Hyped for Hyperliquid, Off The Grid, Settlement Is Bad Business | Analyst Round Table

Transcript

yeah look I I can't wait until we're bullish on eth again like that's going to be a very exciting time um eth is a money maker objectively everybody that I've talked to has just stopped bridging over to l2s like it just doesn't like to new l2s what what was the last one that you were like oh this is worth it like what are you g to do on these l2s that and at some point the market realizes that they stop building l2s because nobody else is funding el2 nothing said on zerox Research is a recommendation to buy or sell Securities or tokens this podcast is for informational purposes only and any views expressed by anyone on the show are solely our opinions not Financial

advice Pacho Ryan and our guests May hold positions in the company's funds or projects discussed what's up guys welcome back to another episode of zerox research today I'm joined by Danny Ryan and mark from the blockworks research team to talk about everything that is happening in crypto uh how are you doing guys agreed agreed okay fantastic um big big week actually I feel like we actually have some stuff to talk about this week apart from just meme coins um hyper liquid announced that they will be launching their token on the 11th of November um pretty big news before I pull up some spreadsheets and some comps I want to hear about people's thoughts

on hyper liquid have you used it if you've used it do you like it how do you view the pers landscape in general en um etc etc what are we what are we thinking I think first observation is um you should not be ignoring hyper liquid it's rapidly taken market share and has a ton of outstanding reviews almost universally from crypto people that I speak with um you know it's obviously generating meaningful revenue and volume um the most interesting thing here is that like this is a like very unique experiment in crypto where um you know starting out as an app chain and you know pivoting more general purpose um trying to move towards you know more

spot assets like we'll see how that we'll see how that goes um you know from our reports that we written you guys know that um the team increasingly believes like it's critical to have um adjacency to spot assets and asset issuers as it allows you to cross sell um more products and generate more fees if asset issuers don't want to put their assets on your chain you're going to have a really hard time attracting Capital uh Capital so um it's just something to watch like can they pull this off I think their kind of like pivot towards spot assets like really validates that thesis that they feel like they need it um to like maintain

market share on a go forward basis uh so that's like kind of what I'll be watching right like if I as I look out on on this landscape like everyone's competing for asset issuers um Can hyper liquid like do they offer a unique enough experience to um attract those asset issuers and like compound volume like it's it's TVD but like looking at it like post TG is like probably the most important time to to start paying attention right so we'll see yeah I agree on that um post T comment but I I want to kind of run over some numbers so hyper liquid is leading in volume um over the past week they've done double the volume of their closest competitor I

don't know if that's particularly relevant for like sday data but if we look at 30-day data they are leading as well I think out of the protocols that I've chosen I chose the relevant ones so jupyter dydx vertex GMX grift orderly and gains and AO um I think they're like 45 46% of volume over the past month um and like based on so I ran some numbers and based on a drift and dydx comp like based on whatever fdv over fees they have um hyper liquid should be at 2.5 to free Bill FTV which would put um let me go to my next slide which would put points at so this is by the

ASX guys um and I also have the mesari one but which would put points at I think1 15 to $20 according to sxn and oh and a bit higher um but around the same range 17 to 20 according to the Masari guys which would make this quite a sizable airdrop but like you said Ryan I um I mean that cross asset thing is really the big thing is like if are we going to see actual apps launch um has been the question for quite some time and from what I've seen there are quite a few apps building on top of it now dydx is also going with a similar

approach where they're now allowing permissionless um smart contracts under on L1 and I just haven't seen that many apps launching on dydx like or at least like even if you just scrape Twitter um rarely see any like apps or anything launching on dydx versus like if you look at hyper liquid every week it seems like my scraper is catching 50 60 protocols that somehow mention hyper liquid in their bio obviously only like two or three of those will go to market but that's still and I think like on the one end I get what you mean but as then like if you're a per STS you want to you don't really want to isolate yourself

but on the other end I mean if you can just like win the whole stack you you should go for it no it's it just makes complete sense and I I feel like I have to preface all hyper liquid discussion with the fact that they are only running four validators um in Tokyo right now like they're all collocated so whatever performance metrics you see are um curated uh is how I'm GNA say it they're like very like I don't know if it's going to scale you know obviously like when you decentralize it depends on how many validators you add it depends on like how you decentralize the network I assume they won't have too many or they'll make it difficult to run so that they get some form of like SOI slapos type of validator set where it's

like 100 to 200 professionals who just like are able to run very very robust big uh nodes but yeah overall like I'm I mean we've I feel like I've talked about on the Pod multiple times I'm super excited um I think even on my little um hyper liquid comps page even at a 40% discount I mean like if we assume that volumes drop 40% post tge it's still looking at like 1.5 to 1.8 Bill FTV which would still make it a pretty big air drop so not what's up sorry so what what's going on here is that you've mapped out um as a function of volume and comping it

against um the largest legitimate per sexes in the space that even if volume Falls 40% um from prg you're still going to get a billion dollar valuation if you're looking at the average valuation or Medan valuation across like relevant comps I think at me average valuation is um average like FTV over fees is 24.4 for the relevant like I only picked relevant protocols there's some that are higher some that are lower I just wanted to do it based on like protocols that I care about um yep it would be around one bill if it was the average if we're doing the drift and the dydx multipliers it's above 1.5 or around 1.5 to above 1.5 Bill valuation

and I took now hyper liquid doesn't have fee data available I know that some of their fees go to the insurance um pool and some go to the hlp but just based off like whatever dydx charges which seems to be 1.5 bips I um extrapolated that to hyper liquid so this might not be the final final like actual official number but I think it's a pretty safe bet to say they're competitive with thex or else I don't see like as far as I understand they don't really do big Market maker rebates um I'm sure they do whatever the industry standard is the team doesn't really seem like the team to just give away token and Equity very easily um

given that they're very anti VC but I don't know it might be wrong I just made some assumptions and I think it should hold um TBD what do you think yeah I mean I think the most interesting thing that you referenced there is um that DX is kind of going the smart contract platform way um I don't want to make this a uni chain discussion but uni chain is also doing the same thing where they're spinning up their own chain but it's general purpose um I think the app chain thesis like I don't know a lot of people are like celebrating here like you know this validates the app chain thesis like what

are you talking about um these are general purpose chains um this doesn't validate the app train thesis this validates like the desire of any one app to make as much money as possible and own the entire stack and um the fact that like people will use that brand to do so if they can um so yeah I I think that that's the most interesting kind of trend here uh that seems to be underappreciated from the discourse that I'm seeing something that I think is interesting is when you look at that list of comps Jupiter is very near top there if you were to say post tge hyper liquid activity drops off 40 50% they

could be the top of that list despite already have having a token and just essentially copying the mechanism from from a GMX um I do find that interesting especially in the context of like the uni chain you know dydx you know um building out your own chain idea I think Jupiter has been continually like taking this the opposite direction remaining on salana and just like trying to gobble up all of the potential related products um in the category across swaps perss you know Etc they're trying to really become that kind of defi hub for salana um and it's been kind of I don't know if it's been quietly working or you know people are just aware that it's working like this but um I think it's it's honestly interesting and surprising to see that

they have kind of trended up and are near the top of P's volume yeah and it's working out for them I wonder if um they're going to start making Meteora which is they're like the lmm product more and more relevant as well because they also have that um I'm not sure if it's going to have a separate token or if it's going to be under Jupiter token I really should switch that up but um yeah I agree with you it's completely different direction I guess Solana can support it um even though like these days it's it's a bit difficult to make swaps on salana it's a bit congested we'll see how it gets when it's like Peak Peak bull um but yeah agreed like they've been they they don't have to go off Kane because the Chader already works and

accommodates them and maybe just a tidbit to add is that like within the space I've heard comments that you know people talk about Jupiter pers and they say it's maybe not a great experience and there's quite a bit of love for hyper liquid um but it's it's interesting to not see that Dynamic reflected in the usage I guess is what I would say you know I think frequently we say you know we see kind of TS of like build a greater product and then you'll see that activity but um I don't know I I've seen you know lots of negative comments about the Jupiter per per experience and obviously there's you know as we're seeing there's a lot of excitement about hyper liquid and um we could see post TG that that

dominance flip so yeah I think it's also tough to be excited about a product that already has a 8 Bill FTV like Jupiter I feel it may not be like perfectly pric but like at eight Bill you're not really looking for anything else it's it dominates um per on Salon I feel like it's more like against drift than it is against if Jupiter can come on your chain Implement some broken not broken but not as efficient as it should be peer Topol model um per stacks and can steal all of the volume then like if I'm drift I'm at least a little bit worried because you're already like like based on these comps they're already semi over I know comps aren't everything and you need to take into uh Factor like future growth

and whatever they can do in the future but um like if Jupiter is eating your lunch with a peer toool model then like if I'm drift I'm taking a step back and saying hey instead of maybe yapping at hyper liquid on Twitter I should I should focus a bit more on my product and make it so that people actually want to trade on it yeah it's um we can't um ignore the execution on Jupiter they've been really fantastic and again they kind of highlight that The Importance of Being adjacent to asset issuers they are um they have the the potential to bring in a lot of fees just given they own a

lot of you know the um pieces of the relationship um you know you can do spot trading here you can leverage up over there all within one system minimizing that friction is incredibly um important uh but they don't like the problem that I see is that they don't have a cross collateral risk engine which is super important for uh institutional Capital now like you can say like okay they'll build it whatever like they can cross that bridge um when they get to it I think the problem there is that I think it took drift like 12 or 18 months to build their cross collateral engine so

it's not an easy thing to build and we know that not many of them exist in and if they do they're extremely Limited in the amount of assets that they can handle so I mean look you're you're coming to this kind of inflection point in crypto where you know regulation might um you know get or where we might get some regulatory Clarity and participating on chain will become much more palatable to traditional financial institutions that expect um certain features out of the box and cross collateral is something like obviously um a sophisticated institution should expect

to see when they show up on chain and right now drift is the only player that allows for that so um yeah they are you know one to three% of total pers volume at any given time like that's a minority market share um but it's up like I don't know 20 to 50x over the past month or sorry over the past year and um you know they're pretty positioned for like a postf fire dancer World a post regulatory Clarity world where like I can't say that for the competition I just want to say Jupiter keeps coming up in many conversations as a competitor to X and Y and maybe why they took 12 to 18 months to build one added feature this the cross feature on

their on their purposes because they're building so many other features across different verticals like even even on the distribution side with the app you know I I think think I spoken about before that they just want to be the OneStop shop for most things defy and keep like expanding into that category and then you know there's some criticisms on like for like maybe their purpose in terms of like Capital inefficiency right how much um like tvl it requires to um you know produce volume I kind of I was in the capital efficiency bucket for years but now I kind of see capital in efficiency a little bit different in the sense that having all of this tvl is actually a

blessing it allows you to you and if you're inefficient it allows you to use some of that tvl in in another product maybe you know like not too dissimilar from what Cino is doing um apart from like using their tvl that they got from being a a borrow lending platform and then using it in other verticals as well yeah I um I echoed your I didn't realize that was bridging I actually said this to Jeff on the Pod as well I was like dude like how however you guys built this bridging experience because it was near instant and I think they built it all out themselves as well which it'll be difficult to do going forward as well like if they want to build it up for every chain I'm not sure if they want to do that necessarily but um yeah it was kind of crazy that you

didn't even feel that you break like I thought it was just on arbitrum it's not hey guys for today's snippet I'm once again joined by Miguel who's the co-founder and chief scientific officer at nilon thanks so much for joining us Miguel hi great to see you again um so I want to ask about why data is important for AI as a quick overview well I guess data is the engine that moves AI right you you find very sensitive data starting from the training data sets um that sometimes are are private and very sensitive going all the way uh through user inputs and prompts um and including also Al model

weights so those three elements are really sensitive and and pieces of information and and data and therefore you know AI is in essence a data Centric um thing you you you actually are moving and transforming data as As you move it and push it across or through an AI model so um it is it is extremely important indeed perfect and one thing I was unaware of is that there are different levels of AI data of different importance can you expand on that a little bit Yeah essentially there are like three levels level one is the things that you do that are public anyway like your I don't know your

Instagram posts your YouTube videos um also your blockchain transactions they're public and also blog posts and so on so that's not really something very concerning to to people um level two is like your digital fingerprint um it incorp Ates your you know the cookies that track your browsing activity your search uh history your social media preferences again that's not something people are really uh you know sensitive about and and it's fine in most cases to give that information away but then comes level three which is a different ball game um we're talking here about high value data which is essentially Priceless um I'm

talking here about for example the things that you would only share with your therapist um all the email messages you've sent all the things you've said verbally because conversations will be recorded um um you know in real life the lies you've told the truth that weren't totally true your entire medical history um all the things you've purchased your opinions about people like what you really think about your boss or your mother-in-law um and also kind of the thing you're not that aware of like your blind spots um to what extent you are really smart or as smart as you think you are no all those all those things

are really sensitive is it could it could destroy a person's life um either professional or personal life so this is a different ball game this is this is something that you would definitely wouldn't like to be sharing with with uh third parties um at all and how does uh nilon fit in here yeah to to begin with neon is a network to store and retrieve AI data so you can think of it in terms of this Secure Storage layer that is decentralized and it's making use of these Advanced privacy enhancing Technologies so that you can you can be sure that the data is is safe it's not going to be accessible to the nodes running the network but

then the interesting thing is blind compute of course is the fact that you can compute run processes and programs on top of that data without having to reveal it or decrypt it or make it public so um therefore it makes it very easy for developers to to actually um develop programs that are privacy preserving so that make use of that data in a privacy preserving Manner and one thing that I think makes us different is that we are aiming for this general purpose development tools that are based on pytorch so we're not asking AI developers to change their mindset about you know the way they do things they can just proceed in the same way they don't

have to become experts in let's say cryptography or anything like that they can still use the same tooling but now it's running on on on these P rails and in doing so it's actually protecting everything that is involved in the mix like the data training sets the model weights and the user inputs which is probably the most important thing and then we have um another aspect that makes us unique which is this Innovation I was talking about in our last episode uh this DWT thing that is the discrete wet transform this set of techniques taking from taken from image processing and brought into the privac enhancing Technologies world that actually remove the bottlenecks or greatly or vastly accelerate um the the bottleneck

computations around the evaluation of of nonlinear functions like the activation functions or the normalization layers in a in a neural network um and then I would say you're dealing with a network in the end right so we make it really easy for developers to actually deploy it on on a real network with real nodes and to incorporate um built-in payments because it it runs everything through our token that's what we call the aiv the AI virtual machine and it's something that we are about to finalize right now um and we're very excited about it actually perfect that all sounds very exciting thank you so much for joining us thank you Bacha all right moving forward we have well this is um another

big big news that um happened this week is Off the Grid has gone off the charts um so off the off the grid is this new game um that has its own Avalanche L1 called guns it is a first person shooter Escape Royale which combines elements from um doesn't combine elements it's like easy to think of it of like a mix between skap from darkov and Call of Duty war zone where like you're looting throughout the game um but you're still in a battle royale the I think the main thing that they added is like cyber arms and cyber legs where you can like pick

up specific uh types of arms and legs throughout the game and they give you different boosts they had they were the they're currently the number seventh game on epic game stores um most played free-to-play game which which is huge uh at Peak October 11 there was 150,000 viewers on Twitch for Off the Grid content daily transactions are still above free Mill which is quite impressive um and and Daniel Smith might kick my ass for this but wallet addresses on gonzilla are over 6 mil um I don't think that like really represents the amount of players but um potentially and it's I think more

relevantly it's like this is the first game that has been adopted by um mainstream semi like uh people don't immediately just say oh this is just a dog nft game there's still a strong number like a decent amount of people who are saying that but I think they've done a pretty good marketing campaign where they got ninja Tim the tap man shroud um a few other big names like few other big streamers and they I assume they paid them to um promote the game and it's worked out pretty well so I think like two questions I have over this is one what do you do in the case that there's no way to get exposure to Off the Grid there's no gun token how do you as an analyst approach this and question

number two is and I think Ryan wanted to bring this one up um do you think this changes how Gamers view crypto crypto gaming because they they've like they've always hated it have we gone to a point where it's like if Tim the tapman says it's okay then everybody will say it's okay or is it how how do we see the the landscape change over there yep not an expert on gaming um I poke my head in uh to the gaming space in crypto once every few months just to see what's going on there's usually nothing going on however um and and just as historical observation like if you look at you know what um GPS were telling LPS in the

crypto space back in 2017 2016 they're like man Gaming's right around the corner and you've heard that consistently since and it just hasn't happened um but like there's it's very obviously like like you know technology interested people um you know crypto has created like a lot of financial games like it seems like it's you know the gamers are a very like obvious like adjacent like crypto user base that you know the space has the opportunity to on so super important to keep up on it uh really exciting to see this take off like the most interesting thing for me is not whether or not this game is going

to be successful or speculating on the Assets in the game but what it does to the psychology of Gamers um that are using this game that like this game and that feel the crypto aspect of it like it could be that has the potential for to be that zero to one moment where um it changes um Gamers perception on the space because I don't know from what I've seen historically Gamers not only um you know are uninterested in crypto but they at times hate crypto um I think mostly due to like the nft speculative phase in 2021 so we'll see if this can change some Minds um to me that's the most important thing um about this story going

forward I want to just add one thing before we before I open it up to the floor but um actually two things first of all I think that Gamers hate crypto because they never really got into it and it was like like you said it's such a perfect crypto adjacent space but most of them missed out on crypto and the money that was made in crypto that now they're like oh it's all a scam I don't think it's the NFD speculation where they just lost money this is just something that is like anecdotal um number two I think it might be helpful if I explain what actually happens in the game that is crypto related so everything in the game all in-game items are nfts and you earn rewards in the gun token um currently on testnet and that's really all that there

is in the cryp in crypto yeah there's a wallet interface um and you have to pay fees like Gamers will still have to pay fees but because they're earning um gun token then like it doesn't matter they're just giving up a portion of their fees um but it's not like the way that I would imagine a web 2.5 game blew up it's like very abstracted away I think it's like there's still like people understand and they're not shying away we've seen like digital Collectibles um be like the term used instead of nfds for some companies who are using nfds because they want to stay away from nfds as far as possible but one thing I noticed with Godzilla and Off the Grid is that they kind of like

they said that they're doing nfts but they they hedged a bit so they were like oh we're doing nfts but actually it's not bad for the um for the planet because it were using Avalanche and not like Bitcoin and another thing was like oh like you need to own your items or else like XYZ happen so they're like really going through this um they're not like shying away from the fact that it's blockchain and NFD but they're taking like this kind of almost an offensive like instead of getting defensive and saying oh like in a few months they'll answer it they're very much like this is not bad we're actually doing something good for you guys and they're not abstracting it away I think it also helps that we are long past the nft Mania where you know I think Gamers were

getting all upset about blending crypto with gaming because it seemed like a money grab and something only for the wealthy whereas this game yeah you earn the rewards to play but it's still essentially free to play in you know it's still free to play in a sense right and you know you can you can have skins nfts and that uh you know that you actually own you can sell them like in many other play other games you have third party mark Market places as well but I think it's just that it's free to play anybody can do it so there's lower that lower barrier to entry I don't need to buy a $1,000 um crypto Kitty or axi in order to like get my feet wet and then nfts all like have come through the hype and gone through

the bust and now um for lack of a better word boring right no like hardly anybody cares about nfts relative to their to their relative to their Peak back in 2021 so so I think I think that kind of helps with easing it in now as just technology nothing nothing evil going on here don't you dare say that it's just Tech it's just Tech in the background and we're letting you this letting you know this up front so yeah yeah I think that's a good point from Mark I think um kind of thinking back on on Gamers opinions of of crypto and nfts I do think that like the initial reaction upon seeing this and hearing this is is

like the visceral oh it's like a cash grab like it takes back you know to the times before when people were spending $100,000 on a picture on a JPEG and all the memes of like well I can just screenshot your jpeg that's you know haha so funny um I I think there's like a lot of that visceral reaction of like this is they're using nfts like it just it has to be a cash grab like we've seen what developers do with microtransactions and like pay to win games so like clearly this must be the same thing um I think Mark's points kind of kind of clear the air on that a little bit like for any gamer that gives this remotely a chance like it's free to play you can hop in jump in the lobbies and um you have the opportunity to like the way that the nfts in the game work

is there's like within the live kind of like PVP lobbies there are these these hex like basically loot boxes that you can pick up and then extract um and when you've extracted them then you can you know you can pay some gun token um or however it works to open them up um and those are your nfts so you can completely ignore that system and just play the game and like try to win or you can play an and also take advantage of that so um I do think that like the way that they've designed it um is definitely positive in regards to like if anyone that gives it a shot like they shouldn't really be concerned with nfts because it's not really going to impact their experience if they just completely avoid engaging with them entirely um which is positive I think on the other hand though um people are

getting very very excited they're getting like a little bit off their skis at the moment in terms of like how exciting and impactful this is the viewership over the past like you know last week few days days was from sponsored creators playing the game so you know you can't go and say Well it had it was like one of the top games on Twitch it's like yeah I mean they were paying for those views so it makes sense you know if you if you hire the top 50 100 creators on the platform you're going to have some of the top views you're going to get a lot of Impressions um so it's way too early to jump the gun and say literally jump the gun to say um that you know that this is like going to solve web 3 gaming and like bring it to the masses um

I think if you if you look at the charts like they it's dropped off quite a bit the activity just over the past few days uh I'll just pull this up and show but you can see the activity Spike um on October 11th 12th when they were sponsoring all the streamers and then the quick drop off in views since then um there are still quite a few you know creators playing the game so that is positive but I think the the bigger question and that one that Ryan alluded to was you know if any mainstream or even decently sized Creator does enjoy this game and like picks it up as like a main stay and and can convince some of their audience that it's you know fun to play as well um then that's where you have a real winner um if it has any

staying power then um this this idea of like having crypto nfts Etc like power the marketplace for a game um Can can kind of etch its way into becoming a little bit more commonplace we sponsored the Super Bowl ad and got the most views ever that's crazy um still though I like obviously we should warn people I still think it was like at least the team did the right thing I think um if you're getting all that VC money spended on actually getting views and getting it a little bit normalized yeah and I maybe I'll caveat that like this is a common approach you know triaa games these days like I mean you can go and look at

historical trends of like games that see a lot of audience and activity and and get clicks for a week or two and then they die out this is like very common within the gaming industry you know people they look at the new game the creators get sponsored like it's a chance to just get some eyes on it hopefully get people to download and try it and if they like it they'll keep playing but um more often than not you know they people open the game they play it for an hour and they say you know what actually I want to go back to playing you know League of Legends or World of Warcraft you know pick your favorite game that you've been playing for 10 years whatever it's it's the it's consistency people go back to their favorite things when they've tried the new thing especially with battle Roy I

think it's very very difficult to enter that um top three of should be fortnite war zone and Apex I think maybe pubg but feel like that like those three are pretty well cemented um that like you said you have to pay to at least get a chance like to get people to even download your 100 Gig game um you have to pay people because or else like I'm not download it's five hours I'm not doing that um I think before we move on I want to kind of bring up the one question that I asked and I'm bringing it up selfishly because I have data on it that I want to talk about um how the hell do you get exposure to something that doesn't have a token but it's like supposedly the not supposedly

I would say it's like the biggest launch of the year for like a gaming maybe over the last like three years how do you get exposure to it um so I think I'm just going to keep talking I think the big thing was um at least like from what I've seen on Twitter and Telegram and Discord is that Avalanche is supposed to be it um I on this podcast say that it is not it um depending on how much um how many validators the gonzilla blockchain has and how what the like congestion is um or let's say like the demand is for L1

validators um Avalanche would be making anywhere from 300 to 2.5 uh $2500 per month from if they just had eight validators which I think makes sense because you want the game to be as performant as possible which once again brings up the question how the hell do you make money as a chain that helps other chains launch like at what point do you say you know what we can't monetize this very well like what SAS product would charge only 300 bucks to like Enterprise customers and that's like your whole business business you just Char like and it's a very Hefty thing you can have like 300 400 maximum of these people um like realistically how many l1s are

launching under Avalanche um before I go any deeper into this I want to say Avalanche did this by Design they had a stake to validate um oper like they they had a stake to validate model before was very expensive and then they completely went to the other way where they were like we're going to make it the cheapest place to launch and it's good like it's very cheap but it's also it also just means that you're not making any money off of it so I want to open that up to the floor and basically say how the hell do you make money if you're a modular or you're enabling modular networks yeah um I think you point out something very interesting for a lot of

chains that are like in this conundrum of low usage but relatively High fees for the current state of things like you want to lower fees to kind of for activity um on select chains uh however like for someone to launch a subnet on your thing like only $300 is inconsequential right so um you know do you spur like you have to lower fees because you're not seeing activity but then when you finally have something that will you know make the jump and come over you're really not acre any value it's a it's a it's a tough tough um spot to be in um and i' probably bet

against it um I think that you know the way that you make money is get people to pay fees on your chain not allowing other people to launch new chains on your thing for like for very low dollar amounts I'm just gonna give um two to three more disclaimers first of all like that $300 it could be higher if there's a lot of chains launching on the L1 like if there's a lot of demand for validators then that could go go up to 2500 per like if it's eight validators and then it can also like quadruple and double after that depending on how many validators you want um second thing is this hasn't gone into effect yet but it is the plan to do so

um just so people don't yell at me afterwards and say oh that actually hasn't got into effect yet well you're building towards it so I think I can judge you based on what you're trying to do I mean I agree with the move I mean the usage before I mean I was just thinking of any entrepreneur trying to build any kind of application in the space and then you have to buy a lot of this random token that you've never heard of in order to begin it's just such a huge buyer to entry so I mean moving towards lowering those barriers and just like make it easier both um like from the developer standpoint and from a monetary standpoint for entrepreneurs to start building things

and testing things I think that's a I think that's a great move and you know most if not every single successful company now the biggest giants were always loss making for the first x 10 15 years of their existence right and then you know even things like Amazon just got usage and they got so much usage they had to build infra and that infra ends up being their most profitable thing right so like you you know if you can just somehow stimulate that that kind of user base maybe your model changes over time but you know they like to say when you when you know there there's this disruptive new consensus mechanism in avalanch stano this is disruptive like I think it was like basis who said like what's

disruptive is customer adoption not the technology right and so and you know when customers change their behavior and start using products that's what's the disruptive Factor so I think any kind of change that you make moving more towards getting those increased customer usage is in my books a good move um whether it works for aanch or not or any of these other multi-chain thesis I think it's going to be a volume game like how big is this pie not just not just within the crypto community that we're fighting now but how what does actual adoption look like if it reaches there I think that's going to be the biggest factor in whether these models work or not yeah I agree with Mark on this one I

think it's it's a forward-looking design and approach like I think even if not that I want to talk about l2s right now but I think even if you look at sort of the L2 model for ethereum it's really the same thing they're not really acre anything back to the layer one at the moment um but at some point in the future like if you have this future of thousands or tens of thousands of these things or they have millions of users then there's there may be some Tipping Point where the economics begin to make sense um so I think if you look at maybe like steam as a comp in the sort of gaming market today there are over 10,000 games that launch on Steam every year so not to say that Avalanche is a steam today but if web 3 gaming really

is a thing in the future and and they're hoping to have thousands or tens of thousands of these subnets for games coming out um there is a there is a point at which the economics could make sense especially if you you know combine that with you know if they've got these marketplaces and they're you know people are interacting with currencies and doing trading volumes and stuff on chain um it's very far down the road it doesn't make sense right now but um clearly that's the vision and then I also want to add I want to have a a thesis or a thought on how do you get exposure to guns or Off the Grid um just play the game if you're an investor like unfortunately and you missed out on the private round like sorry you can wait for it to go public um I think if you're

just like an Enthusiast in the space like maybe just play the game and you'll earn some tokens and get some nfts yeah that's a good point I um Danny Mark I I think both of you make really good points um and I that uh Mark I completely agree like the previous model was unsustainable um charging like 500 grand for a eight validator L1 is unreasonable and you're also forcing people to buy Avalanche um and you make like you technically just have to stake it so you'll get it back but it's it's way too much of an upfront cost we'll see on how it works out I um I still think if you're charging like maybe $300 for your $15 billion protocol um and

this is like your whole thing now you've stopped focusing on your main net um to focus on your l1s and gaming and real world assets are huge and they'll continue to be huge and maybe you'll get a lot of l1s going I I still think it's like at that valuation I just think it's a bit much but fair points Ryan do you have any valuation SL Revenue related or extension related takes that you would like to share with us this week yeah piggybacking off of all your points on value acral um you know there's this constant theme of you know our um l2s and rollup are they extensions of ethereum or whatever L1

they live on and um the conversation's still going on it's been going on for a long time uh it it was debated at permissionless um across a number of panels um I think like I think I like I know the answer pretty confident in it um the correct answer is like who cares if you're thinking about um if you're thinking about what I mean like look if you want to be like philosopher king and think about how things are related and you know what is important from a spiritual or or like um social perspective like cool go all out um what

matters for a lot of crypto Market participants is the value flow and value acral and when you look like blockworks research now has this data across you know many ethal 2s you can look at the value that you know ethal 2s pay to eth you can look at the value that eth2 a crew from execution and you can very safely say looking at this data um that over the last like four months Ethel for every dollar that leaves the Ethel one and goes and performs execution on an eth L2 the eth token

retains one penny of that value for every dollar for every dollar that leaves um in terms of settl and da fees so like quantitatively we can say like doesn't really matter like we know that those things are very economically different and the value retained from eth is very very small so um so yeah I think end of the day like it it just doesn't matter eth retains close to zero of the value and like if you want so you say like okay so you know execution has to 100x to keep up on fees AC accured to eth right like arbitrum

plus optimism plus base if you want to keep value capture for E token constant you actually have to 100 ex execution and you're still down 93% from bull market peaks in 2021 so quite a tall order um but yeah now that we have this data for Subs I'm really excited to see what the market does so that I think it'll change the conversation Ryan do you want to run over some of these graphs that you made me put together this morning yeah you can just look at it as a Time series so um I was actually pretty shocked um I was you know I I knew that these were small in terms of execution I did

not realize how small especially settlement would be because theoretically like you got to do a lot of settlement but like I know it's like 32 bytes at a time so it's like a pretty small number um but like da is actually more of a money maker than settlement uh da um you know for every dollar of execution that moves off of the eth L1 uh eth will retain anywhere from 10 basis points to 150 basis points worth of value in da costs um and the you know value retained from settlement posting that State Route round to zero um in SE in the week ending um September

30th uh eth retained seven basis points um of value in terms of execution from like posting State routes like it's an inconsequential amount so yeah it's h from a revenue perspective it's just like really mind-boggling numbers there I think to me make things kind of even worse like even if arbitrum with to 10x its execution that doesn't scale linearly with data availability costs um you can do things like improve the compression algorithm you can do things like change the timing at which you post um data to the blobs right you can switch between

blobs and call data and you know you know you can do different things to lower your own cost so like what I'm like now thinking okay obviously we want more execution it's still going to do something it may not scale linearly what kind of scales a little bit more linearly like what what what is working at e to each favor for the l2s and I think it might just have to be number of rollups and I was looking at this right before the part and right now there are 90 l2s I think about that on ethereum 40 of them use ethereum as for data availability so that's 40 l2s that we got in past last three years right and then luckily L2 beat also has something

called upcoming l2s and there are 90 upcoming l2s and I assume upcoming means in the next year and I looked at that list and coincidently again 40 of them are using or plan to use ethereum for data availability I mean all of them are using it for settlement but as Ryan Ryan said that's like a grounding error so I'm just thinking okay so 4 in the first three years 4 in the next year if we if you can keep this acceleration coming and and I looked at it and like son's L2 sonum wasn't even on the list so there's like some that I'm sure that maybe haven't put their data on to L2 beers yet but if if l2s can continue to expand at that rate then maybe next year we can

um we can actually get to the blob Target of three and actually start to see data availability maybe worth something but then again there's piras coming up after that and then full dank shotting so it's it's going to be um a cat and mouse game between the two but I think it's it's still going to be um dependent on the num on on do we see l2s accelerating and then continuing to do so or are they going to fall off I think that's going to be the biggest thing for the thesis I think one thing I want to mention about you saying we've had 40 and now we've had 40 as well is this picture which is like my three Monon old is now twice as big as when he was born he's on track to weigh 7 and a half trillion pounds by AG 10 and it's like

like at one point what I'm like like anecdotally everybody that I've talked to has just stopped bridging over to L2 like it just doesn't like to new l2s what what was the last one that you were like oh this is worth it um like what are you going to do on these l2s that and at some point the market realizes that they stop building el2 because nobody else is funding l2s like if if you can or or we're going like a really insane way where it's like we're putting like slack on the L2 like every slack message is an L2 or something like that like that's the level that we have to get to because the Market's not going to fund l2s anymore like eventually maybe this year

maybe next year we'll do a couple more oh this one's very spe special though we're doing a defi only L2 this time oh we have like a liquidity Hub under this one this one's like gaming focused at some point somebody's going to say you know what like let's stop let's stop doing l2s um which is I can see it going more and more throughout the bull I I like but I feel like this is the L2 cycle like unless e hits some form of like ridiculous number where it's like I think it's supposed to be 10,000 l2s like Daniel Smith could pull it up right now but um like that's the number that's supposed to like make sense for Eve and you can only get that in my opinion this B like this run because

next run I don't see anybody being like Oh we have to build more L tools like it's not I don't I don't see it being a very fractionalized Market um I don't think there's that many users unless it's like we do some app chain L2 feces then that's different um and I assume that's what you were thinking as well like I think that's the logical step is if we're going to do a lot of l2s we're going to do abch l2s but then we get back to the point why not own the full stack um and then we also get to the point where it's like if you are doing an L2 you want to minimize your cost as much as possible just makes sense because you don't want to charge your users so why the hell would you use ethereum for da like there's stuff

that's a lot cheaper even Celestia's I don't know how much more cheap I think it's 90% cheaper and then now there's stuff that's 90% cheaper than Celestia like n nearest da thing is like 80% cheaper than Celestia or something and then we're GNA get even cheaper stuff so Mark I think in the end I agree with you like you said where it's like storage cost are just going to keep getting lower and lower it's just going to get lower and then nobody's going to want to use e anyway so and like you said settlement's rounding error I I do have one thought here somewhat unrelated to the DA focus and the settlement Focus but I think seeing the kind of the failure of eth to choose and select and enshrine like a a native

L2 and and capture those fees for itself by pushing the execution there and then recapturing it by kind of owning that sequencer um this has really opened up the opportunity for optimism to build out a great business model since you know settlement and da is so cheap um you know the op super chain stack at this point with explicit agreements related to capturing a percentage of Revenue or gross profits like we have this wonderful dashboard now on on block Works um research analytics and you can see that like across the chains today um sorry that's transaction fees if we look at estimated contribution revenues um you know they're not massive but you know tens of thousands of dollars from

the chains in this Collective and if we look at L1 expense by Chain um across the board we're looking at maybe a few thousand doll maybe one or $2 thousand back to ethereum so um I think there was you know an opportunity for like the eth community to think a little bit harder about what these economics might look like and how they might acre back to the L1 um and instead I think it was kind of like well settlement and da is is going to be incredible don't worry it's going to scale like crazy but um there there there really was an opportunity to kind of like inine and capture a significant portion of this but instead decided to just sort of push that off and I think you know this this kind of economic

model chased after by optimism I mean this could actually work at scale if if they're able to capture a portion of of revenues from all the l2s that build in their stack or in the super chain I completely agree with you every week we on Ean every week I say yeah I completely agree with you and probably for the next few months this is going to be the case um at some point we'll hit a bottom but we'll see yeah um I said this on the light speed pod but I am looking forward to wait you went on the light speed pod yeah we did a joint episode with them during permissionless I don't know if you were informed I was not blasphemy um

but yeah so we did that episode and uh yeah look I I can't wait until we're bullish on eth again like that's going to be a very exciting time um eth is a money maker objectively uh if you look at all the fees that it generated uh around August 6th when we had those or August 5th when we had those liquidation events like mevan fees went through the roof it's still and with the activity leaving in Mass it's still the top fee generating and top one or two chain by Dex volume so like look the it's massively bullish if Max Resnick and friends can steer the ship and get these guys to compete with

the l2s um I'm gauging that probability day by day um I'm reaching out to all our eth natives to see how they feel about it um they hate it now um but that that view is getting airtime increasingly and that's super super exciting so we'll see how it plays out and once things start to flip like you know this is going to become an e pod yeah I must being bullish if F I highly unlikely highly unlikely but um but non zero chance okay we'll end it at that um Mark Danny anything else that you guys want to specifically bring up that I am still on ethb it's the most

such an hated asset and I I love to see it yeah the whole Space will THX raise your targets yep yep if you get liquidated you can always get a job so size up bucko um all right thank you for listening um Ryan Danny Mark thanks for coming on have a good day [Music]