happening with ethereum this cycle why are prices so slow and so boring in the assass are we doomed or what's going on in your opinion it's over man the Bitcoin Maxis right all along ethereum's done it's cooked fal's got a girlfriend now I mean it's the end times man it's the end times look hey real quick I just like to tell everybody ethereum is literally my second biggest holding at my cryptocurrency portfolio so we're going to be discussing some of the criticism and stuff we've seen online here recently but don't think that I'm not bullish on the future of ethereum as

we go through this I'd like to point that out and the numbers that you have shared are pretty crazy because here's some interesting stuff the S&P 500's up like 18% of approximately something this year bitcoin's around current numbers probably 32% 30% something this year so Bitcoin has significantly outperformed the S&P 500 ethereum has significantly underperformed the S&P 500 if we can't under outperform the damn Boomer markets the S&P 500 what are we doing guys uh look I think there's been a lot of Justified criticism towards ethereum some of the choices that have been made have you know benefited the ethereum ecosystem but not so much benefited The Ether asset price and obviously as ether

holders we want to see the benefits of the the price right so that's been part of the problem but hey at least vitalic did post a picture of a a cow the other day that had a little placard on it said ethereum is good so nice we're still going we're still moving we're still going guys well let's talk about some of the changes that have happened with ethereum just real quick you said there's a bunch of changes that you said are good for ethereum but not so good for eth the price real quick that's the L2 scaling road map which appears to be working I mean l2s are reaching all-time highs on basically every metric but I think one of the big takeaways from this or at least what I'm reading on Twitter is that l2s are parasitic so we'll talk about that I think later in the episode other

anything else that's like I guess good ethereum but bad eth I think that's basically it right the L2 scaling road map I mean look yeah the scaling road map of course is important but I think one of the things that has been good for the ethereum ecosystem are bad potentially for the price of ether because it's made just less Demand on L1 in particular has been the decision and that's part of the L2 conversation but the decision not to scale layer one you know we got a lot of great stuff we've got staking at layer one and now we have this reaking stuff and that's really been the biggest Innovation on ethereum in the last two years I mean 2020 we had Defi and defi was exciting and new and I know vitalic wasn't the biggest fan of that although he has now putting some

money in a so that's good he's finally dipping his toes into the world of defi after all these years V talic come on the biggest Dosh Dar use case or one of the biggest dsh Dar use cases for your blockchain so it's interesting to see at this cycle the reaking thing has happened and it's very interesting very exciting but it's also super nerdy I mean just you know you really need to using a okay you bring your collateral you lend it you get some money in exchange it's a lending platform okay easy reaking well there's this thing called I and it's doing this stuff and like you you take some liquid steak coins what's Liquid steak you got take your year you got to put in Lio down then he get some liquid steak coins you take those and you can restake them with somebody else and then you can actually

restake the restate coins on top of that and then take nobody cares about that crap man except buing episode uh yesterday so if you if you're unsure go check that out on YouTube ND you're nerds look the reality is is that stuff's great and I love it and it's an interesting Innovation but it's not super Normie friendly it's not getting people super excited great for old whales who are holding lots of eth and stuff like that but in terms of getting people excited to use new stuff on chain that's been a bit of a let down and I think the biggest problem of course has been the failure to scale layer one and that's years off at this point yeah so we've got a lot of great stuff right but if you want to really get the layer one chain cooking again you got to scale the

layer one because on August 5th when you know things hit the fan in the markets I think at one point I was doing stuff on eth and I had to pay a $600 gas fee holy so ethereum layer one's still broken now I know the fees right now are utterly Dirt Cheap right but that's because nobody's using layer one or at least not to say nobody's using it lots of people use it every day but there's not very strong demand for it right now because everyone's off on Tron they're off on salana they're on Bas right they're on ethereum layer twos so the ethereum layer one is losing that mind share to an extent and yeah whales and stuff are there's a lot of great stuff going on but if you don't have a lot of people using the ethereum layer one you don't have the ultrasound money thing

coming in now look ethereum's annual inflation rate with 0% burn is 0.6% I mean come on that's not bad right it's not bad at all Bitcoin still double that right now for context but as long as we don't have much layer one traffic we're not going to have a lot of burns because after the blobs upgrade layer twos don't spend a lot of money on chain anymore at least not on layer one I think the other thing that is I mean I guess a little bit surprised although to me not that big surprise but ETF flows have been pretty well nonexistent the last the last few weeks anyway it started out kind of okay but it also launched in like a not a bare Market but in a down only season for the last few

months so I don't know I guess that's also Weighing on it I think a lot of people were saying hey this is kind of the last Catalyst for eth and if these flows don't go well then like what's left and and obviously they have not done that well what's your thoughts on the ETF I've genuinely been shocked by it and I wouldn't even say the uh it started well I think it started bad because really the only flows we saw were there might have been a little bit of like actual buying but basically most of it was repositioning from grayscale to Black Rock and grayscale to Fidelity people escaping that higher fees I think it's 2.5% or something ridiculous like that to keep your eth in grayscale so people are getting out of that and there's been huge outflows from that in

fact the last time I looked and I can't imagine it's changed almost at all the total outflows have been over half a billion dollars so we have had no positive inflows yet only outflows and what's shocking is last week on Friday we had one of the most shocking days yet because there was literally zero inflows not a single penny not a single penny not no no outflows but outflows yeah no outflows on the day and the outflow have FL slowed down significantly whether grayscale sellers are waiting for better market conditions or I don't know I guess we'll find out but it's shocking to see basically zero interest right now from Wall Street in these ethereum ETF

products will that last forever no I I don't think that at all but definitely when you look at how it has played out versus the expectations of how it could have played out I'm pretty surprised to be honest and um look it Wall Street will show up at some point maybe everyone's finally getting driving back from Long Island they're getting back from the Amalfi Coast they're going to come back to their desks on Tuesday or Wednesday or whatever and they're gonna okay signed byas e BTF start pushing this to our clients we shall see over time we will get inflows obviously it's it's it's silly to think that it's going to be a complete failure but so far it's pretty hard to argue that it hasn't been super lame right so okay in terms of the asset of eth it has definitely

underperformed has not done very well there's not a lot of interest at least on the ETF side of things and because the fee Revenue has gone down on ethereum it's no longer quote unquote ultrasound money right it's not deflationary although none of its comp still is by a little bit but right it depends on the time frame you go for but none of its competitors are either Bitcoin is not deflationary so was not even close to deflationary but either way the revenues of the fees on ethereum have gone down significantly and so there's a lot of concern about ethereum for the last let's say four to six months because it's been beaten by everything and the asset has just not done well but let's flip it and let's just look for a second on the fundamentals let's look at the metrics of ethereum and I

guess you can look at this many different ways what are your thoughts and how are you looking at it is this also bearish or are we getting a bit of a Divergence where like maybe the metrics are doing well but the price action not doing so well what's your sort of take on this the metrics are still insane you know ethereum is a wildly successful blockchain and I know it's been popular recently to trash on it and there are some pretty valid criticisms you know and some things to be saying hey why is this the case totally fine the truth is though is that ethereum by many many miles has the biggest total value locked it still has 350 400,000 sort of daily active users whatever like huge amount of daily active users a lot of stuff still being

built over there many of the core Protocols of the industry are built there whether we talk about a or maker or curve or a lot of other stuff and I know those have all gone multi-chain now but their home for all these things is actually on ethereum layer one so we've seen a huge amount of success from that regard I think there's still a huge amount of Mind share behind ethereum a huge amount of just really everything big money big interest so it's really set the standard in so many ways for the industry what a smart contract blockchain should look like and should be doing and stuff like that and obviously it's getting challenged right now as it always was going to do and it's actually interesting to finally see real Challengers stepping up to the

plate because I've been talking about ethereum nonstop since 2017 guys and and all that time I've heard so many all anybody remember icon from back in the day the the South Korean ethereum right there's been so many ethereum killers and ethereum clones and the ethereum of China the ethereum of South all this kind of stuff has popped up okay basically everything lays in a a dust bin of history of blockchains what's interesting though is that in the last couple of years we've actually had real competitors step up and we've seen salana for example in a big way moving up stuff like Tron whether you love it or hate it has stuck around and actually been very popular for years which is interesting I always I think the sort of

broader Western audience generally despises Tron because of Justin Sun's marketing tactics or whatever but the reality is is that tron's actually seen some of the biggest adoption of any blockchain because people in like Nigeria or Argentina are using Tron to send usdt each other and that's like a massive use case because it's so cheap and now they can use salana and stuff as well but you know once you get on a blockchain yeah you kind of get familiar with it you kind of stick there it's kind of what people do so there's been a lot of competition finally starting into eat into ethereum's market share whether that be in total value locked or total users you look at some of the salana statistics and the daily active users and all this stuff it's absolutely insane salana has got its own issues right now salana is basically a giant

casino at the moment and it feels reminiscent to me of where e I was back in maybe 2017 where it was a giant Casino for Ico tokens right and now salana is really finding its footing and you honestly think about this when it comes to salana I bet the most people out there couldn't even think of a single game being built on salana or could maybe not even name more than one defi protocol on salana but there's a lot of them there's a lot of stuff happening over there there's huge economic activity starting to happen outside of the casino but the casino Remains the most popular use casee right now for salana but ethereum's matured Beyond a lot of that stuff we have very mature markets on on ethereum we have very

mature protocols over there so to say that ethereum is failing definitely not the case it has underperformed obviously the hype has definitely gone somewhere else this cycle and may continue to do so and it's not to say that the ethereum developers can rest on their Laural and stay in their Ivory Tower forever they have to keep pushing this thing forward right we need layer one scaling and that's going to be the big ticket that really gets ethereum's dominance cemented for the long term so I want to get into my take on what's happening with eth and I want to get your opinion on it which I we didn't talk about this before the show so I'm it's going to be

literally your take out of nowhere but before I do that what is your thought around so you're saying you kept saying that we need to scale the L1 do you think then l2s are parasitic to eth as a lot of people call it on ethereum or sorry on Twitter or do you think l2s are ultimately a good thing for eth l2s are ultimately a good thing for E it's it's one thing to say parasitic and that sounds like a pretty hot thing to say realistically it's a symbiotic relationship ever since blobs this new tech that was rolled out we're not going to get into that but basically the fees for layer twos settling to layer one went down massively so right now layer twos are not providing a lot of burn for ethereum layer one so they're there they're using ethereum security but the

argument is while they're parasitic because they're not really paying all that much back to the layer one so ether whales and stuff with holders are not really benefiting all that much because we're not really doing the ultrasound money thing right now okay fair enough the problem with that thesis is that ethereum layer twos have provided unimaginable demand for ethereum this cycle look at bass Bas has got 14 million daily active addresses or something like that now it's absolutely crazy uh arbitrum continues to be well in a far in a distant second place Linea pretty relevant as well so between those three layer twos they capture about 80% of users are slightly more but these are driving massive demand for ether because

you want to use any of that stuff guess what you got to go and put a little bit ether in your wallet now you don't need a thousand bucks right like you do on the main chain we'll make 10 transactions on Unis swop and the markets are heating up you better have a lot of money on your wallet but it's good because coinbase is showing massive success with their base chain for an ethereum layer too and you always have to keep things in mind when Sony came out the other day and said hey we're launching this blockchain initiative right where did they go where did they go right did they go and build it on I don't we're not we don't throw blockchains at the bus okay I don't want trick everybody but they didn't build it anywhere else they build it on ethereum right they build it on an ethereum layer

2 okay so that means something when Larry thinkink is out here talking about tokenizing everything where do you think he's talking about building it he's probably not talking about building it on Tron okay he's probably talking about building on ethereum which he is which he is so you know you got to keep this in mind that these short-term challenges for ethereum have always been there ethereum's always been this this Behemoth this tank driving down the highway at 100 kilometers an hour the devs are constantly tinkering with to make it more efficient and lighter and better and all this stuff and there's been so many great upgrades over the years e the Beast right and the layer 2 has been wildly successful in driving huge demand I saw some

statistics I can't remember exactly what it was but something about like 10 or 11% of all eth now is on layer twos so that's a lot of demand that has been created by these layer twos and that's only going to get bigger when other corpor you think Sony's going to be the last one to launch a lay or two on ethereum no they won't be so very actually in line with what I'm about to say I think what's happening and you let me know your thoughts on this but so soul and Tron have done really good basically over the last let's call it year right they've outperformed eth and a big reason for that is their fees have gone up the revenue that these two chains make have gone up big time right whether that's revenue from meev or revenue from gas fees whatever it is

it's gone up and up and up because it was basically zero like a year and everything before that they had no Revenue because they had no users but they have had some pretty significant growth in terms of fee whereas ethereum has actually gone down and down and down partly because as you said l2s are taking over all the activity and by the way they're taking over tons and tons of activity if you combine ethereum and all the l2s its transactions its users just looks like it's going exponentially up and to the right but some people only look at eth instead of both and so as a result of that plus just we've been in a shitty Market not a lot of people are using anything really and so ethereum fees have gone down and down and down and down and so people are thinking okay

well fees are up over here on salon and Tron I got to invest in Tron and fees are down here on eth or on ethereum then it makes no sense to hold in eth and I think what people are missing is one ethereum fees two years ago were just way over like overvalued or just were way bigger than they would ever be right like it didn't like as you said people were transacting paying $50 $100 to transact and like that was never going to be a sustainable thing so we're sort of just like leveling back out and I think we're just in a kind of shitty time in the market so not a lot of people are using anything and so fees are are fairly low everywhere But ultimately I think fees continue to go down on all chains because we're going to continue to scale blockchains and so

fees are just going to get cheaper and cheaper and cheaper and that's the goal of basically every blockchain is to find out how can we remove me so that people are getting screwed over and how can we lower fees even more so I actually think fees is not a way to Value l1s I think that actually doesn't matter I think what matters is valuing these assets as and this is only for Native blockchain assets so your eth your soul your Bitcoin your Tron whatever as money and when I say money I don't mean money as like I'm going to use this to buy my coffee I mean like money as in collateral and defi staking I mean trading pairs in dexes I mean gas fees I mean all these different things and for me what have l2s done they've created more ways to use my eth whether it's for

staking or raking or collateral in Athena or maker or a or like list all the different reasons that I'm going to use my eth both on the eth L1 ethereum L1 and on all the 2os it's just created more Network effects more demand to use my eth and salana has done that on salana if it continues to grow but ethereum for ethereum anyway for eth to get more demand it just needs more l2s or more activity on any L2 or on the L1 doesn't actually matter right and so it's similar to the way that we kind of value Bitcoin which is like we don't look at the revenues of Bitcoin we don't look at the fees of Bitcoin no one cares we actually know they're not good at all over on bitcoin but we see Bitcoin as money or more a store of value and I

think eth is the same same thing except eth actually has things you can do with that store value Asset whereas Bitcoin there's just not really much so value yeah I exactly just store value that's kind of it you can't use it for anything you can't get any yield or do anything else so I think it's just going to take a bit for the industry maybe to flip and realize oh actually fee Revenue doesn't matter that much for blockchains it does for applications but I don't think it does for a blockchain it's more the money of that asset I don't know what do you think on that is that sort of the way that you valued as well or am I way off here I think it's a pretty good point to make oh by the way Bitcoin layer 2 conversation that's something for another day yeah but look I think to

that point there valuing ethereum at its current level it's so interesting how almost always the whole layer 2 ecosystem is left out of the conversation when realistically that is all a giant part of the entire ethereum ecosystem and if you look at all that as a whole together again ether is so far ahead of everybody else it's actually crazy and I know the death of any crypto asset gets talked about many many times the amount of times I've seen bitcoin's dead or ethereum's dead or this is gonna flip ethereum and look finally we have real competitors stepping up to the plate here my sort of General thesis on layer twos and layer ones has always been this

is that you're going to see massive concentration in about three to five at Max layer twos where they're going to get 90 plus percent of the users and the other hundreds are going to be left to fight for the scraps and same with layer one blockchains you'll see four or five layer one blockchains that take 90% plus of the users and to an extent I think we're already seeing that start to be established now that can be shaken up over the years but new layer ones coming into the space man what are you doing you got such a hard hard road ahead of you to try to build users and hype and excitement to get money on your chain and all this kind stuff yeah holy cow whereas eth got the reality that's it's

the first mover right it's been here for a while and it's it's continuing to develop in a very positive way so and looking at things like fees revenue for the blockchain stuff not a big deal the one thing that does need to be solved just for eth to have the wild runaway success that I believe that it will is to get layer one scaled which is going to come right that's a couple years down the road but it kind of doesn't matter matter when it happens it just matters that it happens at some point because realistically you can't continue to have a layer one blockchain when crazy times hit in the market you have to pay $600 in fees right that's just not sustainable even for even for the bigger users who have got a lot of money on

chain things start to get to the point where they barely even work during the periods of peak Mania or Peak fear in the markets so right that's got to be addressed at some point and that is being addressed and that's becomes a non-issue in a couple of years and until then I mean I don't know about you but for me personally I love ethereum and I love the way layer on blockchain I've got a lot of fond memories of doing a lot of degenerate crazy crap over there but I spend probably 95% of my ethereum blockchain experience these days on layer twos 100% absolutely you know so I'm already there and I love using layer one and I've got some of my bigger bigger things that I do on layer one you

know I've got um like a big Loan in maker right and that's done on layer one right now there could have been there's layer two options to have done that but I chose to do it on layer one for peace of mind and security and all this kind of stuff fantastic now a lot of whales will choose to do that right it not to say I've got so much or whatever but you know it's enough that I'd prefer to do it on layer one versus a layer two right not to say I'm questioning the security layers who it just psychologically feels like the right thing to do in spite of the fact that most of my economic activity in the ecosystem is on layer 2 yeah and honestly it could it could be on L1 L2 doesn't matter as long as there's demand for eth like as long as

people are using something in the ethereum ecosystem that means that there's demand for eth and so like I just don't see how anyone can be bearish when ethereum has 10x the amount of developers as any other ecosystem that exists and as you those Layer Two charts look at those Layer Two charts man they're all going like this it's just absolutely insane they're they're rocketing higher with daily increasing users and more developers coming on board more projects deploying it's absolutely crazy and as you mentioned Sony launching an L2 on eth time launching an L2 on eth was that last year I think this is that black rock launching a fund on eth so it's like how can one be bearish I understand fees and revenue have gone down but does that really matter I just really don't think it does and I think we all need to

change our mindset of how we're trying to Value this or how we're trying to see the success of these assets so with all this in mind lar what do you think is it like we got to wait for a few years for eth to finally like hit its true and so like it's going to skip out in this cycle and we just be in salana or whatever else Tron or like what do you think's going to happen in this cycle or in the next let's call it one to two years and I I'm looking forward to the rally it's going to be the most hated rally because so many will be sidelined on it look I I I still think we see a five digigit ethereum this cycle assuming that there's not some like macro craziness horrible Great Depression recession whatever okay as long as none of that happens we have a

relatively standard-ish flow of our cycle then each going into 10K potentially a market Peak somewhere between 15 and 18K like pico Pico top stuff right not that's obviously just you know predictions right we don't know what the price is going to do but I feel like 10K man if we can't get to 10K this cycle then is just boing cycle for ethereum but it doesn't mean that I would you know be some permanent ethereum bear at that point when the bare Market comes and eth goes back down to whatever it's gonna go down to I'm G to load my bags back up man yeah because it's obviously and when moves like you said it's going to be a hated move which means it's going to move fast like you said so many people have got out of this position and are holding I don't know

either Bitcoin or US Dollars like or Soul or whatever and a lot of people I mean there's still a lot of people that hold e obviously it's a what 300 billion dollar asset so like there's still some holders of it of course but I think a lot of people that have big Capital have kind of moved out and I think they're waiting to see it break out against be Bitcoin or soul and whenever it does there's a lot of capital that will can easily flow into that especially because we have ETFs and so when people notice like hey it's going to have its moment it's I think it's going to move really really fast so we're going to go from I don't know what we're at now 2500 or something to 10K it could be really freaking quick so hold on to your butts and uh and make sure you're allocated

before all that happens all right well we'll wrap it up there Lark thanks so much for coming in and uh and explaining what the heck is going on with eth for those that are listening uh let me know in the comments below what are your thoughts are you still holding eth have you Soldier eth do you agree with what we said in terms of how we're valuing it in terms of just as let's call it money or collateral or do you look at different things please let us know in the show notes or in the comments s it really helps us to understand our listeners more and allow us to continue to create better content and don't forget to subscribe to our Channel Lark thank you so much for joining and everyone else have a wonderful day as always if you liked today's episode please hit subscribe and make sure you

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