MakerDAO Rally Reaction | Round Up

Transcript

all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-hosts today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh 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 thanks all right everyone welcome back to another Roundup edition of velcro we got Michael's one and two pants and you know we got happy Mike now yeah this is the radio voice this is the face the smile let's go how are we doing guys you guys recovered from permission no no more

conferences for a little bit I think I'm off the conference tour I'm here in New York I don't know if I'm gonna go to main net maybe just the dinners and stuff but I thought permissionless was great it's a cool City there's honestly the south is just as someone who grew up in the north the South gets something that the north doesn't get they're much more laid back they're like just just more chilled and ready I don't know I don't know if Austin is the South but I mean I was in Nashville once and I was I was like I said basically something like what I just said like oh the south is there's something really cool about the south it's like I I went to a school in the south in Atlanta and this guy's like Atlantis the New York or the South I was

like oh [ __ ] all right never mind then really get there let's start talking about crypto stuff I would be curious I kind of want to start by talking about Eclipse um so Eclipse Neil simani the founder spoke at permissionless um and he he's got a company called Eclipse they were an svm based roll up as a service product that announced this week that they were launching and a roll-up on ethereum so what's particularly interesting about Neil's design choice for eclipse is that it uses the Solana virtual machine and there's a bunch of advantages that the svm has over the evm out excluding Network effect where the evm's

definitely winning the the major reason why you'd want to use the svm is parallel runtime so local fee markets parallel execution is built right into that the evm has a single thread processor which just limits its scale whereas the svm can do parallel execution they're also using Celestia for data availability so they're not using each validator set for da and they're using risk zero for proofs so in in a sense you could bill it as sort of a best of all worlds situation where you have very fast execution really cheap da and it still settles down to eth and I think they're going to use eth as the gas token as well so it's kind of a very interesting blend of a whole

bunch of different ecosystems I'd be curious what you guys thought about this it's kind of the opposite of Neon right which was bringing uh the evm to Solana that that like that was very hyped up because it was like you know the evm as Network effect solidity has lots of developers on it people well I think they're using they're using neon here they're using neon here yeah they're using neon 4 evm compatibility so if you want to easily deploy evm smart contracts on Eclipse you can do it through through neon it's cool so like they're it's not just D so it's Dia and Celestia like Mike mentioned svm for execution sediment on ethereum eth is the gas token and then

proving is uh using risk zero for ZK proofs and then evm compatibility via neon evm it's like the first time I've ever seen like the full modular not just on like da and execution stuff like bringing all these different providers together I think it's it's probably not as relevant for D5 I think it's most relevant for games where like local fee markets actually matter because you like you know one game clogs polygon proof of stake like there needs to be some other scaling solution than just launching all these games on a single threaded chain uh so I think this is like it's interesting from a technical perspective I think the ramifications will play out when there's like all these games clogging all these different l2s like

there will 100 be that and I I honestly do think like the parallelized you know version of of you know scaling blockchains makes sense for high density you know High throughput markets like gaming so I think it's pretty interesting Mark what do you think about this you you called this early no I just I just think um Michael and I actually talked about this when it was just the two of us but I think the way you could like the problem that most blockchains are running into is one of scale and there's a couple of different so like eth main chain runs into this problem where ethereum the network is optimized for solo validators that have very low Hardware requirements so this is limited throughput that you can do on main chain and one of the big problems with eth and specifically the

way that they allocate resources um is that all the resources are sort of coupled so one there's just not very high throughput on each main chain but then two the way gas fees are calculated is it's there are two inputs it's the base fee and then there's the computational resources that each transaction requires so what you can get is if there's like a really hot nft mint it can multiply the base fee and then that base fee gets applied to transactions on uniswap so the resources are coupled in a way that doesn't really make sense so what Solana it's like there's a couple ways that you could solve that which is one to just put every single block blockchain application on its own chain um which is sort of the eth roll up like that's the op stack version of how to

solve this problem the other way that you could solve it is to actually keep everything on one settlement layer and chain but do what Solana did by creating local fee markets and parallel processing and I don't know I I think a big question for me is how much 4844 and dank sharding is actually going to reduce the costs of these Roll-Ups and the way I've been thinking about it recently is that it's not going to reduce costs that much especially on the canonical Roll-Ups that still use da or ethereum for data availability so I think you need one of these Roll-Ups to try something like the solution that um that uh uh that eclipses pioneering here and actually I'm starting to get a little

bearish on just how many Roll-Ups do you really how many app specific Roll-Ups do you really need you know I I kind of started to get a little bearish on that idea um so I think what Neil has done is very clever in terms of the design and then it's going to be down to his BD chops to actually go and recruit developers and who he's probably competing with for devs is Solana because these are rust devs I think that he's hoping to bring over and build applications so I think it's really I I really like the architecture um but yeah that's what I think about it I wonder what like on an average day this is you know paying to eth to settle if it's not paying for D.A like do you have a sense of that dude it's nothing

it's like a hundred bucks a day or something like that on the order of 100 bucks a day yeah yeah it's when as soon as you accept a modular roadmap what you don't know what nobody knows and everyone's guessing at right now is where the network effects are like what what layer the network affects the crew to and you know maybe because we started this whole industry in Bitcoin like the settlement layer like how many times have you heard that settlement settlement settlement it's all about that I I don't know but it could not be settlement right like you could imagine like whether you know it or not your your base view has probably been very oriented around well you know you provide a lot of security at the base

layer make really good settlement assurances and then everyone's gonna have to come to you and there's going to be this bottleneck of supply and demand where you could totally Frip your or flip your Framing and say actually all of the stickiness is going to accrue at the execution layer and there's just going to be these interchangeable parts that you can swap in and out at the base layer and it's probably not going to be as simple as one one of those those framings but I think projects like meals is going to make people question some of their assumptions about where value actually ends up occurring that's what I think not to say that this will play out in the same way but it does kind of remind me of what like the mid-2010s uh whole SAS business model was which was basically just like

wrappers on top of AWS or gcp and it was all you know this Narrative of oh well it's going to be Dropbox and Dropbox owns the customer relationship and Dropbox you know is what people think about but in reality it's just this cloud storage built on top of S3 ec2 and you know we've talked about this as well Mike but the value ultimately still accrued to AWS it's just because you know everybody thought oh we'll just go off and build our own we'll have our own it's going to be better that way it'll be cheaper that way but in reality it's cheaper to have AWS because they have economies of scale so I kind of wonder if settlement will become the same thing every every The Narrative of we don't need to do anybody

else's settlement is becoming more pronounced but I think ultimately people are going to realize it's better just to have the same security and even if it is the cheapest way like it's better to rely on somebody else for handling that yeah I I still don't think though even if people Everyone uses eth for settlement that that's necessarily bullish not that this is necessarily what we're talking about but eth token price I don't know if that means that value has to accrue to eat the token so Celestia is launching soon so uh eclipse is using Celestia Eclipse hasn't launched their main net yet they're gonna lose Celeste or use Celestia so I'd guess that Celestia is going to launch before Eclipse launches their main net so is that not that this is the not Financial advice section but what does

this mean for eth price and just the demand for eth if all these Roll-Ups start using Celestia for data availability like how do you guys think about that so I think there's you know not Financial advice no price predictions you know all of those caveats I think there's there's two elements to a token's price in my mind one is the fees the underlying and the other is the monetary premium and the only two assets that have monetary premium are basically youth in Bitcoin and in my mind at least and by entering that category you enter into a more expansive valuation you know heuristic like what is gold worth people just say it's worth what it's worth because it's been worth that

for thousands of years and so like if you think Ethan Bitcoin have that lindiness the market is pretty sufficiently large as long as it's used as money and where does it get its money use case from like you know uh eclipse is using eth as the gas token like we've talked about this a little bit it's like you know is that eth burns when it crosses the bridge people just came out of the woodwork when I tweeted that I I don't think it's entirely that way but I do think there is some element of putting it on a chain is a use case that looks and feels like money and then you have the D5 and the nfts and the games that live on ethyl one and that's kind of where the fees come from I I do think the other part of this is

if we already have like I don't even know how many roles we have 200 at this point like more than 100 for sure at least in production like if we are underestimating the amount of Roll-Ups by like two orders of magnitude maybe that is enough you know just to add more incremental fees and build that story but at some level like the the valuation heuristics of the eth token price are are more determined by how much of it is used you know as money versus the fees that's at least what I think like what like when you like all the friend Tech keys are pricing each like when you see eth bridging to new l2s like you know that that money is there to speculate like it's it's uh it's it's a very unique asset

it's kind of it's impossible to value on just fundamentals one and it's also highly possible you know once again non-financial advice that we see a J curve in terms of how much of the fundamentals or where which direction the fundamentals go and I have been doing a little bit of research on what this new 4844 uh will do to the economics and there's gonna be three blob spaces per block which means that there's going to be three uh Roll-Ups that can put their blobs in a in a blog and if we already have a hundred Roll-Ups think about what that's going to do like how often is your roll-up gonna go settle back to ethyl one this is going to be once every 10 minutes maybe once every 10 blocks like who who knows right there's only three spots and

I I would imagine that we're still going to see the continuation of you know roll apps you know it's not we're not going to stop at 100. who knows where we end up matching out in terms of the number of Roll-Ups but I think there's not going to be that much available space for roll apps to be able to deploy on the ethyl one and so I don't know I mean it may go down in in the meantime in terms of the amount of transaction volume or transaction fees but I I would say you know directionally it's going up if you think about the high level in life like I totally am sympathetic to your argument but like if I look at what happened on chain today like Finance spiked it to like 100 way because they were using some inefficient script to move you know assets off of

their Exchange like you know like the scaling problem is fixed and and fees are like you know low until fees are like incredibly high like in my view the validator business is Big lumpy days that's really what you want right and so like sure if you think about like what the yields on each could be let's say that you know it doubles in terms of staked and what you're earning is a yield you're probably earning you know low threes most of the time in terms of yield but whenever there's like even a smidgen of activity like you're back in the six seven percent range and it's kind of hard to pinpoint when exactly that happens but it's just when basically the market turns back on

so it's it's leveraged to the cycle effectively yields are always going to be lower in Bear markets the other thing that I think is is really kind of like Central to this question is what what role does restate each play because that's like another money like use case where it's like sure the fees on eth you know most the time or like you know say you net out on average like you know in the fours like you can augment that with basically Eid Centric yield Farms where you're taking your Ethan going off and validating other you know DA's other Bridges other oracles like that is a very bizarre use case that you can't quantify in a financial model but it adds the monetary premium I agree with that I think it's um I have a couple thoughts on that so one just a

note about that three blobs per slot that that actually isn't limited to Roll-Ups so the market for blob space is a permissionless market so you could have an nft project mint using blob space so it's even slightly slightly more constrained than than um three Roll-Ups per like personally do you remember do you remember in the in the bull market when it was like three grand yeah like I think I think that's gonna come back but I think I think it's gonna be like you look at the biggest fee days and you can see them on a chart for eth they're like a hundred times you know the next closest days that that's kind of so you you like you think some of those days come back like who when was

one of those days what's an example like board like the board eight the board for example uh I mean yeah like people forget that all of those nft mints were like sold out gas War Goomba Fair like all of the icos same thing you know everyone racing to hit that one endpoint and like that is the that's like the essence of why ethereum block space is actually differentiated it's because that stuff happens on it and it's viewed as this like high touch high class high gloss block space so that only manifests in terms of you know super high fee markets every once in a while but I'm not as bearish on on the fee Outlook as as most people I think I think you're still going to be in the in the force when it comes down to like you clock out a year what did

you actually make that would be my guess I mean just a I think it was November or maybe it was October last year there were like four or five days straight of really high fees and that jumped the yield to like eight nine ten percent and that was post merge that was the highest yield I think we've had in terms of a week but that was that was pushing you know double digits and that that was you know 2022. let's talk about the converse of this argument which is kind of the argument for L2 there's some concept right of like a laugh or curve right right yeah which is where there's like an up there's like you're you're actually missing out on some amount of transactions here it's like dead weight load or something like that where

there's when fees spiked that degree there's a lot a lot of people that are just priced out of making transactions at all right so there's like if you use the example of like Solana maybe being way like too cheap relative to the use cases that we need today versus every trade cost a million dollars right like obviously if every trade costs that much no one makes a transaction there's some sweet spot where actually it's it's all very optimized in terms of the maximizing the amount of people that are making transactions and actually fees that get get paid back so it's kind of like what multi-coin talks about like the reverse Network effects right of right of the fee Market on ethereum I think I think that's right like if you if you do the math basically what you come up with is that if your

transactions are sub 1 cent you need 100 million of them per day to make 20 to 30 million sequence or profit per year and so like the strategy of teams being like we're going to drive block space cost to zero it's like you know that is a strategy you can definitely differentiate yourself I guess now less than you used to be able to but like that is actually a [ __ ] business model where how do you get 100 million transactions on chain you're building something that probably more looks like our weave or like falcoin or like you know you're trying to put high volume High quantity data on chain I don't know if that's necessarily where you want to be um if you're trying to bootstrap you know a native asset as

something other than just like pseudo equity because frankly we haven't seen an application that has that much throughput on chain right ever no I mean I think I think there will be some but if 100 million transactions per day is the bar for 20 to 30 million in profit that's that's uh that's a tough business model I also think it's better to start with more expensive block space and then work your way down why is that a better strategy because you are signaling the high quality you know the the high gloss um like Bitcoin eth like a lot of the early days of that were just like it's so inefficient but the demand was overwhelming compared to the supply and

then over time you kind of just drive supply of block space higher um and you're able to kind of smooth out that transition and so like that's like the you have to take like the 10 to 20 year view of these things if you're going to ask the questions of like where a fees going to accrue where is value going to accrue it's gonna be interesting the other thing I'll say is that I do think that there's going to be this weird catch-up effect of dank sharpling kind of taking over some of the scalability load from these l2s right as they're in their own kind of process of figuring out how do you get to that 100 million transactions per day um so it's going to be it's going to be different you know for even the l2s it's not

I don't I don't think the l2s have clearly run away with the market compared to the l1s um they're just at a different point in their scale and roadmap I don't disagree with like anything that you're saying either I'm trying to game out what I've been recently thinking about is what is going to happen when the bull market ends up returning like how are things going to play out and I think there's like one scenario where I think so activity starts coming back gas fees start going up and then people are like that's okay we have Roll-Ups but I don't think 4844 is going to solve the fees on uh for most Roll-Ups because you're still paying da to ethereum so there's a

lot of burn going on the fees are high yields are going up for stakers profit is being returned that's good for the network but I think at some point this is where Solana and some of the other like altel ones won last time right everyone's like this is crazy we haven't solved the fee thing and then people start looking for cheaper alternatives and at this point in the cycle no one really cares about security right like everyone does kind of dumb stuff and that's where I think somewhere like either Eclipse which is uses the svm and Celestia for da starts winning or Solana starts winning the other the other version of the future that could work as well is if we just change the definition of what constitutes a canonical roll-up and the Dank grad argument is kind of like people don't care about and they're

like you know what uh da is actually not part of being a roll-up you don't have to use FDA and like we can just use eigenda or Avail or Celestia or whatever and then I think the fees will go down drastically on Roll-Ups and then eth and the the roll-up landscape will do a lot better but those are those that's what I'm kind of trying to think out right now is where like who ends up winning and who ends up getting a bunch of their new users from this next cycle the lived experience of developers on the ground is like you launched on a super chain you launched on a [ __ ] ghost Island like nobody's there like you are like it really is not a technology first argument like

I'm pretty sure you could build a centralized blockchain roll up validium whatever and actually get your blockchain costs to zero I don't know how much good that would do you if the main benefits of crypto are composability Community open source you know permissionlessness and so like it isn't always a strictly technical argument I do agree with you on The Narrative of fees are going to go up people are going to be like oh my God fees are like five six seven eight percent again crazy nft mints Crazy Games whatever like literally the stuff that was driving the feast bike in first quarter was like this one xnet like Ponzi thing like it was like this single weird Chinese app that had no sensitivity to gas prices like it's as

simple as that and you you have a couple of those three of those four of those sentiment turns like fees are gonna go back up the question is like when that stops activity out because there was a point where it was just like I can't introduce anybody to eth because it literally is so expensive on board then like it just doesn't make sense I don't think we're gonna get there again because that load will probably be handled by Roll-Ups but I do think the games are gonna break the roll-ups um if they really take off and that's kind of where the question is going to be like how much of this should we put on chain you know what other modular architecture can drive our costs down that type of stuff I think one one of the variables that I was thinking about recently is at what

price point does it become beneficial to have basically the application pay the gas fees on behalf of the consumer and I think that will be a flipping point when it's so cheap that okay great we'll just bait this into our cost of goods sold we'll bake this into something that's attracted away for the user account abstraction that's great the wallet will handle it the app will handle it what have you and so I think ultimately you're going to get to a point where it becomes so cheap that you actually don't have to pay anything anymore and it's not because no one's paying it's just because the user is now not having to pay people love to talk about the burn the burn does not in our opinion Drive East prices there is no price impact from that

except on like the super long indeterminate time period where it's like you know Apple took like a quarter of their shares out of the market compared to the past 10 years like maybe that on the margin drives some of the the action but the thing that drives action is demand like even even in this current market kind of what I see at least is there are not a lot of sellers but there's not a lot of buyers but when the buyers show up like you saw that huge volatile round trip the BTC and eth took you know over 27 into like the high 1600s like that's kind of what happens and so what can drive demand for that you know that's that's the name brand recognition of ethereum being the gas token on every

chain it's the ability for eth to be composable into restaking to be used in D5 like unless another asset becomes that I've I I I don't see the same level of like bull case for it the 1559 also I mean the reason it kind of got co-opted by this ultrasound money meme and like the burn and people like to talk about and they think it's a supply-based argument but my understanding of why the burn got implemented is because ethereum as a protocol doesn't want to have to make a choice about where those there's like security reasons for for not wanting to like the burn is actually more about a security and anti-collusion thing for validators than it is about like number you know number go up

technology um and it actually if you look at how it's done in Cosmos it's extremely different a lot of the fees that the protocol or the uh the cosmos Hub makes is kind of like redirected via the Hub um which is that's like not very money-like you know um so I I hear you on that and I think that is a big part of each value prop is you know it's it could become a denomination it it already has and and and finding something uh product Market fit for something is money is the hardest thing to do of anything it requires people to actually own it think of it as money think of it as a store of value use it in credit use it to pay for things like that is a that is a decade-long process

that involves going 100x up and 99 down multiple times and having people hold on with you and so like it's uh I don't I don't I don't think you can make something money if you tried it just kind of happens I don't know I this is where I do think like I think kryptos net new and you know people would really object to is it a money or is it a commodity because that would inherently put it in some bucket that you have in your mind and therefore the valuation heuristic would be changed but I just think kryptos and net new thing actually and to call it a month it's like if there are money like properties there are also frankly commodity-like properties of this thing

too like like is oil money in in a sense oils the realest money that there is right it's the input for everything in society Arthur Hayes wrote a whole blog post about how you should denominate your life in oil but that doesn't mean you could go to the store and use my and pay for something in oil plastic Arthur but but in a sense oil is a much more real form of money than paper dollars that the government prints so I don't know I I hear that I would object to maybe like explicitly being like it's a money and this is how we're gonna think exactly one to one on eth but it is a store of value money commodity like thing and I agree that that's super valuable Vance and I denominate our net worth and eat so that's how we live oh yeah well Mike

and I do it in oil so exactly looking at crude go up baby uh Vance you said one other thing that I think is really interesting which is the the role that eigenlayer is going to have to play in that which there's like a money-like role but then there's also a yield roll which eigenlayer is going to have to play so I think sriram has come under a little bit of fire from the eath foundation who restaking is kind of a scary idea it's sort of re-hypothecating eth sriram would object to this but like my personal opinion it looks a lot like adding leverage to the system you're adding multiple claims on the same asset but I think a narrative shift is actually coming for eigenlayer where people view it as something that's very

Pro solo stakers and that will enable solo stakers to keep their yield up and I actually there's a a piece that dankrad wrote recently which is where he talks about eigenlayer like this which is seeing if restaking like the long-term solution um ethereum's dealing with a problem right now that they actually have too many validators and it's difficult to attest to and confirm transactions in a timely way so there's like a whole bunch of different solutions being proposed but one of the things that people are starting to be nervous about is exactly what you said Advanced which is after a certain percentage of the East Supply is staked then yields will go down to a point where it's just not very competitive and restaking could be an answer there that could supplement

the yield that people are losing on a higher stake rate and that can get framed as a positive solo sticker thing what why is why why is eigenlayer bad for solo stickers solo stickers can participate in eigenlayer right by by it's not bad for solo stickers it's a threat to the whole network in a sense if you kind of think about a worst case scenario and there are multiple operation operational models for uh for eigenlayer so you could like the most intensive model for eigenlayer as a solo Staker is you could opt to run in you could opt into running additional Hardware yourself so you could turn over your withdrawal keys to the eigenlayer network and then you could actually run in like a future State a decentralized

sequencer on optimism if they ever go that route the other thing that you can do that's going to be probably the dominant way that people actually use eigenlayer is uh you liquid stake and then you delegate your liquid stake to someone else who is running Hardware on your behalf so it eigenlayer isn't really Pro or anti-solo Staker in a sense it will enable solo stakers to earn more yield but if it depends on the model that you use eigenlayer if you like liquid stake and then just delegate your liquid stake into the eigenlayer network and someone runs Hardware on your behalf you um you're just accepting a higher amount of principal agent risk like there's just one player because you're

at risk of of slashing for the re for the restaker so you have to basically trust to both it's like think about your counterparty so if you if you liquid stick with Lido your counterparty is the staking pool it's Lido um and then once you get the Liquid staking token and then you delegate that into the eigenlayer network and they pair it up with someone who's running like a sequencer or an oracle or something like that then you're trusting the eigenlayer network and whoever is actually running that Hardware on your behalf you're just adding layers of principal agent problem it's just someone who's supposed to be acting on your behalf but but could screw you some someone will get blown up by this at some point um yeah you know trying to pick up that

extra two percent yield and they just they get slashed or something catastrophic happens so two things on that number one there's a meaningful lower bound to to eth yields like we've modeled out what consensus layer what execution layer rewards look like when there's you know 50 60 million stake teeth it's still high twos and like interest rates are high right now but like those get cut and it's also fundamental it's fundamentally different it's a an asset that has a chance of appreciation versus something that's supposed to be stable like you're so you're self-selecting for different things I'm also not that bearish on on yields I think they'll be higher even in the event that there's something like 60 or 70 million staked eth which honestly

I I do think that is probably the medium term base case the next three years in terms of like supplementing your staking yields with things like eigenlayer I think it's true I think there's going to be so many different flavors of eigenlayer eigenlayer is just the first it's not the last not not by a long shot and and you know the yield is dependent on what is the market cap of the Oracle or the da layer or the bridge that you're securing how much youth is staked against it but if you've got 60 or 70 million each staked eigenlayer da or whatever that inflation token that you're earning is that needs to be a huge market cap and that's a function of like can strugram attract the devs to build the

things and not just The Primitives like he needs to build the use cases too and so like it's it's a little bit more than just like build it and they will come like they each have to bootstrap a very real ecosystem the other cool stuff that's going to happen in my mind is things like Leverage staking more of a Marketplace for staking um people doing it for lower fees like I do think there's going to be fee compression on the validator side so I think you know incremental yields are going to come from a lot of different places but it's going to be more of like this multiplayer multi-path game where it's like you know you're staking your youth on this Oracle today or restaking it you know now you're doing it in you know a bridge the next and you're using steath you know or or I

guess another liquid sticking token to do it but it's long term it becomes more and more important if that amount of heat staked for something like Lido to have dual governance because you need to have some sort of coordination mechanism with the unstaked teeth and honestly the EF as well they've got the staking router too so they're decentralizing their validator set yeah like the goal for lotto is not to like you know just operate 28 node operators forever like they're adding new node operators every week and DVT in the staking router is the path towards thousands I do think I just like another brief you know point on this is in a lower price environment it becomes

harder for smaller validators to compete they're less to pay their validators they have less to pay themselves and like you think of the thing that the EF just put in which is that churn limit like I know what they're trying to do but what that actually does is it just makes it like can you Vince can you explain that the trend yeah they're basically slowing down the amount of validators that are allowed to enter the queue on a daily basis and it should be I think you know the limit I think we calculated it's like 50 or 60 000 youth would be the max that you could stake what that does is it eliminates any chance for the smaller guys to catch up like it's it's good and bad it's mostly bad um I think the long-term prognosis is that the smaller guys probably shut down

or operate on something that can drive their cost lowers like a DVT layer or you know the Lido staking router but I don't think the days of like having 100 liquid staking providers are going to last very long especially when most of them are sub 50k East State hmm I don't think liquid staking is a market structure which is naturally fragmented it's a winner take all or winner take most all money assets have this stable coins you know major cryptos they exist in two conditions one is zero or the other is huge regular currencies operate like this too there's like six currencies that have any amount of liquidity it's like the dollar and then

I don't know probably the Euro or the Yen or something like that but yeah it's a really long time and and the people who are in trouble are like the UK where it's like you're kind of a big nation but not really we don't have enough economic momentum to support you a lot of these lsts are going to be in Britain mode in my mind someone made the point on one of the liquid state it was the Solana there's the Judo and zave from Chorus one episodes what someone made the point where like ironically each staking ecosystem being so broken in the beginning led to the product Market fit for liquid staking because there was such a long withdrawal period in between when the beacon chain was launched and you could stake versus when you could withdraw

there was no in protocol delegation mechanism for stake and there was actually like a lot of there was a big defy ecosystem so there's a lot of opportunity costs for a staking so just like actually liquid sticking originated in the cosmos but found product Market fit first in ethereum and there is this sort of irony to even like eat keeping its if being very opinionated about not wanting to take big decisions inside the protocol and limiting the like throughput and usefulness of the main layer actually has led to this whole rise of really successful infrastructure providers around that who want to make it easier to use ethereum so like Lido would be an example of that eigenlayer

would be an example of that Axiom the coprocessor would be an example of that like it's sort of interesting and some of these other protocols like Solana which is like hey like we can actually just allow you to easily delegate stake within the protocol like the penetration of liquid stake in Solana is like nothing the stake rate is like 75 and the liquid staking penetration is like three percent you know what I mean I don't really know what to make of that observation but but now ethereum is like hey some of these infrastructure providers that have risen up and found product Market fit where we have no way to regulate or control them whatsoever so now you're getting this whole narrative about is Lido too powerful are they co-opting the network and it's like I actually hear them but

also this was the design choice that you made you know what do you guys think about the if you could have withdrawn from the beacon chain I don't think lsds would really exist you know period I think they would still exist I mean in this blog post the guy is like claiming that you know we could not have foreseen this it's like this concept existed on Cosmos before you transition a proof of stake and the blockchain is built for tokenization how is this like gonna take a different path of course people are going to do this so I don't know I I uh sometimes it feels like you know people just like to bash on Lido because it's successful and that's not really like the entire truth

contributing to Lotto is contributing into a to ethereum in my mind at least their values align dual governance like I don't know how much more we need if they decentralize the validator said I think also you could make the argument John charba's made this argument and I agree with it that Lido actually decentralized the stake in ethereum pretty effectively like Lido just baked in these requirements about hey not all the node operators you can't just use AWS as your sole data warehouser they also were like hey not all of the state can be in the U.S they made it geographically distributed they they kind of had this forcing function of all the stake flowed into Lido and then Lido set these rules and pushed it out whereas if you had just allowed it to naturally accumulate you saw this with

Bitcoin like all the mining just went to a relatively small region in China so all the stake would have gone to like crap to centralize exchanges to crack in and to like would you rather have it on Lido or would you rather have it on centralized exchanges so that's that's where I want to go imagine them trying to fix that problem now yeah that would be such a disaster like you do have 180 000 people that owns teeth that have staked eth just eat like this is a big community I like I don't get why the the disconnect persists but it's not going to stop it from growing I think the the interesting long-term part of I forget who wrote that the the churn limit article but he's like you know we're

going to be at 75 million State East by next year for that's way over optimistic like maybe we're at like 40 if it really picks up but I think the interesting assumption that he had was that Steve would be at one point you know bigger than the amount of unstaked teeth and I can see why that would be a problem but I I still think the real risks are this restaking stuff like like having Steve is one thing having it baked into all these different slashing mechanisms totally different there is more demand for yield bearing money than non-yield bearing money like there's a jack Farley did did an episode

with this guy Sir Paul Tucker who used to be a Boe you know Central Banker for the bank of England and you know we've talked about the debt on this show before and like from my perspective as an American like a young American I'm like this is nuts why are we just accumulating more and more and more debt but this from the central Banker's perspective they're like people want our interest-bearing money there is a market demand for non-interest bearing money and a market demand for interest-bearing money and the market demand for money that bears interest which is treasuries that have a yield attached to it is just higher so if you kind of get into another frame of thinking about it you're just serving the market what there's demand for and why wouldn't you do that it's cheap

financing so I I kind of do see the argument that if you totally de-risked Steve like let's just say in a totally hypothetical way there's no risk of staking your ether like why would you have eat that doesn't bear any yield versus Etha does bear yield you'd want the one that bears yield I mean there's a balance right why don't you just increase the inflation rate to 50 yeah right that's what you're seeing with like bonds today like yeah the yields going up but everyone's losing their shirt on the bonds that they already own and it works until it doesn't I think the goal of being like Net Zero or deflationary is aspirational but really what you're trying to

bootstrap is isn't the fee side is a very meaningful part of the valuation of Ethan I think you can get there based on fees that does today you know in terms of what it's worth today but the the far bigger Market the far bigger premium the far bigger multiple is money inside and making sure it doesn't lose whatever it is that get and it doesn't matter what exactly it is I don't think it's like definable in one sentence or one word but you know having everybody start with these ethers the gas token and having it be something that people want to have and restake and and you know buy for the yield that is definitely a positive step but it just can't be can't be 50 a year but but there is there is an argument that maybe it should be like an Eric Connor from the EF or former EF was

making this argument he's like maybe it should be at one or two percent higher or three percent higher I think that's a conversation that everyone will have at some point and we're more likely to have it probably in the next year than in the next two years I think yields will go back up and people will be like you know we need we need to kind of you know keep our foot on the gas in terms of like the deflationary side of it but in Bear markets this is kind of always what happens you guys want to talk about some um you want to talk about maker actually maker is having a little bit of a run right now so we talked about it on I can't remember a couple weeks ago maybe where went through this chart just here I'll actually pull it back up

because I thought it was a pretty interesting chart it was uh just maker fees versus tvl versus um token price or market cap maybe which is somewhere here but yeah I mean there's these two there are these two charts which are extremely correlated which is the market cap of maker and the tvl which are both going down but then if you look starting back in October of last year it just started to rip upwards and now like last time we talked the the token price hadn't really started to move but now it is kind of starting to move again so obviously not Financial advice here and I'm more just I'm more

just wondering if this yeah we talked about a Resurgence in sort of D5 1.0 and like you could put synthetics in this bucket or I don't know uniswap or whoever you want but is you can I I went back you know you and I interviewed Kane like a year ago and he was really talking about tvl being a busted metric or not a one size fits-all metric rather and fees were going to be the important thing that's the single source of Truth for actual real demand so fees net of token issuance so yeah I'm just I just curious what you guys what you guys think they've also got their end game their end game going on we're we're definitely agreeing with basically everything that you just said I think Kane nailed it he's probably a little

bit early for everybody else to realize it but so is uh so are a lot of his perspectives I think what we're going to see with D5 in the future of D5 whether it's 1.0 1.5 2.0 uh protocols that come back is the ones that come back are going to be based around fundamentals where values are crude and you know maker has shown that I think we were looking at this recently I think makers so die is effectively the way that you measure this right and the dye Supply I think bottomed out near maybe a year ago or maybe 11 or 10 months ago at 1 billion uh and it's up quite a bit since then um I would imagine with endgame you're going to see a lot more activity and I

know that there's been a couple announcements this week on uh different sub-dials that are launching specifically going after rwas um I think you're going to see the model of maker the central bank with sub-dials being the commercial Banks um and you know doing different things taking on different risks but being out there pushing the ball forward so yeah totally agree I think what you're seeing here is for the last five or six years there's always been a metric that people are trying to that the market trades around right and um there's always been games that people try to kind of play in crypto so like even if you go back to 2017 defy aside right the bitmex leaderboard like that was The game everyone was trying to play then it became right you like uniswap

and and tvl and like the market kind of traded off this tvl narrative and then it became there was like the game of nfts and you know how how high could you mint for and stuff like that and now I think the market is moving towards fees as the game that people are playing and that is the best game that we will have played yet because fees actually drive sustainability well it can it can drive sustainability it doesn't necessarily and that is better than any of the other games that driving sustainability I I guess yeah the only problem that I have with it is uh everybody's got a different definition of what actually is you know derived from that metric when the market does something like this so like maker is starting to like it feels like

running a little bit I had breakfast with a few like crypto funds and kind of big crypto Traders it sounded like makers like the most crowded trade in the room at least like around the table that was what people are saying really yeah people are like makers starting to be the consensus crowded trade um when you see something like this like from a trading perspective do you does it make you think like oh okay well like one one thing is running like maybe the uh maybe the rest of the market starts running you're like oh this is I don't know how do you think about that when there's like clearly one one trade yeah we don't think about it making billions of dollars out of an investment like that you don't do that by you know like looking for the you know see if the

five minute RSI is oversold oh they're not always traded or crowded you know the crowd kind of runs out the door at some point for some reason and um I think the other thing is that this is the only or one of the only kind of protocols that benefits from hire for longer and and if you really believe that which I think a lot of people are now kind of being cowed into um this is one way to express that without leaving crypto or without buying t-bills which if you're a crypto you're buying t-bills I don't know what you're doing I will I will say though if if this was the most crowded trade in crypto it

would not be trading the way that it has been it would be a wildly different experience yeah that's true Solana in 2021 all the billionaires you know like that is what a crowded trade looks like so like I I think about this thing of like are you consensus are you non-consensus it kind of what it kind of matters what level of perception you're on if you're in crypto you know like you're okay sure it might be consensus but like if you're not fully in crypto then you're still wildly most people don't even know what maker is like yeah like most you know most of the major funds have also recently sold this on chain like Define consensus for me because I think we're still in the

same perspective where it's like there's probably not a lot of sellers anymore but there's certainly not a lot of buyers certainly not of size and you know when something becomes crowded you'll see you know usually some indication of it ripping I I wouldn't call this thing this is like a little baby bottle oh baby bump yeah that's true what does that Revenue say right there Mike what is the revenue number 123 annualized annualized 123. this is the just I mean couple disclosures one we own Maker two um if you look at all of the metrics on maker burn I think maker burn is honestly the better side I think it's got more revenue on maker burn you're looking at like 170 or 180 in annual revenue

but but even that doesn't capture everything because and this this is kind of one of the bare cases for maker is that it's it's definitely transparent and free wielding it's definitely a little bit like the data isn't quite up to date like the data isn't quite up to date or like the people who are running the treasuries forgot to put the money into the into the account yeah I mean like they have they because they're going off-chained on chain in terms of buying treasuries like there's meat space in the middle you know there's people who need to do things and yeah sometimes like I think for a while they hadn't gotten report from coinbase on their p l for like three or four months or something yeah you know

take these seriously but don't take them literally these are these this is the maker burn so but it looks like the annualized uh average revenue is around 100 I can't really see 160. yeah I remember seeing 180 somewhere and then the other thing was like 60 million in profit going back towards BuyBacks right and then you've got the the die Supply is growing it's probably above what five billion maybe around 6 billion today um and then when you start to put the valuation on it it's like I don't know you're getting like a PE of 20 and a revenue multiple of like 10 or 10 or 12. well their largest cost item the largest item on their uh expenses is DSR

and you would assume as soon as as soon as that you know end game phase two goes live you know there's me a lot of value that leaves DSR to go farm sub-dials the other thing is that people uh yeah it feels like when when this starts to happen like this crowded trade idea it's like people don't actually read all of the public information about what's going on like like I ask people like do you know what the DSR is like what what is that it's like well it's the main source of expenses for maker like do you understand how it works it's like no the other thing is in runes had this publicly can you explain it man or sorry I'm just gonna talk about the end game end game is basically the uh the process of like you know the Commercial Bank the Central Bank model

maker ossifies its job turns from collateral onboarding ecosystem contributions you know onboarding collaborate collaborators they're just gonna be giving die to these commercial Banks spark to the rwa Dows there's two of them and then the Sakura which is kind of like this gamified yield aggregator thing targeted Asia but that launches in Q2 like it feels like people are really trying to front run that and it's great that people are like re-energized but it is going to take a little bit you know like like it's September can you explain why ruin thinks that's such a problem because I get that it's not unified people think about them as two different things but aren't they kind of two

different things they are two sort of different things and both of them are good I think both die and maker have very close but super premium brands in crypto what's the what am I missing there why why does it need to be one the the public information out there is I think he wants it to be like you know the brand is X and then the stable coin is xusd not not like actually X it's just a placeholder I think I think you feel strongly about that Rin does so so bring them together so there's make so die and make or don't seem like they're under the same umbrella right now but in the future it could be like maker and then mkr USD or something like that yeah he's talked about this where he he says you know I have people come

up to me all the time and they're like oh well what does maker do we create die oh I love dye I use it all the time you realize that yeah what does blockworks do we were talking about this yesterday yeah I empathize with it love a good love a good conference for people to let you know that they listen to our pods but I don't know what works does but the other thing is the redenomination which is probably the bigger impact is it 1 to 12 000 Michael or 1 to 1200 1200 1200.

so new maker will be a dollar or like a little over a dollar in that you know formula that is a really different Community like there's kind of no denying it and if you slap a new name on it it's like the meme of the guy with the tape [Laughter] I don't think there's a hole in maker I do think Rune does feel strongly about The Branding though what it's going to be called anybody's guess are they doing them the migrant like a migration to the new governance token at the 1 to 1200 ratio that's just like a stock split so that more because no people don't want to buy a 1300 token but they'll buy a dollar token right

it's important it does make a difference though people do say ethereum is sixteen hundred dollars can I buy can I buy half of one you know or I can't afford a whole one it's like oh God that's why you buy Litecoin it's cheaper Bitcoin the poor man that is though such a real thing so many people think that dude does this all the time I forget how many Netflix did this too when I worked there like I can't even figure out what the price was when I started because the Stock's been split like so many times yeah one time uh it was probably around 2020

or something polka dot was exactly ten dollars and it was the fourth biggest crypto by market cap and I bought some purely on the thesis that people would look at Bitcoin think it was too expensive you think it was too expensive here's this one for ten dollars like it's not the worst that's not a horrible yeah that yeah so there's a there's a lot of psychology into how you price IPOs and the goal is to hit it you know whatever the valuation is to hit around twenty dollars a share because the psychology is do you want to buy a share of that company or do you want to go out to lunch and buy lunch it's like if it's something as simple as that that's why all specs initially aren't priced at ten dollars to be a little bit less expensive you

know speaking of IPOs there was do you remember when Bill Gurley and maybe that'll be a segue into our last discussion point but remember when Bill Gurley went on this rant about direct listings Over IPOs yeah probably I mean he's not wrong yeah it is an arc it is a weird process but you totally the I've Matt Levine will write about this there's like a nice aesthetic to like when the IPO goes live and then like the stock pops it's it's I mean it is kind of stupid that's a really expensive like marketing strategy that you're running there but it does I don't know I don't think it's totally valueless honest you don't want you don't want to pull an instacart right if you're like and go you know go public

and have the stock fall out of the sky that would suck um well well does that suck they're still above their IPO price instacart didn't fall out of the sky though that wasn't enough horrendously bad which one just did this recently um two days ago so keep in mind Mike you know you want to price it the company wants to price it at as high a level as possible because that's how much money they raise yeah and the employees and the founders can't touch a single share until six months in so it doesn't matter what happens sure that's right Michael I don't think I think you tried to underprice it a little to allow for for a little bit of a pop because as a company you can't you as the founder and stuff and employees

you can't sell it for 90 days so you you want to you want to get that momentum going totally the the three variables here are existing shareholders the company itself and then purchasers of the IPO the purchaser of the IPO want a pop because they want to be able to flip it and that's the whole build early point the company wants to maximize money raised because that's you know it's a balance sheet question and then employees have six months lock up employees Founders have six month lockup and yeah sure you want a little bit of the pot because it helps build the brand and oh what's this company doing it just popped 20 on its IPO day et cetera um but you don't want to pop you know 100 because then you left money you left a lot of money on it yeah yeah it's good

I hear you yeah that's why it is sort of a marketing it's a mark kind of a marketing yeah do you guys uh do you guys take a guess at instacart's advertising Revenue 500 million a year Michael cheated that's a that's Uber that's Uber's ad Revenue actually it's 500 instacart I think is like 250 or 4 or 450. some some large number basically and I think um yeah you know it you know the number uh not exactly but it's around 500.

Uber's also Uber's gonna be at a billion dollars in ad Revenue next year Amazon is 40 billion dollars in ad Revenue uh gets you thinking about super high value like who uses instacart Uber Thai net worth individuals oftentimes it's like people who if you're in New York maybe you'll take a 30 Uber instead of the subway if you use instacart like you want it to get your groceries delivered makes you think about uh the ad business of coinbase right I think coinbase is like sitting here sleeping on a sitting on like a you know 500 million dollar a year ad business right it's a bunch of high net worths High intent demand side large amounts of data on users

um I don't know I actually I actually disagree yeah I don't really love that either to be honest I I just I disagree I think it's uh it would be very difficult for them to build base and also suggest things to use baseboard I would I think I would bet money they launch an ad Network by the end of 2024. but is it the is it the highest Roi thing that they could do I I don't I don't really think it like there's yeah there's a lot there's lower hanging fruit if they turn that Futures exchange on it's going to be just somebody somebody's going to because somebody's going to own a colossal ad Network in crypto and nobody nobody owns that right

now somebody so 100 agree with that 100 agree like advertising and the entire ad stack itself what you previously had was you had closed systems so you know Google was an open open ad system snap Facebook closed systems um someone will build that stack based off of the decentralized you know ecosystem because all the data is available it's how you marry that with proprietary targeting that will become very interesting but it could be coinbase or coinbase could be the data provider and just get paid you know a Services fee I just yeah I I feel like there's just more High Roi things that coinbase could dedicate their time to like

I don't know it's just have you ever looked at coinbase's product page yeah there's a lot there's a lot but it's getting a lot they are getting more concentrated I think don't you think they don't think that way this is coinbase's product Page look at all freaking no they do think that way they think that way I they they I think they've they went too far in this last Market but like if you listen to their investor calls they have like a 70 2010 allocation framework which is I forget it's not exactly that it's some famous I think Google came up with this classic Google thing right it's like 70 Core Business 20 you know sort of Fringe and 10 Moon shots and I yeah on that page

the page is ridiculous yeah focusing their time and effort on doing a stock split with wood give them many things among them a new chart I think getting back to that idea a new chart it's like a new day you know it's anything it's it's not a new chart they just yeah apple apple and doodle and all the other charts just go back and reset everything sorry they also need to Rebrand they should rebrandt your maker because there's any issue we're gonna issue a second stock and that's talking to me called base AMC tried that

the pros are doing it I think that's it [Music]