Max Resnick on Ethereum's Roadmap, Economics, and Alignment Taxes

Transcript

there's obviously a lot of fud that has been going around about how salana is like a centralized data center node ethereum's in Wartime mode literally targeting sana's main node would that lower the ethereum staking rate I was like all right well I'm going to just show these salana Bros what's up all right ethereum's in Wartime mode literally targeting sana's main node headquarters in Amsterdam what what were like what were you thinking you were trying to accomplish with that post and did you accomplish it well I just think there's there's obviously a lot of fud that has been going around about how Salon is like a centralized data center node but my idea was like maybe we can

crystallize that a little bit more and like show that it actually is like in a specific place and uh there actually are some vulnerabilities so yeah just I got a little bit set off because somebody was posting about how all the ethereum nodes are in WS east1 data center which is just unequivocally false you can just look at like the data and it's just not true and I was like all right well I'm gonna just show these salana Bros what's up and then I was like all right so we'll uh show the post on the screen here if it's not taken down but then welcome on Max Max Resnik etherum researcher uh poster uh proponent of L1 execution

changes um and many more titles so welcome on it's your first time on our show we'd love just a brief intro for our community I think a lot of them probably are aware of you but uh what is your what is your Big E thesis today and kind of who are you yeah so um my official title at consensus is a senior director of research and so I'm coordinating a lot of our R&D efforts on ethereum we have a few teams that are we have a consensus client we have an execution client and then I think we have the SMG team which is where I lead research which is working on the research side of moving eth forward and consensus is a big company we have

metamask which is our biggest thing but overall we succeed when ethereum succeeds and so we're trying to in in the past before I joined consensus there was a more measured approach a more let's help which is important as well but I think my point of view is ethereum actually needs ambition and some really kind of ambitious things and major changes to get us to the next kind of 10x for ethereum the next 10x unlock that will bring in the next layer of new applications and just increase activity so that's what I've been advocating for on the research side is let's do some ambitious changes that are kind of crazy and novel but actually unlock things

that we never thought we could do before on chain what are some of those crazy ambitious changes that you're you're looking to enact yeah so the I mean we've also advocated for some not so crazy ambitious changes in the short run which are like just do some parameter adjustments like increase the capacity of ethereum blocks from 30 million gas up to 60 million say which is absolutely possible today and we've also advocated for lowering the slot time which I think those kind of things are not ambitious they're just something we should do because technology has advanced to the point where we could just do it without much consequence and it would make the chain better for everyone but then we also look at the long-term plan kind of the fiveyear plan and I've argued very strongly that we should move

to a multiple proposer architecture everything else in ethereum is designed around decentralization around Finance around making it so that not anybody has too much Market power but when you really zoom in to the typ type of time scales that are important for trading on chain so like say a 12se second time scale which is still a really long time in trading prices can move a lot and there can be a lot of money on the table in those time scales there's only one proposer who gets to touch the chain and so they end up having a ton of Market power they end up basically being able to extract Monopoly rent from that market power and so for that 12C for that 12C slot it's really important I think for the vision of ethereum to extend down into the slot

level time scale and have decentralization and distribution of Market power at that level and that I think will unlock the next huge advancement in Def and so in in practice does that look like a uh new proposer Market Place essentially where we're we have multiple concurrent proposers competing to be the next one so yeah that would be a different thing than what I'm suggesting that's something that's kind of looks like what algorand consensus actually looks like where they have a ton of I mean or even proof of work there are a bunch of people trying to race to find the solution of the hash puzzle and be the first proposer so in in this architecture would actually be

there would be instead of one scheduled leader there would be eight or 16 scheduled leaders uh depending on the parameter which block do we end up choosing out of those eight or 16 that get proposed and the whole point is instead of just choosing one block we're going to take all of the blocks and we're going to take all the transactions in those blocks Union them together apply a deterministic ordering rule so we're going to actually take all the transactions in all the blocks and do our best execute them all and if there's inconsistencies between those blocks yeah so the way it works is uh each proposer today in ethereum proposes a set of transactions and an order of the transactions and in this new world each proposer would only propose a set of transactions meaning an unordered set

and then we would take them all and we would order them by say the priority fee execute them in descending order priority fees so the things that pay the highest priority fee get executed first and so there in in that sense it's it's unclear what you mean by a conflict because actually we're just executing everything in order and if if this thing that has the lower priority fee that gets executed after another thing conflicts then it doesn't get to do what it wants to do uh and okay if uh one proposed block has a different set of trans set of transactions right let's say we all propose blocks there like I propose a b and c you propose uh D and F you propose

uh ghi right like we all propose a different set of transactions so which ones are the ones there's there's all different priority fees and that'll determine the order but what is the set of transactions that determine inclusion it would be the union of all of them so we would include a through I in that case okay yeah I have a video maybe I can share with you guys to edit in after but I think it would show this a little bit better but the idea is basically one of the things that makes a single proposer so powerful and so hard for the apps to build around is the fact that they can determine an inclusion not just ordering so if it was just ordering you can do a lot of things that are kind of

like pseudo application specific sequencing that are like you can get around the ordering part a lot but ultimately once you start to be able to censor things it doesn't really matter how much control you have over ordering because you can just censor the competing biders and and make it look like you're the only person bidding in an auction and that's the critical missing piece I would say for defi today is the inability to hold an auction yeah and I think that applies actually like we're talking about the ethereum L1 but when you think about this for for l2s which I think you could argue that there's more uninformed flow happening on l2s because it's cheaper for retail to interact with um you know there's there's more l2s there there's a bunch of reasons you know you could also kind

of debate that but in that understanding a lot of l2s right now are all you know single sequencer first come first serve arbit has gone and pushed time boost which is basically implementing proposed Builder Separation on arbit from itself which kind of gives you like this like this latency gap between like uh the the the the Builder the proposer and the Builder and so you get this this like more um competitive auction at the L2 that also enables theoretically I think arbitrum could like trade against their users uh in some capacity or at least that's like one risk how do you feel about implementing different types of sequencing or like implementing PBS on l2s like is there a is it similar is it

different are you a fan of time boost like like what do you think about the evolution of this not just on L1 but for l2s yeah so I think um I'm not a big fan of time boost I I'll just say that but I think it's very bullish for the ecosystem that we're trying out a bunch of things because I think ultimately the best things are going to win it's going to be like the thing I like about the arbitrum team is I think they're really smart and I think you know Ed is is the type of guy that if you show him the data and you can make an unequivocal case that this thing is not working he will like be happy to change his mind and I think that's true of the competing architectures too I think everybody is pretty rational I would say there's

three different competing proposals right now there's the op stack priority ordering which I'm I kind of think that one will probably be the best overall when we look at the numbers at the end of the day uh there's the base scoll UPS which we can talk about and then there's this kind of time boost style the time boost style is pretty similar to stuff we've already seen uh in terms of what the NASDAQ does basically which is first comfor serve but we're going to offer some extra spots in our data center that are kind of close enough to the server to have slightly lower latency but the difference with time boost is they couldn't really figure out a great way to give that right to multiple people and so they've given it

to one person and again this kind of comes back to my point where when you give the time boost to just one person you end up giving them a bunch of economic power a bunch of economic rent comes with that I would say you end up in a similar world to what PBS looks like today yeah okay and so then for optimism could you just briefly explain that for us as as well as our community what is that proposal and uh like technically how does it work and why are you excited about it yeah so the optimism proposal the way it works is it's similar like basically you send your transaction to the SE sequencer and then it's similar to braid in that it orders by priority ordering in in descending order priority fee so the highest priority fee transaction would be executed first and then the next

highest and so on and the interesting part about that is not necessarily just what it looks like today but what it could look like when you expose the priority fee to the application so when the application can read the priority fee becomes very easy to hold an auction by modifying the behavior of the app depending on the priority fee so if an arbitrager comes in and pays a high priority fee you know that they're an arbitrager and so you can pull some quotes back and protect the market makers more and that's what I think is really exciting about the the priority ordering way of thinking is not necessarily what it looks like today but what it could look like when you expose that information to the apps and then when the apps build uh applications that

are Meb aware I think that's extremely powerful primitive you know what's funny is that I was I was tell to a buddy from chains safe yesterday and we were talking about how uh on metamask when you do the speed up or the speed up function especially in 2020 and 2021 when things were crazy on L1 the apps couldn't actually see that you were speeding up because it was in the same transaction hash and so like the the apps themselves were getting so confused as to like this the state of the app itself because all these users were basically just like speeding up and speeding up it's not exactly like what you're saying as to like what the apps can do but that's kind of like where I drew a parallel I was like it's funny that like this speed up function was causing a lot of problems for apps when

it comes to ordering yeah I think for us so I I work closely on metam Mas gas stuff these days or have in the P I haven't done much on it in the last few months but have worked closely on it and we're always worried about these transactions getting stuck with with nonces and um there's some there's some weird stuff in the way that that's implemented in ethereum that I think is just I know actually some people on re team are working on some fixes for non management which will hopefully clean that up although we have a bunch of fixes that try to help the Ops and help the users manage their transactions on the menam side too and then the third prong the base rollups um go yeah yeah so the the thing about the base rollups

is they kind of inherit the market structure of the L1 in that they give all of their sequencing power to the L1 proposer and this is good in that it gives the power to the L1 proposer so if you're somebody like Justin Drake who's been a really large proponent that means hey more revenue for the L1 more ultrasound it kind of alleviates some of the concerns I've been talking about in terms of economics the problem is it's it's extractive and so my goal in terms of what I think an ideal sequencing rule is it's allows the app to be as minimally extracted as possible and basically provide the least friction for users transacting that's how we really grow the pie what do you mean by minim minimally extractive right so you can

think of most apps on chain are people trading a for B something it could be a future or it could be something more complicated but in the end of the day it kind of looks like people swapping things for other things and the goal is to make the kind of take rate of the middleman the blockchain or more importantly kind of me searchers and the proposer and everything else try to make that part of the thing as small as possible because there are all these trades that could happen that are like hey there's a 50 Cent trade here that could make both sides better off if they traded but it's a 75 cent fee yeah and

then that doesn't happen and that destroys economic value so the goal is essentially to make those frictions as small as possible in my mind and so the current uh uh sequencing rules on ethereum are too extractive to apps and so we're not seeing the type of uh economic activity that we could if we were to implement something like multiple concurrent proposers or different sequencing rules right I think uh you can just look at kind of how much money is being taken out of the system every year in terms of the PBS auction Revenue those revenues are not going to they're not even going to Searchers who provide information rent they're actually just going to proposers because proposers hold a monopoly and and so if

we were to kind of adapt this proposers extract less value from the apps would that lower the ethereum staking rate such that you know right now maybe if I stake a validator 32 eth I I get four or five% would it would that bring that down substantially well if you look at the numbers so we were looking at this I think the meev portion of of staking returns are only about 10% last time I checked okay I should I should fact check that before we post the video but I think it was about 10% and so I don't think it would that meaningful but uh this is one thing that I think falic has talked about a lot is the ideal design of a system is one where the protocol decides the rewards rather than there

being like rewards from issuance plus rewards from meev plus rewards from like transaction congestion fees and I think as a design philosophy ethereum has moved in that direction with1 1559 uh and some other changes which I have some thoughts on but I think the general idea that it would be really nice if we had one parameter to adjust to adjust issuance and if there we're not getting enough staking we can touch that parameter is is a good design philosophy and it also means that like we can try to minim minimize extraction so that apps can be better and when apps are better like we're going to grow the pie we're going to have way more stuff going on on chain and I think we're going to be able to afford a slightly 10% higher issuance if we need to

because other things will there'll just be more activity on Shan that's valuable and more people people willing to pay transaction fees and we can recover that in other ways yeah um you you did a you did a a podcast on Bank list and we did a podcast with Justin uh following that up and then there was some back and forth as a result both with the the Reddit AMA that that Justin and the EF did and then uh kind of some confusion that was clarified with the uh ratio of congestion fees to contention fees so when you're kind of like looking at the landscape out there like like what is the tip of that conversation now as a result of like kind of the back and forth that you guys had between podcasts and and then

ultimately the the discussion uh that you know was on Twitter and Reddit after seeing the data kind of come to light people ended up looking at the chain and they said no like actually 80% of the revenue That Base makes does come from contention fees and and me like after seeing that data like it turns out you were right like where do we go from here the thing that we were say that I was saying was basically it's unreasonable to expect coinbase a for-profit company to act altruistically in perpetuity right now they're clearly playing a growth strategy which is awesome they're bringing in new users they have a lot of distribution that's great for ethereum

that's great for crypto um in the long run they clearly have a strategy that says hey we can lock in users on our app with our wallet integration with a seamless experience which seems like a potentially great product strategy as well but we have to think about playing that out in the long term and where does that leave ethereum economically relative to base and my perspective is that rollups I think will be Paro distributed in how much they have I think there will be one rollup with like 60% of the market share one rollup with like 30% and then another long tail after that and today I would say base looks like it's poised to do very well in in that race basically and the

question we have to answer is how does that economically relate to eth if 60% of activi is happening on base yeah how does eth benefit when eth is providing the security behind that yeah I mean like the future of ethereum is coinbase like that is like it doesn't sound great but so I mean like I you know we were talking about kind of that debate that you had and like this is the whole parasitic L2 thesis and you framed it in terms of a question like does eth relate to the 60% of economic activity happening on base and so kind of the conclusion actually was actually the opening that you had mentioned but it was like rollups are parasitic in their relationship they're not extensions of eth in their current form and that

qualifier is potentially really important so thinking about this as like a constructive like progression how do we get to the form in which they're not parasitic what does that form look like yeah so I think there's two elements the first element I'll say I think about things a lot through Market power and I think it's a really valuable Framing and maybe one that we didn't use enough when deciding on what to do about the rollup road map but can maybe help us dig ourselves out of some of the the holes that we're in now we have to think about how do we make a market structure where eth is the market power when you have Market power you can control things you can get Revenue for yourself and when

you say when you say Market power like the just you know the most yeah I I mean could you define Market power force yeah so when when we have uh like in econ in like kind of a game theory 101 course you would see the classic example of a game where you have two people maybe one of them wants to sell an item for $100 and the other one's willing to buy it for up to $200 and so you have $100 of surplus in there and the question that you have to ask is like where does that market clear and it turns out there's tons of equilibria depending on the exact structure of who offers first and um how many rounds of communication there are

and whether you can commit to a certain strategy or not all of these things are things that go into that bilateral bargaining question but once you start to add more people on one side of those market so say we have like two people willing to sell for $100 all of a sudden that pushes the Surplus more towards the single buyer mhm um and so the more we can make rollups competitive with each other the the more we can take away those Market structure like those effects of network effects that make a one rollup leader possibility the more we can kind of bust up that structure the more rollups we will have and we

will have one eth and a bunch of rollups and that will put us in a really strong economic position and that that's what we seem to have right now I mean we have you know a bunch of rollups and in your example you have a bunch of Sellers and if you have a bunch of competition amongst people to get rid of this thing right that's going to be in favor of the buyer in this case eth is the single and rollups are the sellers MH so but the issue here is that base and other large rollups are like are are establishing a position in the market that could be problematic in the future where they like are so entrenched that other rollups struggle to catch up and that we we kind of get affected by this Market power situation and then the question becomes like are they going to be able

to return the value back to ethereum and kind of your your take on this is that Bas is doing it in a way that is very altruistic now which even in this way does isn't even paying that much rent to ethereum at all it's very minimal compared like a base design or other designs but even in the future we we want to get to a world of like thousands and thousands of rollups uh but like you just also said that you think it's going to be like 60 30 and then 10 so how are you how are you these are kind of like ju to POS like like how are you taking that thesis of like where you see the power law play out as well as like this broader idea of okay we need a lot of rollups for ethereum to be in a strong

economic spot when your original point was just on these two dominant ones and then kind of like a long tail yeah I guess to clarify I would say the parito distributed 6030 10 long tail I think that is the situation we headed for without any changes okay understood so I think if we continue without meaningful changes to interoperability that will be where we end up and it might even be more than 60% in the hands of whichever rollup wins so uni chains launched we're we're big fans of the app chain thesis we've been we've been pushing the idea that rollup as a service and ALT da and all these different Innovations have been extremely crucial for like basically more and more rups making it very easy to launch a blockchain you've also got

this like competing thesis uh and it could be kind of mutual as well as like this app Civic sequencing model what's your what's the right way to think about uh the app chain kind of expansion in in regards to kind of app app specific sequencing whether on the L1 or L2 is like is this something that um the L1 could adopt or something that that like general purpose l2s can bring app apps sequencing or like if I'm an app should I just launch lach my own chain to kind of contribute to this broader economic spectrum here yeah I I want to build on that because uh part of the response after the data came out in between you and and Justin was Unis swap V4 and hooks and Cella that is building on top

of that and Terell is pushing application specific sequencing hard and so how like when we do get these app chains theoretically there's a ton of rollups um and the PTO distribution is what we're trying to avoid we want to get it something more like there's 100 rollups each with 1% market share like is application specific sequencing a part of that is that going to bring me back to Applications how like help us kind of like sift through the different moving pieces here so that we can you know achieve this desired landscape of rollups uh and and and the the power law distribution across those is much more decentralized yeah generally think that

it is not a good sign for ethereum that Unis swap felt the need to launch their own chain uh it's unclear what the exact reasoning for it I would say the the non cynical view is basically they felt that ethereum was not giving them the technology that was required to build the application they wanted to build what's the cynical view the cynical view is that they needed something for uni token holders to do with their token uh I think it's probably a little bit of both but I would say the fact that ethereum did not offer a lot of the things that they wanted for their application was not a great um situation

and then the other thing was because of the state of the rollups some of them have already made moves to changes to their sequencer to extract Revenue we talked about time boost earlier they felt that them bringing their activity onto a hostile rollup or a rollup with different economics than them might be an issue for the long-term value proposition for UNIS Swap and so they felt they needed to protect themselves against that by launching their own rollup so that they could do the sequence or how they wanted and I feel like that's a reasonable concern and the whole point of like trying to build a credibly neutral L1 that's that has all the things that the app would want is so that they don't end

up going and feeling the need to do that and that's I think the system is stronger when Unis swap works on the same chain as a as compound as other defi applications and when they're all on different change just like a much less strong experience and you have to do a bunch of bridging and you end up paying a bunch of middle B for bridging I think the goal in my mind is to have a chain that's at least has enough capacity for finance and has all of the things that you need to have for your chain to be comfortable place for for UNIS swap to sit you you had mentioned that interoperability is the main bottleneck of Market power um if we had a properly

composable ethereum we wouldn't have this issue so why is it I mean if we can solve interop is it still an issue that uni chain is its own chain I think first of all there's like a lot of people saying like oh can we like we're working on solving can we solve interop I think it's a really hard problem actually and there's not enough talking about why it's hard um I'm not an expert in it but it there's a reason that we don't have it yet if it was easy we would have it already we don't have it yet it's unclear whether we will ever have it there are some smart people working on it we'll see what they cook up

my take would be even if we get to kind of a good version of interop it won't be the same type of inter op so so here's a world of what interop could look like we get to really low slot time on eth so maybe like one second we get single slot finality within a second and then every rollup is a ZK rollup so now it takes you at most two main net blocks to bridge from arbitrum to base because everybody posts their proof you can immediately prove that you have the funds everything's final now I can move over to base that's a world where you still have ux challenges relative to everything being on the same chain because I now have to kind of do chain three transactions together one after the

other I think it's still slightly worse and I would still like to see all of the def5 activity happening on the same chain yeah I mean I I'm it's just one block worse isn't it like if we can get proofs in two blocks everything would just happen in the same block I don't to cut you off there but like is it really that much like it is one block worse in that construction but is that that much worse versus is the economics and the sovereignty that uh chain would get on its own I think it's significantly worse in that you don't have atomicity on transactions that are you know you want to you want to take your money out of a protocol on arbitrum and put it into a protocol in base I have to kind of do

four asynchronous operations that are sequential so I think that's pretty much a worse than having everything be Atomic in the same transaction uh maybe there's some things on the ux side that the wallets could do that would help with that but again I would also say that that's like very far away the world I just described where everything is ZK rollup okay they're not ZK rollups they're all optimistic Roll-Ups right now because we made some choices on the optimistic rollup road map as I like to call it it's basically optimized for optimistic rollups and not ZK rollups so we need to somehow provide cheap proving and very verification capacity on especially verification capacity should be separate from the

standard gas fee market so similar to the way data availability has become a separate fee Market proof verification needs to be a separate fee market so that we can have an actual L2 road map not an optimistic L2 road map so that's one thing like for example Linea which is the L2 within consensus I worked a little bit on the gas posting strategy and we have to verify the proof when we post it and so we just have to pay way more gas for every transaction that we're submitting a blob in because we have to actually verify the proof on chain and that's that's costly in terms of compute anyway so we have like we have to do that new fee market for uh proof verification then we have to get down to one second

block where 12 seconds that's yeah this is a long journey here this is a journey here right and so that's to get it to two blocks and that's still not good enough in your estimation well yeah and then we also need single slot finality which yeah which is also another Journey so so the the question becomes like do we is synchronous composability worth fighting for it can ethereum exist in the future with asynchronous composability being the primary interoperability I think it can look I guess I I'm not saying that we're going to be in a world where ethereum necessarily dies because of we make these decisions I'm saying there's a world in which we could have kind of a beautiful the you know the meme of like the world of ethereum focused on the old

one I don't know that kind of meme where I think we could have a really great world where uh we have so much powerful valuable economic activity going on on ethereum we don't have to worry about economics at all because ether is just ripping because there's so much valuable activity and we're taking a really really tiny slice of that and it's a huge pie and everybody's happy and I think there's another world we could go down which is like this kind of brutalistic hyper competitive race to the bottom L2 Network effect World which is it doesn't mean Ethan's going to die it just means that the future of eths coinbase and Unis swap battling it out and seeing who can have the better distribution and attract more users and then ultimately monetize them the best

um both of those are possible worlds it looks like we're kind of headed for the second world right now we'll see if we can make some moves that bring eth back to its core premise which is like we're going to build a credibly neutral platform and then people can build on top of it and compete on top of it but the competition on top of it is like really really good for eth the argument you laid out is that an argument for synchronicity yeah I would say it's an argument for having everything on one chain because the the problem with app chains that we haven't talked about yet is that it makes it so building an app has very high entry cost you need to have basically a huge amount of distribution which is what if you build on eth mainnet today you have a bunch of

people who already have a wallet on metam Mas set up and are ready ready to go and use your app and so all they need to do is go to your website and they can see what's up and it makes bootstrapping a Marketplace which a lot of these things are much easier and by the way bootstrapping in Marketplace is really hard because it's two-sided and so you have this really bad cold start problem where you need buyers and sellers and no buyer wants to come if there's no Sellers and no seller wants to come if there's no buyers and that and that applies the interrupt side of app chains as well like I mean many of the app chain teams that we're talking to they're like can you can can you help to connect us with with you know with these solver networks and with these different solvers and so

like that is a huge kind of problem in of itself but you laid out the two kind of potential paths for ethereum's kind of future and with app chains being related there unit chain though is like trying to do this like not they're like a D5 Focus chain so they're not an app chain but like so you laid out like okay so we don't want coinbase and Unis swap just wailing it out for the future of ethereum you know we there's a potential road map of much better composability single slot finality before we can even get there coming back to that PTO distribution we really want to figure out how we get the the amount of rollups within like this like ethereum GDP to be more equalized um but like how do you take the this idea of wanting Unis swap

to stay on ethereum L1 to contribute to that broader like composable Vision with this idea of like if Unis swap leaves and becomes their L2 as they're as they're doing then they immediately go and challenge bases market share and arbitrum and start to pull that down a bit like how do you how do you reason around those two simultaneous like kind of clashing ideas Redstone modular oracles are available on 50 plus chains trusted by over 100 clients and over 6 billion in total value secured visit redstone.

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singularity safe is moving the world GDP onchain with the introduction of safe net safe is taking this to the next step very soon check out net . safe. Global to learn more about how safe is moving the world's GDP on chain yeah I mean I think the at the end of the day it it's maybe making a new L2 that is competitive but it's making the L1 less competitive with Bas so both of those things can be true at the same time I would say it's not the case that competition is always bad in fact most of the time it's good but there are certain types of games where competition looks really ugly and especially in kind of network effect market share games competition

can get really ugly like in Airlines often times you'll see uh a new entrant will come in they'll be like oh we have better um we have some organizational advantages over Delta say we're going to run this route we're going to have newer planes that cost less per mile to fly so we can offer cheaper prices and we should be fine competing in this you know Detroit to Manhattan Market and then what Delta will do is say oh hi have have a like I'm I'm glad to see you here I'm going to drop my prices below what even you can charge and because I have a huge network of planes and I have a finance department and I have a bunch of revenue from my credit card I can keep you out and and that's kind of one

of the the risks here the other thing if you look at kind of gambling sites if you look at if you ever played online poker the way that online poker sites compete with each other is not necessar the way that you would want them to compete with each other the way You' want them to compete is uh better ux which is not really what happens because they're all kind of reskins of each other like if you use these sites are like from 2009 like poker stars is like a 2009 UI which is insane because if they were actually competing with each other they would be making a much better UI uh and the other thing they do is they don't compete on rake they actually have very high rake the ones with higher market share have higher rake and those two things are the things you would want

them to compete on and they're not competing on it they're competing on free roll you know entry bonus on the website Etc and ads and that's like a pretty ugly place to be that's an acquisition game and not a retention game and and so it delivers an experience where it's really high turnover and so you end up rinsing these people and then they leave and then they I think that the the key in the gambling markets is that the retention comes from the addiction of gambling yeah so how is that parallel to twos well well that Brian meme coin on base that thing hasn't pumped in a while looks like a good entry here not

Financial advice that is not Financial advice yeah I mean the issue is that you have a lot of uh Network effects and those Network effects are the things that keep you in right and so you have marketplaces you have things that you can do on the chain and and you already know your way around all of those things keep you on the base L2 rather than moving to the new other L2 and then it becomes this kind of vampire attack game where you're constantly trying to vampire attack people status match them Etc um yeah and it's not competing on transaction fees it's not competing on better ux shorter shorter block times more security yeah less R and so we just had

Alex from zyink and they're building the elastic chain on and I I I've been kind of formulating this thesis over the last several months it's that as the ux improves for ethereum broadly for rollups things like chain abstracted wallet uxs one one account you know there's like I see you smiling intense standards better things right like we get we we could eventually be in a world where user comes in to uh you know like abstract chain is doing a good job with like pudgy Penguins bringing them onto their chain or base directly from coinbase wallet where that user then goes to interact on Unis swap they want to do a swap and they go to UNI chain Without Really knowing that that they go to UNI chain then they want to go do a a different lending uh platform

like a Pendle or something on Pendle chain and they don't really even know that that that they're on Pendle chain but they're just kind of interacting in a very like app Centric like focus and so my my thesis is that if we get to this world where we all the net new users that come in come into a world where there's less like tribalism and kind of like ideological differ is and they're more just focused on like the the apps and like the intents that they want to make to interact on chain then this kind of changes the landscape of like the competitive nature where rather than like me Bas and Kraken going at it with ink and bass trying to like uh siphon off the users and liquidity here they can just go and form their distribution channels outside of crypto

and every new user that pudgy Penguins brings in and that and that treasured out gaming brings in that base brings in through coinbase because of number go up Tech this all contributes to the broader like grow the pie and I understand this is very like a optimistic uh mindset maybe uh you know outside of the competitive realities but like does this like does an abstracted future with better interrupt and better abstraction does that like change any of these thesises around competition or around like one big rollup to rule them all or like do the same does does the same kind of situation still persist just kind of underneath the hood of like an abstraction layer yeah I think this um this question came up basically exactly as you posed it on

well I I think we were like okay what do we do about l2s and specifically I think at metamask base is kind of worrying because it means that they they have a wallet and they can build a integrated pipeline where when they attract a new user they're going to put them on they're not going to put them on our wallet they're going to put them on their wall fat pis right I mean why would they put want to put them on our wallet when you know they're not going to get the structural uh benefits from that so our goal I think as as the wallet is kind of to Scorch the Earth on those and make a interoperability experience that does exactly what you said which is make it much harder to lock in users onto your chain bring in chain abstraction bring in all of these things that we're

working intense there's a whole team working on bringing those kinds of new experiences gasless experiences um all of these things we think there's critical for like the long-term strategic advantage of metamask which is that we're right now the largest wallet and we think like those things are really important because it will make it harder to create a Moe and create a 60% rollup that has a lot of Market power yeah because then the owning the user relationship becomes where the Val like owning the order flow and the user relationship becomes the point of a value acral and there's less focus on the Chain there's still a focus on the app because the app also simultaneously owns the user experience uh but it's like we shift from this

chain Centric approach to like this app Centric approach and then even further like this like wallet and like direct ownership of the users's like relationship like every time they sign in to use crypto they're on metam Mas or Phantom or rabby Etc and so like that shifts the way that I think rollups go about their entire marketing and positioning and like competitive building like why should we focus on what's in front of us here if I'm a rollup I go out and I go build my dish tion and then that becomes my moat versus like you know trying to do like I don't know Yi bridging games right right I think the ultimate world that kind of makes sense is for the people who have really good distribution to build wallets and the people who have are

really good at building apps to build compelling apps for those people and then the you know the apps don't have to meet the huge hurdle of like am I going to on board a new user to crypto they have to provide compelling use to people who are onboarded and then the the wallet does things like make a pass key hold your key so you can log in on your iPhone and use face ID to make a metamask wallet these things are things that I think the wallet can handle much better because we're we can specialize in it and then the we're not going to specialize in making a great Dex Unis swap can do that whereas right now it feels like the economics are in such a way that Unis swap feels the need to launch a wallet they feel the need to

Launch a roll up chain yeah and it's like really hard to monetize their app because of the way that ethereum works like the people monetizing the app are the builders and the proposers and like and to some extent the wallets as well so they feel the need to to do that and so I think the goal would be to make ethereum awesome in that it can give apps the ability to monetize and can give apps the ability to sequence their own transactions and then they don't feel the need to build those other things and they can focus on what they're best at if eth gives the power to the apps to sequence their own transactions and monetize their own apps how does ethereum end up acing value I think ethereum provides something which

is different from sequencing like right now ethereum doesn't necessarily ACR value from sequencing either it's actually the proposers who are creating that value um so I think it wouldn't change much but ethereum is going to ACR transaction fees for using the chain and there's a World in which we scale up the chain it has many many more transactions they're paying lower fees than they are today but the the product of way more transactions doing valuable things on chain and being willing to pay fees times a large number of transactions times smaller fee is like a huge amount and there were some calculations I saw on Twitter that was like a million TPS

at two10 of a cent per transaction is like $50 billion a year I don't know if that's right but I saw it on Twitter so it must be correct I think that's I think that's what Justin Jake said about the ethereum da um value ACR on on on our podcast Bas if we get to 100 100 million TPS n i mean you're have to fact check me but kind of zooming out from from this value acru uh and kind of apps wallets thesis which I think was super interesting takes there you've got a newer thesis I believe that's around ethereum new ethereum monetization from security I would love to understand kind of what the foundation of that is and where that was derived from yeah so it's this new idea that I'm calling alignment

taxes which is a way for ethereum to monetize its security and one of the things that kind of led me to this was a conversation with vitalic where we were talking about uh what does like the ideal issuance look like for eth and I kind of LED with my point of view which was that it doesn't necessarily make sense for eth to be deflationary because it being slightly inflationary at say 2% a year means that people who hold eth the asset are actually paying in the form of inflation for the security that the network is providing and then vitalic was like well yeah but you could just launch an erc20 token hold value in an erc20 token and and sidestep that

inflation and so in that way you're like free riding off the security that eth holders are paying for in issuance and so I I was like thinking about this for at least a month after that just you know I would be laying in bed I would be like oh jolt awaken like erc20 is are are cannibalistic to ethereum because every other erc20 everything every application not just rollups it's every token right so I was thinking about that and I was like is there a way that we can make this security that ethereum provides excludable and and you don't want to make it so it's hard to put a token on chain because that's like the credible neutrality and the censorship resistance aspect and so you can't really compromise on those

but what you can try to do is meter the security and so I came up with this idea that I think is going to be when I post the eth research post it's probably going to be quite controversial because it it does sound kind of ridiculous but the idea is you let each app have their state and you have a special type of operation which is just like kill the state or overwrite the state with whatever you want and that operation is going to cost money and it's going to be Med by the protocol and you have to basically pay some amount of protection money to the protocol to make that value very high so if you have say a rollup like arbitrum that has $10 billion of TBL you're going to use your your rollup

contract State on ethereum and you're going to try and get that number of like what do you need to do to overwrite the arbitrum state to be10 billion or more and so the way this works is it elicits the actual economic value of the security on that state and what by security I mean finality and safety when you have safety of your erc20 token balances so you have a coin like Sheba that's worth a certain amount of money people are relying on eth for security for a store of value and they're not paying for it this way the Sheba devs would basically have to inflate Sheba at the same rate as eth yeah and pay eth the chain and that could go into the

security budget could go into the validator operating set budget every year and and this would be a way not just to deal with the rollup economics problem that we've been talking about but even the erc20 economics problem which which is going to be funny when I start posting about that people are going to be really pissed okay so so so where where is arbitrum going to get the 10 billion doll from to secure this this are they gonna have to put the like ARB tokens up to secure it on the L1 or like like that's not arbit tram's money right that's like my yours and Rob money like like how how is arbitrum going to be like okay yeah I need to then put all that at stake or like how is Sheba going to like where are they going to get that those F those funds from so it's

asymmetric the the protocol can say if you pay X dollars you can overwrite the state on this contract and that that X doll is something you can set programmatically you don't have to put up10 billion of state of stake to have $10 billion of security you can have you know you can pay 20 million a year and get a billion dollars that's like like around 2% that would be kind of in line with I guess eth issuance is somewhere around 3% right now but you could have similar stuff like that where it says okay if you hold value which is worth this much and you're relying on ethereum security you're going to pay the same rate as what you pay for eth and we can set that parameter to kind of match that that so

whether you hold money on chain in eth or on chain in some other asset you're going to pay for security at the same level and then why wouldn't I just pay for infinite security for one trillion I i' would have to pay more I have to I'd have to pay what is the issuance of eth on a yearly basis is that what like my principle would have to be to get the like let's say that that I just wanted an infinite amount of security how like is there a way that I could achieve that well I think the thing that's going to have infinite security is going to be ether itself the asset because the the whole system is based on eth being the Ledger of record like for ether the asset and like people are already paying when they hold eth through issuance

right and so you can basically say if you want infinite security hold ethereum if you want some other form of security you're gonna have to pay the same issuance that you would have to if you held ethereum the ticker is eth Max resic is trying to make eth great again this this one's gone a little over my head I'm gonna need to read one of those research papers I mean but but right now issuance is negative no with the burn no it's been positive for a while right money is dead right but like we just entered the Golden Bull so like isn't the thesis that like we're going to we're going to like Revitalize like have transactions go through the chain we're going to start burning eth again and then issuance will be negative I mean I I don't think anybody like really thinks

issuance being negative is great but like if it is negative that means you get money for holding eth which would be good for like eth holders but not necessarily good for the network for like the eth the store of value right like monetary premium would would be nice but like the the uh resiliency of the network you can't just burn all the eth like you're burning Economic Security yeah I've been reading some Milton fredman papers recently which is like I'm I'm a micro like E I work on mostly micro stuff not macro stuff but just working on some issue and stuff recently and going back and reading kind of his takes and he has a lot of interesting things that would be

relevant for our issuance discussions today but one of those things is like what's the optimal inflation level and I think a lot of people have kind of said 2% is the optimal because it's not so bad and then it means you have to change your prices all the time to keep up with inflation uh but it is like enough to get people to take their money out of the mattress and use it and we don't want e to be something that's just like oh I stick it in my flash drive and I put it in my basement and then I come down 10 years later and use it to buy house cuz the price went up so much like that's the Bitcoin thesis I think there's enough you know weight behind that I think eth was never meant to be that it was meant to be a world computer

so the thesis for that is like hey this is something that people should use and they should use eth to pay for gas and do things on chain and move it around and so the idea here is to amortize the cost of eth insuance like if it's I mean you take the market cap of e maybe it's a a half a trillion dollars 500 billion maybe maybe a little less and then multiply that by 2% and so you're looking at you know x amount whatever 500 2% of 500 million is and then you know that is the security but uh the issuance cost of eth to keep it maintained at a 2% issuance and so then you're going to basically amortize that cost over all of the tokens on the network yeah and then hopefully I think

the idea is that if you do that if you look at all of the activity and all of the value of the total kind of market cap on eth of all the stables and everything the issuance level for eth wouldn't have to be at 3% and so the price that you would have to charge people who hold usdc would be more like you know 3% a year which is is very manageable relative to the inflation rate of of USD whereas right now be because eth is the only thing on chain that is being taxed through this inflation tax uh the the rate has to be higher Y and you don't think people would leave I mean that's what I was thinking like all all the ERC 20s are just going to be like

see you later guys uh yeah I think I think that is an issue with I I think probably she was gonna be like yeah I'm going on Tron boys um guys I think that we got to wrap thank you so much Max it's been a pleasure um than thanks for coming out yeah thanks for having me this is a lot of fun cheers