Are L2s Parasitic? | Roundup

Transcript

I think that's the shortcoming of like the you know current state of the rollup Centric road map where they're saying like no you need to be like a Bas rollup then you can get like even stronger sort of like you know interop with other base rollups because you are like you know aware of L1 State and that doesn't necessarily sound like what these folks want to do at all hey everyone this episode is brought to you by namada the shielded asset Hub rewarding you to protect the multi-chain so not only can you protect your own data across any asset and any chain but you also get shielding rewards for strengthening data privacy protections for everyone so you can check them out at n.net and follow the domain net launch stick around you're going to be hearing all about them later in the program all right

everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the episode all right everyone welcome back to another Roundup edition of bker we got me and miles on this one miles how you doing buddy how's the week good good it's good to be back um you know end of summer I'm looking forward to sweatshirt weather football coming back all those same dude well not the football but

weather you know I know like it's all it's all happening though you know yeah um but yeah I've got the the Martha Vineyard sweatshirt on here you're broadcasting from net this is a uh 10 out of 10by not didn't need that disclosure thank you though oh dude all right so we've got uh we got this week is a little bit of a slow news week there are some political stories I'm sick of talking about politics stuff in the realm of crypto uh it feels like the big debate that everyone wants to have right now is around this L1 value cruel uh you know we've talked about it on past episodes of B curve but I feel like Max Resnik has really been we'll use him as a as a jumping off point because he's been on

this make L1 great again a little Grand Tour he was on Bank list this week and it sparked what I think is a lot of pretty healthy at least very intellectually interesting debate that's going on in crypto but before that uh before we get into that that deep subject matter I had a couple been a little just bit of a funny week for the culture of crypto I would say uh one of one of the things that I did not have on my 2024 bingo card is igy iselia and Eric Wall basically uh there's like schoolyard flirting going on here you know there's a here let me see if I can pull up this this Twitter of um Iggy tweeting out like little pictures of of Eric they're going back and forth uh it's it's really something dude is this what is this is this making

it do you think or is this no this reminds me of this reminds me of the the bar Market honestly where we end up getting like bored and coming up with random things to be doing random ways to entertain ourselves and then getting back into semantics debates on the super nerdy side um I don't that that's my sense it's like we've hit a lull here where like you know price action alone and new projects launching is not enough to like keep us all entertained um and this is this is what we devolve into uh you know every every so often but that's okay that's okay we could use a break so I just had to scroll to find this and I

I went and scrolled through igaz Alia tweets you know on a one day time rise first of all just look at this this is absolutely this the first time I'm seeing this by the way honestly I got to give Iggy some credit her meme game is pretty strong like pretty strong meme game for uh mainstream media celebrity and I I will say in terms of the not Financial advice you know I have no idea what make mem make makes meme coins go up or down but she is working harder for her mem coin bag holders than just about any other you know de Creator out there so yeah you gotta give her credit yeah doing a lot more than the um you know the nft projects did for their for their jpegs

um similar Playbook but I think I I also unironically kind of think this is the Playbook that you'd want to run as a mem coin Creator you know I I think Bon went down this road of creating for the meme coins like get that out of here that that's not why we're here you know we're here for the memes and the pictures and I I kind of do think that she's on to something here she might it's like um a weird crossover from those old like social token ideas right you like really put your you know personality and identity behind a token um but just a little bit more Mimi it's like a it's like the hybrid between nfts and and and the social tokens is whatever this you know brand of mem coin is but hey all

for it let them let them have their fun yeah why not we love it it's uh you know it's honestly I I I waffle on the day but sometimes I I prefer this sort of entertainment to the uh endless semantic debates that we that we indulge ourselves with on Twitter every now and again or just or just lack of weirdness in general you know like we spent I spent six and a half years of fidelity there weren't a lot of mem flying around uh that you know to keep to keep us entertained on a day-to-day basis it was it was a bit more buttoned up um and you know I don't miss that I'm I'm fine with having some some some weirdness in my life dude I'm so on that page so I saw

there was someone someone tweeted out a a couple of photos from you know one of the events I think token that's happening this week and it's like this is why no one takes our industry seriously you know I don't know on the one hand I understand that crypto makes me cringe a lot lot of the time there's definitely a lot of behavior on Twitter and on the general uh cryptosphere that I do not endorse but you know what's with the hurry to become like corporate and grown up here I mean part part of the part of the fun part of this industry is that it's young and vibrant and alive and it's on the edge and it's a little weird sometimes like you know the the grown-up corporate stuff is it's cringe in its own very specific way too like what's the rush to get there I

don't know me I think there's like a you can debate like in a in a local context like hey do I want like my founder you know like doing XYZ and like like what does that do for like our brand but then like if you're not uh like directly associated with with any of like the you know whatever weirdness in question it's like would you rather have some like again like would you rather have this or like boring corporate culture like no like I this is not what's impeding adoption like I there's bigger fish to fry on that point um but you know I think I think it's also it's good you know we get we get the youngs the youths

with this sort of uh the youngs yeah skib exactly exactly you you know uh and to your point I don't think it's you know you'd probably have thoughts if you saw your founder or uh something like that just lying past that on the street of yeah South Korea I'd have some questions if I was an investor I'd have some questions yeah like um what's going on here friendo yeah um all right so uh last uh small just sort of funny I just want to get your take on this because I find it kind of an interesting debate so near had pulled a little bit of a marketing campaign this week so initially it appeared that their account had been hacked because they changed the profile picture you

know they were tweeting all this weird stuff and it just looked like a pretty Garden variety account hack but then they posted this video which was basically an explicit call back to Max Headroom Max room by the way I I'd heard of that about a month ago or something but it was this you know basically this broadcast back in the 80s or 90s got interrupted um some random guys with like a a mask on their face uh they they called themselves this character Max Headroom interrupted it became this sort of cultural phenomenon and I think it actually got like a show or something like that but anyway it was it was in that style and it ended up being a little bit of an advertisement for um you know this event that they're doing over in either Singapore or I can't remember where in one of these uh

in one of these places and it was an interesting debate right because on the one hand you know uh you know I appreciate people taking big swings but it definitely came off as a little cringe and I think there were some pretty legitimate concerns around safety you know you don't you don't want to be normalizing account hacks and and baking it into a marketing campaign I'm kind of sympathetic to that point of view on the other hand everybody's talking about it you know it definitely it it did what a marketing campaign is supposed to do and here we are on this podcast talking about it I'm interested in what your opinion is so at the end of the day that's what they're that's what that's what they're supposed to do anybody come out and said oh this was a good idea like I just I I can't really come up

with a rational argument for why it is a good idea yeah you know going back to what we were just talking about it plays into the general sort of weirdness but like if I was a near you know employee would I be like psyched about this idea no oh my God uh yeah it like gets people talking about it but then it gets people reminded of like why near might be searching for some relevance at the moment right it's like how desperate are you guys if this is what we're doing these days um so I think there's probably a lot of uh lwh hanging fruit in terms of like marketing campaign improvements within web 3 Broadley I would not call this like uh a step in that in the right direction um was it

weird and does it you know was it a very boring week that this at least gave us something to like to talk about um yeah but again like locally when I want that like no I would I'm gonna so I'll take the other side of this and just say you know when you the the effort that it requires to get people to care about your thing is immense and people always tend to think about the best case scenarios like I produce something out into the world some product launch whatever I want eyeballs on and everyone thinks it's cool and everyone knows about it few and far between right like the the second best thing you can do I think is what near did here which is at least everyone's talking about it it succeeded in getting eyeballs I think the worst

thing that you could do is uh a marketing pitch or campaign or proposal that feels right but like no one gives us stuff that you know no one cares about and if people hate it at least it's still a strong emotion and also you know they're taking a swing I don't know they're taking a I kind of respect people that take bold risks like this you know you got to imagine you know ILO was part of the video I have to imagine he was a little bit nervous about that personally I yeah so I respect it I respect it yeah yeah I'm with you um maybe it's also just like a little bit of bias because n has done so many different things they're like the AI chain then they're like a DA layer they're you know uh I forget fast finality layer or like something like

that and it's like yeah what are you guys trying to be what are you trying to be and then uh you know any I didn't really learn anything about near other than you know they have a more aggressive aggressive uh marketing strategy I guess now um but hey here we are talking about it um here we are talking about it baby press is good press yeah yeah I guess so I guess so I I'll give them that I can tell I've convinced you here all right with uh with my victory in this argument let's let's move on totally let's move on to uh the important part of this here now that we've covered the big stories uh I I want to I want to get your take on this L1 value cruel debate and maybe I'll just start highle and editorialize

here a little bit and say this is something that the sort of an non group or you know the unaligned anons have been pushing on for a little while which is hey maybe the rollup Centric road map was not the right move for ethereum at the current moment or there are at least some serious drawbacks to it and then I think Max Resnik who I would characterize as sort of the doxed face of you know the unaligned movement uh has gone on Bank list and basically just described he he did a really good podcast actually on the wart podcast um a month or two ago where he outlined you know what in his views were the mistakes and you know I think I think the way that he views it is you know I'm paraphrasing here but ethereum used to

have all of these users um you know which had generated fees on in some way shape or form and then there's this new layer that got ex you know spun up the l2s and in a sense ethereum has churned a lot of the users that were generating revenue for it and then you know probably made an additional mistake with 4844 where we mispriced you know the rent that these L2 actors should be paying to the network and as a result what we've seen essentially is a drastic decrease in revenue and a drastic increase in turn of users from eel1 and this is where people start to talk past each other a little bit and I want to use this as an opportunity to align on some shared sets of definitions

and what the actual interesting questions are that we should be asking because you know that's from that lens it looks very negative but then also proponents of you know there's another group that says well look this is this was explicitly the plan right I don't know why everyone's so surprised about this this was the rollup Centric road map it's been out it's been public we explicitly wanted and the goal was to push users up to this L2 layer so this is working as intended and so I want to get a sense miles from what do you think at a high level of of these arguments and then maybe we can zoom in on some of the areas where I think people are talking past each other yeah so I think I'll start at like the the absolute highest level um kind of work work down

from there I think um you know blockchains l1s in general are like open- Source platforms with monetization baked into usage right that's like the main difference between uh or one of many differences but as it relates to monetization difference between like a pure OS platform and a blockchain is that you know you have to actually pay to use it right um and so I like my general philosophy on you know long-term value maximization is to basically think about how to maximize usage right um and what does usage mean it means like

adoption from devs and retention of those developers um and the success of those developers you know bring the end users that drive usage right of the platform um and you know I think the l1's job is like first of all I think they should be optimizing that's what like they should be optimizing for right and then what do they really provide that drives adoption and drives retention it's okay they provide really strong Network effects right for the de for the apps on the platform and that primarily or at least initially start s through um shared state or shared settlement right um and they they also

provide you know all of the table Stakes sort of like features around security censorship resistance etc etc um and so I think the the sort of question here is um you know did ethereum optimize for um for usage longterm with this road map or did they make a mistake right in terms of like pushing people out of L1 um and you know frankly like the L1 story The of you know the apps of L story of apps on L1 has not been like great right like you're super constrained in terms of the

you know amount of logic you can put into these apps um and that's not just ethereum that's really any sort of generalized you know smart contract platform um there's very little control right um on the L1 directly uh there's value leakage and and sometimes actually like exploitation right of of the end users um at the same time you know there's a lot so so that's like okay that's where ethereum was they said okay this is we want to keep the L1 you know basically as is because we believe it provides like those Security benefits and you know we think it can provide Network effects around shared settlement but we think it's in the incentives of

developers right to move to more performant layers number one and maximize like more control right over their execution environments um and so the general thinking is like you know yes of course like L1 was printing for a long time but was that you know sustainable right um and maybe did they optimize for Value capture too early at the L1 level like that's a kind of a separate conversation um and so if you're you know on the ethereum side like the to defend them you know they are basically optimizing for like longer term um you know usage right maximizing longer term usage and saying like this

is where the puck is going anyways um we can provide the same level of like Security benefits you know the L1 doesn't have to change to to to provide that like two l2s and they can pursue this horizontal scaling right that we think is like the endgame for any sort of uh platform that wants to support huge amounts of activity um and the questions are like where I point to you know like looking back in hindsight is um you know around whether or not they actually you know rollups were kind of like constructed in a way where ethereum can provide those like really sticky features which is really

around like shared settlement right um and so that would that would come in the form of like trustless you know interop between these different like higher layers right and they haven't so far like we we've seen these l2s are kind of like siloed right because it becomes at a certain point in time it becomes not an adoption question but more of a retention question um once and El two gets big enough what are the incentives to stay you know in L2 versus becoming their own L1 and I still think that there's like a lot of really strong Arguments for um for why that won't happen necessarily like yeah you know I think just from an economic standpoint

it is like more attractive to be in L2 um you don't need to pay a huge validator set maybe you could just pay like you know you can take shortcuts as it relates to security like that's the whole reason you're you're an L2 and security is a big cost um but you know and then on the salana side um they have you know they're hyper optimizing to keep as much as possible within one shared state right like that is they're all on the same page of that's what they want um and you know I would argue that that is somewhat at odds with the more like long-term story of retention uh for the most successful apps and right now

they're like starting you know to see like the beginnings of those of that tension that's going to exist um so yeah there's a lot to say about it but um I'll pause there hey everyone this episode is brought to you by NADA the shielded asset Hub protecting the future of the multichain NADA is a chain that's near and dear to my heart because in previous seasons of B we've talked about how the Cardinal original sin of most blockchains is not thinking about privacy from the beginning but also because if we want to onboard a whole bunch of applications it doesn't work in a default transparency setting so NADA not only brings about a better future that we all want but it's going to help on board a ton of new applications so Nana introduces a novel shielding reward

system the way that it works is if you hold your assets in the shielded set you help strengthen nada's data protection guarantees and collect n rewards and return the model will initially support IBC and ethereum based assets but eventually the idea is for this to expand into a comprehensive hub for all assets really really excited about what the folks over at NADA are doing I highly recommend that you go and check them out at n.net you can follow their mainnet launch which is soon TM very exciting tell them that I sent you click the link bottom of the show notes okay so what I want to start doing is focusing in on some of these arguments that I see people having around Twitter knitting that into into some of what you were just saying there thematically here is an argument that I hear a lot um and

you're probably sick of hearing as well which is rl2 extensions of ethereum because right there when you laid out that information this is where you start to lose people and with the salon Camp because they've got this laser focus on this Northstar of you know shared one single layer of shared State you know they say hey this is parasitic because you're siphoning off activity and execution fees and all that type of stuff and it's parasitic and and what the the etham tends to say is no this is actually um you know this is actually extension they we're extending ethereum Network here and this is going to be beneficial for ethereum and I think that framing it like that are they extensions of ethereum I dislike that framing because it automatically devolves into a

semantics debate around what does it mean to be an extension of ethereum and I know that people in crypto are allergic sometimes for good reason about talking about things like token price and things like that but I think what people are really asking here is is the rollup Centric road map bullish for eth the asset I think that's what people are asking here and I think that you could construct a Steelman for both sides of the argument and the Steelman for why l2s are good for ethy asset would essentially be um we are you know freeing a lot of the constraints that previous apps have had and what we're also doing is we're exporting and expanding the market for eth the asset and so I think what the the bull case

would be here is that there was a lot of like dead weight um around around like fees being too high the en like the environment being extremely restrictive in terms of what apps can do so we're expanding the market to such a degree that we're going to expand the liquidity Network effects of eth the asset and that is going to outweigh the reduction in fees and revenue that eth main chain generates now there are some people that say there's going to be such an unlock in demand iess just also to throw in here I I I don't it's going to be a long time I think before this happens but there are also some people who say that the net increase in settlement fees paid by l2s to eth main chain is going to exceed what ethereum fees used to be so it should be bullish for eth Revenue

I'll pull up some statistics here in a second but we're we're pretty far off from that so there would have to be an enormous increase in activity on l2s but that's still part of the bull bull case argument the bare case argument I think for this is that you can you can essentially almost have unlimited activity happening at the L2 layer but that doesn't necessarily mean that value is going to flow back to the L1 token and you know I would describe this actually and you know I hear a lot of economists actually make these arguments here's here's the analogy I'd give you these arguments that you hear about free trade and specialization and you know these I think in somewhat uh you know sometimes these economists are at risk of being a little bit condescending but it's like hey when country X specializes

for something and Country y specializes for something you create a 1 plus 1 equals 5 situation and there's a economic surplus that's created and that's true but that doesn't necessarily mean that the economic surplus is shared equally between the two specialized parties there are different value acrs at different places in the value chain and so I think what um if I was like very against this idea of uh or if I was trying to poke holes in the L2 roadmap Theory you know I think you can you obviously have to say that yes you are expanding the P the amount of block space in the environment and apps that are getting like the economic activity that's happening here but also now you have multiple different assets that value has to ACR to so previously where

execution settlement da consensus all happened on one layer now execution is happening in another layer and there are a bunch of tokens that are the E essentially the equity instruments of those cash flows and so you know it's not really realistic to just say like those have to be included in the entire sum of the network right and so what the the bare case would be is that hey you actually picked the commoditized part of the layer which doesn't command any fees and in the long run won't be super valuable so do you agree with that as a reframing of this l2's extension debate and which side do you sit on there I um I I I'm not sure it's actually like the correct way to like attack the problem

um and I would just flip it on its head and in general I think like you always want to if you're thinking about like the long-term success of your platform you start with the perspective of the developers rather than starting with the perspective of the L1 and being like is the L1 parasitic are these l2s parasitic to the L1 like that's I think the wrong question to ask I think it's more you know in what ways is the L1 parasitic to the developers on the L1 right um like I would say the L1 is like the the Dynamics of ethereum L1 in some way are more parasitic to adapts on the

L1 than l2s are to ethereum um if you're adapt on ethereum L1 I mean some of this extends to salana some of it doesn't but like you are basically saying like Okay your users are going to have like the majority of the fees your users pay to interact with your dap are not going to go to the DAP right they go to the L1 uh any sort of value like you know me or like you know valuable transactions that are generated um by your application again that's not going to the the daps for the most Parts going to the L1 um and you can make the same argument to a much lesser extent on

salana right like Solana has done everything possible to make this just the best you know platform to build smart contract apps um the fees are negligible right um they've even like you know culturally like they're much more aligned with the developers like as it relates to me right like jeto shut off basically the client that was doing sandwiching for a while um to protect users and they're still running into this like oh well devs want more control they want more value capture etc etc and so they're you know building these Network extensions right um that's the way that I think about this is like it

doesn't matter what the L1 wants what matters is what the devs want and what you think devs are going to want longer term um and frankly like the value of L1 tokens has never been a value capture story like for there was a minute there where like people were doing DCFS of ethereum and being like wow this is amazing but it's always been a growth story it still should be a growth story right now um and so optimizing for like what you think you know a cruise or captures value value to the L1 today like of course yeah if you could have all of the applications on one state and all the developers were thrilled and wanted to stay like then yeah there's no

reason to pursue an L2 you know based road map right um there's no reason to make that easy for for developers uh but that's just not the case um it's like that's where I just think the framing of this whole conversation is wrong is it's not accepting like it's not starting with what developers want which I think you know at different points of the life cycle is different like in the beginning I think developers new a new project has get has gets more benefits from the ability to deploy a smart contract app on an L1 with lots of liquidity and users um and security taken care of and interop taken care of right like the benefits of that are stronger than the

downsides of lack of control value leakage etc etc but at a certain point you know at in a Project's life cycle like it starts to change right like I would argue at this point Unis swap is not psyched about like you know the amount of value that they create and the amount that they actually keep like not even just the token holders like the LPS right um were getting crushed um and so yeah I think sure you could look at you know you could say like yeah that's it's all parasitic to the L1 but it's more I think like an accept like accepting reality and like reoptimizing for long-term adoption um and that's not to

say that like Solana like you you can get to a very very large successful place by just optimizing one you know shared state for um one platform that sh you know shares State and like tries to keep as much activity as possible on the platform but I do think it's like if you're Sal you do need to accept the reality that like yeah this is not going to be the best place to launch everything this is not going to be the best place to necessarily like keep your application once it gets to a certain size all um in all cases right uh so working in in reverse order here just addressing those points I agree that this is coming for salana so I haven't really read into the Nuance of network extensions and why they may or may not

be different from l2s but salana this is actually a tension I don't know if you remember this back when we did the achain thesis Cosmos season together Sunny Agra wal of Osmosis brought this up and said you know it's a little bit of a an oxymoron to do a permissionless app chain because you know if it's permissionless by definition people can build anything they want and then how can you make sure that it's only for this one specific app or use case right and there there's an inherent tension there and I think the reality is that people Salon is a permissionless network you can build you know within the limitations of what that protocol can do basically whatever you want on it and there'd be no way for you know the salana foundation or anatol or whoever to to stop that from happening and so

that I think you're starting to see that now and um and I think this this is manifested early as early on as an ethereum problem um but I think it's coming for all layer ones eventually if you don't sort of build for that but here's where I also want to poke at this idea of you know just do the thing that's best for the devs on on one sense I agree with you these are your customers but I think that there is also a very realistic version of this where you know you serve your developers and they build things but you don't end up capturing the value that they build and I think that's what that's what ethereum and and l1s in general are at risk of here and frankly this is the open this is this is like the long history of Open

Source software where you do a lot you create a bunch of value but because it's open source and it's decentralized you don't have a great way of capturing that value and you know when I when I think and look back on you know what has what has ethereum done extremely well is I think that there's this there's this funny Catch 22 in between you know how much do you want to monetize the apps that are building on your developer platform because the catch22 being ethereum does its best when eth the token is going up because I think you could basically look at eth the market cap of eth as your total addressable Market as an app developer right that's why it's so attractive to build on eth and and l2s because there's $300 billion worth of Crypton native wealth for you

to attack and so there's this weird irony here or catch 22 where now people are say well you captured too much wealth and that has to flow back to the apps but then that could be not beneficial for eth the token and so this like positive reflexive uh cycle that kicks in around creating more you know more Tam for apps to to attack actually goes down and so you know I I actually pulled up this tweet here from uh pseudo I don't know pseudo pseudo Theos he just joined symbiotic but used to be at scroll and he tweeted High fees are bearish low fees are bearish question mark and I sympathize with this but the irony is that he is correct two high of fees are bearish and two low of fees are

bearish I think what you ultimately want and it's very difficult to actually quantify this but what you want to do is you want to charge the most amount of fees that you can without actually shuttering or losing out on demand you know we did the did a a whole season on Dex is with Dan Robinson and there's a very specific term for this but there's some kind of you know equilibrium curve that you could imagine where you know when the fees are too high you're actually losing out on you know on profit right for the for the amm itself but at some point you actually lower the fees to the point where yeah you probably actually better off just gouging people and sacrificing some demand because the net amount of aggregate fees that are getting paid to you are higher and what you're trying to

do is find that tricky Optimum right and it doesn't make for great Twitter or great nuance and it's like hey what's good here High fees low fees I can't win but the IR like the answer is somewhere in the middle you know you should be maximizing the net aggregate amount of profit um so sure sure yeah I don't know I I feel like yes but we probably wouldn't be having this like uh you know existential conversation around ethereum if ethereum like let's say there were the value capture story was like not like the same or lower like right meaning like they didn't they not capturing as much value but like the adoption story was going through the roof right if there was just hordes of

developers like coming onto ethereum you know migrating from Web Two to web 3 like ethereum token would be going up it's not like regardless of if there was a pure like you know like a really like uh great Fe you know value capture story associated with it um and that's kind of the point I'll just keep hammering home right now is like yeah I agree with you that the the base token being like you know price appreciation of the base token that is a you know Rising tide lifts all boats very good for the ecosystem healthy healthy but I think saying that you know go like looking at how to like capture value is probably the wrong thing to be

optimizing for um right now like I I I think salana had it pretty close to write and in that they haven't really spent a lot of time thinking about value capture and um the general sort of thesis of hey if we just are you know the best place to launch apps and we get lots and lots of adoption like we're going to be super valuable and salana has been right like I I don't know what the exact market cap is now but it it's also been you know for the past two cycles probably the largest growth story um you know growth and then and then growth again but to me that's that's I I think we're just not at the stage right

now where like we necessarily you have to have like some huge value capture story figured out and and frankly I think the the more you try to like um you know use value capture to push the token price up is probably impedes adoption um so I know it's an annoying like keep like pushing back on this but like I I I just I really can't think of you know apps maybe I think there's a value capture story that they need to figure out like relatively soon but um I don't know l1s it feels like no one was you know looking at Facebook in the early days and saying like oh man they've you know the the growth rates are through the roof but like they don't

have a value capture story here so I don't think this is that valuable like it you know that wasn't the case at all I think people like can see where the [ __ ] is going and like and if you do get that a huge amount of adoption how many ways you have you have tons of ways to monetize um now there is a separate conversation around like if you were starting an L1 today and thinking about monetization would it all necessarily be baked into this like token and super programmatic forms of value capture right versus more traditional forms of value capture like value added services on the side um that don't necessarily occur to the Token or maybe they you know maybe they can maybe they don't um

you know like should first party services like what if ethereum you know itself had its own like ran ens right like things like that just equivalent of like Utilities in an app uh in like an iPhone when you when you get it right um I think those are those are more interesting because um and and because no one's really tried them in the context of an L1 um and they are not directly competitive with in terms of like poink value capture away from daps you know yeah to the L1 token it's more complimentary it's like oh these are services that people want daps can leverage them right in their own workflows like you'll use the ens and so if you buy an ens that you know Revenue

flows back to like L1 somehow right um so there's a huge unexplored territory of value capture methods that are not like totally programmatic and baked into the usage of the blockchain like every single time you click a transaction right um that that should be explored I think as well so I I want to spend a lot of time talking about that actually because you have some really interesting ideas there but I I want to go back to this Facebook analogy and you know all right here here are two things that I would just like leave you with at at some I guess it would be interesting to think about when at what point would you start to think about value capture and when do you want to provide investors with a line of sight to Value capture because you know the beginning of

Facebook yeah no one was asking about that 10 years in you bet people were asking about that 15 years you were expected to start delivering right and maybe it's different with ethereum it's different with Bitcoin these things aren't companies but I I think the reason why that's a little bit different it again there at some point in the in the asset organization whatever is life cycle you you do have to start asking that question and so I think it's just yeah that's I think that's yeah those that's the right questions to be asking think yeah um I mean and then there is a question about I think one of the things that makes this challenging is that there isn't some you know I I think basically that's what it is you need like the line of sight and and that's what people are missing I think at the

current moment um and I don't know like even the comparison between ethereum and salana here there's a little bit of a path dependence thing and this is where I think people talk past each other on the modular versus monolithic the original semantic debate that launched all semantic debates it's like okay I I the the modular view of the world says eventually we're moving all of this activity on chain and it makes no sense to go on one layer which I'm super sympathetic to on a long-term time Horizon but then you know we don't actually uh I still like this line anoli said like really sat with me like I beg that all of my competitors build for a world of a trillion transactions a day and he's probably right like you can overbuild and you know we it's very abstract in the concept of block space

whatever think about it within the context of capex like a factory right the the the what you have if you have a very asset heavy business what you're really optimizing for is your fixed asset utilization right so if I have a factory that's capable of producing X you know I want it to be operating at 90 or so percent of X by the way this is another concept that Sunny has brought up even within the context of EIP 1559 like you should be targeting a utilization radio ratio that's that's pretty close and I think one of the ways that you could interpret um some of the challenges that you know ethereum network is having right now is that they tried to skip to the end you know I think they correctly intuited that everything is going to go modular on a

long enough time Horizon but then you essentially way overbuilt for demand and now there needs to be some period of consolidation um yeah and I think I think there's um there also a question of like should you really specialize right um and you know what salana is like specializing for optimizing for um you know what Celestia is right optimizing for um you know ethereum I think it's slightly a product of it just being you know didn't like have all this flushed out at the time of launch right uh it's kind of in the middle um and so the l1's not the best to build you know daps on unless you want like super I

still think there's a maybe a story of for eel1 doing like low amounts of super high value sensitive like transfers long term um but it's maybe not the best place to build like you know app chains and you know dedicated rollups right now just because it had to kind of build that part of the the the plane in the air and it's not you know you're never going to be it's never going to be perfect right um so I think that that is a I think a big challenge um it's just the awkwardness right and I think it really does end up being what do what is the ultimate story for l1s like what do how are investors going to bucket this and are they going to view are they

going to Value these l1s as this kind of like you know money like thing that you're buying as a this is the Bitcoin story right is essentially a meme coin there are no cash flows associated with it it's very commodity like you're buying it to hedge the basement and the supply is the story but these other you know I always flip-flop between this but I in in some senses Bitcoin looks very like ethereum and Salon in other senses it looks very different one of the big difference is is that there are cash streams that are and both of these tokens have been positioned essentially as utility tokens that give you some kind or some sort of index on the cash flows that are generated in their economy and if investors look at it like that I think that the value capture story is going to be more important if

they're less Discerning and they view all of this stuff as just a basket of non-sovereign Commodities uh and you know I I don't want to think too hard and I'm going to B 50% Bitcoin 20% ethereum 10% Salon whatever it is then this value capture story doesn't matter but on on sometime Horizon I I think I think eventually it it will probably matter um yeah totally totally I mean unless I would say Bitcoin is an exception there like a little like maybe maybe a little bit less so now that we actually are seeing like you know um l2s on bitcoin and they're adding you know the ability to verify things like you can do a little bit more but um I think the you know digital gold like the asset

story like that it's kind of like an app chain for that it's specializing in that and that's why it's done totally great because that has like a its own distinct story that's not totally usage and growth based right um yeah like like the money the the money part of it like the medium of exchange part of it didn't even work out and like but the the gold part of it still you know strong enough to keep it going and um it's you know it's it's more like they're optimizing for like adoption of people holding this thing right rather than adoption of people using this platform um I did really like the uh the analogy I forget we looked at a while ago is like thinking about you know these things as like megawatts right is like a great you know sort of like commodity analogy for

um for l1's long long term when you know it's really really you know kind of beneath the surface of anything that touches the actual user um but we constantly hear like the money story as well um which like I guess my lukewarm take is that you know the money story is of often used as as kind of like a a crutch right when you don't have sort of a a clear value capture or like large growth adoption story um and you just kind of say well it's the money the money it will be the money in the internet right it'll be the modular money um don't worry about the

value capture thing for now um but I I think there's prob I like I I'm more subscribed to that but um I think the what you're optimizing for between like um you know adoption and value capture it's it's kind of should change over time at what point do you need sort of Li you know some level of line of sight into value capture um I think that's a really good question to ask I think Salon is probably at the stage right now or they're like you know they don't need to implement anything um I think they keep continue optimizing for growth but um it's unclear to me uh whether longterm there's a way for like you know is are the so like sole token holders

going to AC crew value in some form of like burn or something like that or is it all just going to be you know going to stakers Forever that's okay too um yeah I think you just but that should not be like the most important pressing issue for them to figure out right now right um I think if I were them I'd be looking at okay the ethereum road map sort of you know did not satisfy like the level of of network effects that you retain when you move to a network extension right how do we ensure that they they do if it's inevitable that there will be l2s on Solana so that's what I was going to just conclude with here and I want to

get into almost like a hypothetical experiment if you were spinning up a new L1 today how might you think about attack this question or or an L2 um as well uh but I I do think that you know this has been framed as like an eth versus salana thing and I don't really view it like that I think that this is coming for both of them um and like and I think that I've expressed this to you over time like I I view these l1s as more like more commodity like I I I really struggle on a very long-term time Horizon to even you know the development of multiple concurrent proposers you know that's not that is bullish in the sense that I think it what it ends up doing is rerouting a lot of the me back to users

but it routes that me away from the chain right and it lowers the yield that stakers are getting paid and in theory the attractiveness of the asset so that is like one that is one microcosm of a story that's happening across all of the revenue streams for l1s but but I think that again if you're starting from scratch there are some very interesting things that you could do here here's a I want to pause it this as a theory to you and and get your reaction to it um a lot of the inherent business models that I've seen especially l2s deploy are charging for interoperability they view interop as the the killer feature and you know when I look at the op stack or arbitrum or something like that it's

like hey um you know you could build this L2 H or you could build it within our network of a whole bunch of other applications you're going to be interoperable with one another in theory in some point in the future and for that we're going to charge you because there is an assumption that we think interoperability is valuable and applications will pay for it do you agree with that that there's an inherent you know positioning as interop as the key feature that Protocols are going to use to extract value and do you think that that is a viable strategy yeah um it's a good question I think the yeah the L1 the services or any sort sort of like platform um

actually I would actually anchor it more to to l1's and then I guess only like I guess l2's only within the context of it being sort of like a you know um similar to an L1 right and that you're going to have like a bunch of l3s or a bunch of like horizontal scaling got um and yeah I I I totally agree that uh I think security and interoperability within the same like trust assumptions those are like the strongest Network effects that um that any sort of you know L1 or like a an L2 ecosystem can provide um and the question is what you charge right is it more

valuable to the developer like does the developer acrew more value or get more value right by opting in than like what they pay right what they give up um and that's the bet that I think like these l2s are taking um but I really do think that that is something that should be provided by the L1 itself like if I'm if I'm building an L1 today like I basically want to give developers everything they want while letting them retain as much to the max extent possible what you get when everything is within one shared state right yeah because when things are within one shared State developers don't need to think about interrupt that comes right

now naturally like there's no Bridges within the same state right they don't need to think about security um but they do need to think about like you know oh [ __ ] like there are you know lots of constraints around what I can build here because I'm kind of conforming into the the rules of this platform um you know there's only so much control I have over like you know maybe the final ordering of transactions um and there's only so much um you know then so it points to like okay maybe they want more right but you want to basically let them have their cake and eat it too um and that's the way like we're seeing like a

convergence of architectures across you know salana ethereum Celestia in general um and I do think that's kind of the role of the of the L1 long term is to provide um you know security and strong enough Network effects that it keeps the you know developers wanting they get more value by staying on the platform right you take enough pain off of their plate and give them enough like benefits right that even if incentives point to maybe you can you know capture all of the value right no you're not paying rent to anybody as like an independent L1 the incentives Still Point to wanting to stay you know on on the platform um so yeah I mean I think that's if you

were to make an argument why like l2s are somewhat parasitic to to to the L1 or like at odds with the L1 it's because the l2s are now doing in my opinion like the job of the L1 and creating their own mini little L1 ecosystems like on top of ethereum and I think that's the shortcoming of like the you know current state of the rollup Centric road map where they're saying like no you need to be like a based rollup right then you can get like even stronger sort of like you know interop with other base rollups because you are like you know a of L1 state or like you can you you see what I'm saying right it versus and that doesn't necessarily sound like what these folks want to do

at all um and so yeah if I were to like you know rebuild from scratch I think that would be like the the the the first thing I'd be thinking about is you know um how do we basically break these tradeoffs that um you know I think are too strong on Solana and too strong on ethereum um in from other like opposite of the spectrum okay so yeah I've got questions I've got actually a hypothetical question for you which is it seems to me actually that one of the advantages of the more decentralized you are as an organization the more Community you're you seem to be able to build um and

they're probably like here I'll give you examples uh and these are probably not like perfectly um but the the Bigg the l1's are the ones that are are able to actively you know Garner the largest like religions behind them for the most part right like they have these huge stories massive communities like the like ethereum and Bitcoin have multiple conferences independently organized all over the world globally there are you know tens or hundreds of thousands of people that like deeply care then there's a big drop off between you know for l2s and you know you think about it it's like why not you know that that doesn't necessarily have to be the case um what is the reason for that and even within l2s I think there's a big like I

will say one of the one of the I think l2s that really leaned hardest into in a really real way very decentralized governance is arbitrum um and look there are some drawbacks to that for sure but what they get is I think they have the most active L2 Community largest most active L2 Community by far um and so I want to get a sense from you you know how important you think that is for like a new L1 of these sorts of computing environments because in a sense that's kind of your top of funnel you know that's that's really good for you know recruiting new developers and mind share and users and all that type of thing why why does this does this difference have to exist in between an L1 or an L2 or why have these l1s been able to you know Garner much larger sort of follow that's

a it's a good question I think like what we're talking about is um whether you're in L1 or an L2 you want to like put forward a set of values right that that you care about right and then the architecture and the development that you're doing sort of like reflects those values right and the value and the value prop that you offer to developers should be centered around like those values and then your ability to capture developers is based off of like how well those values resonate with them right at any given moment in time um and good you know example is okay ethereum in the very beginning like the values around

decentralization uh censorship resistance etc etc this is reflected and say like the importance of home stakers um and it drew you know a lot of like the you know the Unis swaps of the world right because it you know they they resonated with those values um at at a certain point you know I'd say like stayed too far towards like you know at or to at odds with performance and like great ux and things like that right um but with salana the values were about performance and you know a NASDAQ on chain like Hey we're not going to um we're not going to assume everybody in the world is going to be running a

validator right we're not going to optimize for that we're going to optimize for you know we're g to kind of like counterposition against ethereum with like all these things that they can't do and you can only do on salana right and that was really you know successful and appealed really well to um to a different sort of uh class of developers or a different DNA right of developers and and they've uh I think probably have done the best at this point of like continuing to have their road map and their marketing align with that sort of with those values and like building a phone right like that that to make it easier and better to like

interact with these applications that they and that they've recruited um and then if you look at like the the l2s I mean in general like you're you're kind of you're going after a subsection of the L1 Community right it's not like an ethereum L2 is realistically going to like maybe you know eclipse is what they're trying to do but like try to capture like multiple you know um communities right but it's the same Playbook it's the same Playbook where you have like you know a set of values like optimism was strategic and tying their set of values as closely as possible to ethereum set of values so that when you think of ethereum scaling you think of optimism right and they did

a I think like a they made a very conscious effort of that throughout like their their marketing and their messaging and in arbitrum you know I think was took a slightly different angle especially if you um I think there's a lot of overlap but they also were like a little bit less like hey we don't want just like the big Blue Chip apps from ethereum to come on to arbitrum we want like net new developers like remember there is even originally there was a white list on optimism and no no white list on arbitrum um and so I think like they've probably been more successful in developing like a a net a really net new sort of community um whereas like optimism has been like if you want you know if you are like eth all the way

like any you want like just eth but up here like come come come over to us that and they got base great um that's my yeah I'll pause there but that's I think that was a real that was really well said and I think that that resonates with yeah it's like they're trying to capture a small subset of a larger community in theory there's no reason why given enough time and if most people end up having their relationship with an arbitrum or an optimism that Community couldn't get bigger than the underlying Community but I see that the the other part about inheriting the values of ethereum the the base layer is very interesting I totally agree one of the I guess funny challenges even if you think about Mega eth right in a sense if the if the if ethereum starts with its set

of values and then has its architecture reflect that the architecture of the l2s should actually be the opposite of ethereum because it should be a trade-off right and that's what Mega eth really like we did this so that you guys can do that do this right yeah they should fit together like puzzle pieces and so maybe they shouldn't be onetoone copies actually um and so I guess from a cultural standpoint then that's kind of bullish Mega eth that's an interesting way to think about it okay here here's another I'm just asking a lot of just high level questions for you here how do you think about the role of infrastructure within uh you know an L1 and and bootstrapping community and all that type of thing and then I want to dovetail that with something you brought

up about 30 minutes ago which was uh Native applications like L1 hosted infrastructure services like an ens or you know like if a conduit or something like that was owned by um you know one of the nl1 foundation or something like that and the the pros and cons that I see it is we we've talked on this program a little bit before it's interesting to watch the difference between look at the difference in ecosystems between salon and ethereum and I think it was Lucas Bruder of jeta who initially referenced this within the the the um context of liquid staking tokens he said something to the effect of it's like the worse INF the worse the ux on ethereum was the more the bullet the more bullish it was for adoption of

liquid staking and I think he's right in a lot of senses like salana just had kind of this native staking right and so liquid staking didn't need to take off there wasn't as great of a ux gap and I think you can see that in a lot of different places actually on ethereum they were very minimalist and they pushed a lot of complexity to the edges and so all of these Hardware or infrastructure providers just cropped up and that's where most of the winds in terms of big companies on ethereum have been built now a do you agree that leaving it to more third parties actually is good for kind of of building community and VC investment and all that type of stuff and then how do you characterize the downside of that of you know some of the infrastructure that ethereum left for people to build ended up being really

core and now there are these thorny alignment issues most notably with Lio and you know maybe less so these days but Igan layer yeah it's super interesting um like just discussion topic because I think the lessons that we can draw from the most successful like early L1 ethereum is almost at odds with the lessons we can draw from the most successful operating Platforms in you know traditional Tech right ethereum like the sort of like um it's almost like people kind of accept this as a as a truth because of ethereum is you know if you are the Bas layer the less you do right the least the less opinionated you

are about the what's happening on your platform the more you know sort of innovation and creation that can happen right um if you're too prescriptive about what should happen you know on your platform then you will like Miss all these crazy use cases that people come up with right you're like limiting the surface area or like potentially of innovation that can happen on your platform um and second in like the uh the inverse like the more you do you know uh at from a Bas layer standpoint like at higher levels of the stack the more developers will feel like maybe

turned off because it's almost like competition right yeah um and this is you know a lot of these like those concerns were ex present when you know Apple launched the iPhone and had its own apps right like like the iPhone didn't come with just like a blank screen right it had right it had utility apps it had um you know basic functionality right um when you download Windows XP you're you know gonna get Microsoft Office right um and I think that's where things are going I'm not I I think picking and choosing the right things to do is going

to be you know kind of where the devil is in the details um but I think there's a very good chance we look back in 10 years I think it's like kind of crazy that you know l1's and l2s were not more opinionated um or did not provide let's say like complimentary services that you know bolstered adoption while capturing some value right in a way that that like you know services that are largely complimentary right like if the iPhone didn't have a camera you know and it relied and you had like seven different camera app or like you know Hardware like choices or something like that you could go go to get like a camera installed on your iPhone right and then the apps had to figure out like which

you know camera Hardware like third party provider should I integrate you know if I'm building Instagram and I have to like make sure Instagram is compatible with all the different choices that the user could have put the camera you know could have gone with for the camera like that's bad that's bad um and I just don't think that time is on the side of L of of Bas layer or L tubes today where like ethereum had years years to cultivate this community in a really unopinionated way right um and I think Igan lay is probably going through the same thing right now we're like you know it's all about permissionless Innovation etc etc but hey like we also want like realize we could put out some

services that like are going to help our uh you know people on the platform um we're going to put out a service that shows that the platform works and I can da right um and so you know I think again it's like I can I can make this argument and be wrong if I were to like back up the argument with the wrong examples right like of of things that you should build um but we are starting to see more experimentation with this and I think that's a good thing like um you know Anisha is a plat um basically like um it's a cosmos chain that serves as a settlement layer for a rollup ecosystem um and they have you know an amm right on that chain where where like

if you want to do basic swaps that's already there um whether like that's the right thing to do or whether it's you know if you're a rollup framework also launching like a Ras provider out of the labs or like the devco team right um I think that's that's the questions like what are the what are picking the things to build yourselves that are worth it based off of like the resources that you'll have to divert to that versus other things um like is it worth it because it it bolstered adoption to the point that it was positive Roi um and did you you know basically by building this like did more apps join the network or did apps not join the network because

you built it because it felt competitive right yeah or they had the fear that you were going to like you know basically build out any sort of app that ended up being successful you just build it yourself um but in general I totally see like more opinionation being like probably the right move at this point um because I don't think the The ethereum Playbook of just letting the market take care of everything um is going to is going to work um and you know again going back to salana and the phone like that's a really interesting example um yeah yeah it's a big big big old swing um probably too big of a swing but but that's the idea I think yeah and

the I mean the OG example of being opinionated on this lens on this AIS is uh like what is private sector versus public sector right what are government provided Services versus you know what what do we let the private sector take care of and different countries and governments have very different philosophies on how they should work um in general there are some commonalities education tends to be largely you know public sector and know utilities are sort of nationalized and you know there there are these sorts of commonalities um and I feel like we're probably you know moving into some sort of era there where maybe an opportunity for some of these new up and comom l1s or l2s can be actually be opinionated about this stuff and and say hey I've learned the lesson that you know liquid staking

is very close to the metal in terms of how the protocol wants and that needs to be tighter at the hip even than we had originally thought things like that um yeah yeah that's an interesting one it's like oh if you create a system that and facilitate like makes it you know is right for like a big liquid staking provider to come forward and like kind of capture the network that's not a good thing but like launching your own native LST might not be the answer maybe it's creating um you know maybe that has second order consequences that you don't like either maybe the answer is like creating a you know a system that doesn't or none of that actually ends up happening um so yeah I I totally agree um yeah stuff that's super close to the

metal stuff that's um you know complimentary shared services like that should be what l1's are thinking about um stuff where like if there was a huge Market of third-party providers like that was fragmented maybe that's actually net worse for the whole ecosystem you know what I mean like I don't think it's awesome that there's like five different sort of Standards being proposed for interop between rollups and no one really knows which one's good or bad and um that's a great example of like well the L1 should have done this um but there's also like more even more involved things that an L1

could do product wise like an amm right um so yeah lots more to come there all right I know we got a wrap here in like five minutes but let me put it to you here you know when you're when we're looking out on a fiveyear Time Horizon do you think are you a Believer let's let's stack rank these three things let's stack rank the app layer like l2s and kind of middleware in general and then l1s you know where do you see if you had to place your bets you know putting your your VC cap on here you know which of those layers you know how how would you think about allocating to those um so app L2 L1 um I think the we're still in like a

very much like a growth story mode um and if it's like new l1s I think if there is a big amount of like you know like you could see a lot of growth and momentum like those are still going to be the highest market cap you know outcomes um even if they run into value capture problems later um so I still wouldn't I wouldn't fade l1s by any by any means um and then yeah I think the sort of application side is obviously it really depends on the regulation stuff

like if they have if they're allowed to have tokens if those tokens are allowed to be like equities basically but yeah that's where I'd be betting um and I think that you know l2s um are probably not where I would be betting because I think l2s any of them that are trying like the best way for an L2 to capture value just like an L1 is to keep everything with a shared state right um and we know that that at a certain point especially for l2s that have like low sort of security that's not going to fly like people are going to want to leave and start their own l2s l3s etc etc and then yeah they're left in this place of like

charging for these like you know for for like interop right or like business licenses um and I just think that you know the Market's not ever going to give them the leeway that the market gives l1s sometimes there right um and the market wants to see apps like that are capturing lots of value and succeeding so my bet would be on the um yeah one or the upside all right buddy this was a good one I um lot of ground covered yeah a lot of ground yeah a lot of ground so hopefully it sounded cohesive and somewhat the logic was somewhat know tied together but I

think there was I think I think there was plenty of logic I you know my hope is that going into the fall first of all i' I'm assuming you are as well but big Fall Guy I'm very happy that it's no longer like 90 degrees and humid here it's very New England of the it is it is um but uh um what I would also hope is just slightly better Vibes on CT C crypto Twitter has been not great in terms of it does you you said it feels very like bare Market sentiment uh sort and no I I think the bare Market was better in a lot of ways because we were all just like well yeah things suck right now now and it's in this like you know you have the trough of dis disillusionment you know that were definitely in that um while at the same

time if not like you know kind of EX like knowing if we're in a bare Market or not um because when you're in the bare Market you can always be like well it's going to end eventually um and now we're just kind of like in no man's land like can we be back like we're not bad really yeah but anyways let's keep let's keep the Keep The Vibes up you know go apple picking or something um Good Vibes only Good Vibes only yeah all right buddy this was a fun one you night it here all right see you hey everyone hope you all enjoyed today's episode wanted to give a final shout out to namada again a team that is near and dear to my heart they are building the shielded AET Hub which is protecting the future multichain talked a little bit about how

that works in the mid roll but for now what I would highly recommend that you do is go check them out they're in their main net launch phase you can follow along with everything at n.net you can start rewarding Yourself by shielding your actions and strengthening data privacy for all across the multichain so thanks again to MA for all the great work that you're doing