Network Effects and Value Accrual in Crypto | S7 E7 | Kyle Samani

Transcript

there's definitely a real chance that Wall Street tries create a bunch of permissioned asset ledgers and then you try and use chain link or lar zero or Wormhole or whatever to make them talk to each other Andor to public chains I think there's a real probability that that is the endstate configuration but um I think over time they'll just kind of realize like hey like there's all this money over here like I'll just go drop a contract down in the UI and I am better off doing that that I am having any notion of bridging at all we aren't yet at the point where like that is the expectation of consumers but I do think in three to five years probably cons that will be the expectation of

consumers hey everyone this episode is brought to you by say the Blazing fast parallelized blockchain which is unlocking salonik performance for the vast ocean of eth devs out there now you're going to be hearing all about say and their new V2 upgrade but if you take away one thing evm is here to stay there are some problems with it which we're going to get into later in the episode let's say and especially their V2 upgrade is helping solve that so thank you very much say for making this episode possible hey everyone this episode is brought to you by Unis swap delivering the best onchain trading experience in crypto period Bar None one thing I want to call out is the Unis swap extension so say goodbye these days of these annoying as sort popup wallet extensions you lose your place trading you have to open it back up uniswap now

has a nice Sleek sidebar that persists no matter where you are in the web it's much easier to use if you click the link at the bottom of this episode you can join the waiting list and I'll see what I can do to get you moved up that waiting list but definitely go click the link check it out if you're building anything in web 3 you likely need oracles and verifiable Randomness that's why bellur is partnering up with Supra which offers the fastest oracles and D vrf free for listeners of B curve for 12 months and you can get that at sub.com blockworks the link there is in the show notes or stick around we're going to be talking about them later in the program all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their

personal views and they do not represent the views of any organization with which the co-host 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 in today's episode Hart and I are going to be talking with Kyle Sani of multicoin about Network effects now Hart and I have been touching indirectly on network effects actually for a large part of this season we've been trying to get an understanding of what the market structure Dynamics are going to be in between different l1s and critically where user lockin is going to acrew now we wanted to get Kyle on here because over the years he's written an enormous amount about Network effects and I think

has some of the more interesting first principal take on network uh first principal takes on network effects in the entire industry um and we ended up going down a little bit of a rabbit hole just in terms of how to think about l1s are they more Equity like or commodity like and it was sort of an interesting rabbit hole but it was actually my favorite part of the entire episode and before we get into it I want to remind everyone that Although our guest this week is a managing partner of a registered investment adviser nothing in this podcast should be considered an offer of multi coins investment advisory services or otherwise be confused for investment tax legal or financial advice all right we love a good disclaimer now let's get into it all right everyone welcome back to another episode of bell curve today I'm joined by my trusty

co-host heart and today we're talking to Kyle Sone btic coin about Network effects Kyle welcome to the show what's up Mike what's up Hart longtime listener first- time caller yeah love it for the folks in the audience we got a little uh we got a little telegram going uh we chat about debrief on some of the episodes so it's good to have you live here Kyle it's a pleasure p cerv ISC one of my favorite podcasts so excited to be on the show yeah we're pumped to have you um and you know there's there's really no no one better uh one of the topics that Hart and I have mentioned a whole bunch this season but haven't uh devoted an entire episode to but I keep coming up is this idea of network effects and of course the entire theme of this season is how is the multi-chain

endgame going to play out we're seeing the creation of a whole bunch of different type of networks and starting to ask this question like where is the lockin ultimately going to uh happen and you know you've uh created a whole bunch of posts over the years uh sort of your evolving view of network effects and how they work in blockchains maybe just starting out from a really high level um can you just give like a quick overview definition of what network effects are and then just starting from 10,000 foot view you know how do you sort of view this intersection of um Network effects and and blockchains sure so I'll start with kind of the elementary um definition traditional Network effect you you think of as a telephone if you have one telephone on the planet it's useless because you have no one to call um the

more people have telephones the more useful the network is because now you can call more people and more people can call you um this is known as uh meta's law is kind of traditionally the the way this is talked about MAV law I think was introduced in the late 70s or early 80s if I'm not mistaken by a guy named Bob meaf um who I think invented ethernet if I'm not mistaken um mea's law says the value of the network is equal to the square of the number of the nodes and I think that is very very very wrong um if you had a network where the value of the network was proportional to the square and that held true from n of one through n of8 bli

or like even through of one billion that like then you wouldn't ever have a competitive service in any of these markets like that would mean that iOS kills Android or Android kills iOS um it just would imply the strength of the network would be so strong in one that it wouldn't allow the existence of another in practice almost all Network effects look like an s-curve um where like there's clearly some point of exponential value and then like just think about like you on Facebook like does it matter to you that the next 20 million people join Facebook in Australia assuming you're an American like not really no it doesn't and so there is a a point of tapering um right

on on that curve different networks and on how people that use the applications and such will have different shapes of those s-curves but at the end of the day they will always look like some sort of scurve um so I think that's one of the generally things that's misunderstood about Network effects people just talk about meta's law and they say n squ and I'm like no man it's it's for sure not N squared um uh I I guess start there we can I'm sure go in a lot more directions yeah that that makes a ton of sense very intuitive to me as well I'd love to start um maybe getting a little bit more specific and talking about some of the different types of network effects that exist and maybe we can start to so if there's maybe some sort of tapering off most Network effects aren't the sort of

exponential n squar type thing but more of an S curve I think what we can start to tease out is like what does that mean for the ultimate end state of like how many different sorts of blockchains do we need um for one but maybe when you Kyle start to think about Network effects as they pertain to blockchains like what are some of the weird uh sort of idiosyncrasies that maybe the audience should be aware of and like one thing that I know that you've talked about at least on the smart contract platform level is this idea of anti- network effects so not only is it not exponential but uh these networks can actually get less and less useful the more users that they get which is sort of of a counterintuitive idea so you break down this idea of anti- network effects and how you think about the

network effects that pertain to Smart contract platforms more generally yeah so blockchains introduce a new phenomenon that we call anti Network effects talk about this in my presentation from the multi Quin Summit in September of 2023 um and the colloquial term for this is gas fees and everyone knows that like if you're on ethereum and a lot of people use the network gas fees go up obviously gas fees are the def of an Network effect and has been the source of consternation for you know kind of the whole industry really for like five or six years at this point um and there's still like not super clear definitive answers and hence the whole point of this season of uh B curve is trying to trying to get some clarity on that stuff

um uh so yeah so so the shape of the as you increase number of users on if the x-axis the y- axis for most blockchains is more of a parabola just right like a full Parabola kind of a thing um which is obviously pretty pretty strange um people have been trying to figure out how to solve that problem with more chains which theoretically Each of which may be subject to its own Parabola but assuming you have enough chains and they uh can talk to each other that might be one way to solve it another way to solve it might be to push out the parabola far enough that you don't ever ever get to it so there different ways to to get there but yeah I mean the core problem is is gas fuse which I think everyone who's listening

to this is is familiar with this point Kyle on that right so we're basically saying there's a fixed resource which is like how much um I'll use block space how much block space there is on a on a blockchain and as you hit some sort of critical point of utilization it just gets like exponentially more expensive yeah the zerox team did a really good presentation on this it's the data is a few years old but I'm pretty sure will would would hold today if you were to update the analysis which basically shows that as you get to somewhere between 80 and 90% of utilization the network the fees just go vertical and like for every marginal bit of demand you increase like the fees double like it's crazy um which is intuitive yeah it is intuitive and it makes sense and like

another way I guess I'd push on is it is a scalability thing it's like if we can't uh meet demand then like at some point that marginal that last like uh 10% of available space just ends up getting crazy expensive um but like wouldn't that also apply to like in the internet just Network usage like literally bandwidth for connecting the internet um and but we just haven't hit that scalability kind of kind of threshold like doesn't the same concept apply no um I I really hate when people talk compare cryptos to the internet um in mult ways a in terms of like damn and Market size and usefulness all that but also in terms of like technical

stack and modularity it's also total nonsense um and the the fundamental reason is uh the internet is stateless and crypto is by definition stateful the whole point of crypto is that like I have a balance and today and the balance will be there tomorrow right and with the internet when I send a packet from me to a server like okay if it's if it's tcpip like it'll send an acknowledgement back to me but like that transaction is over and those P like there there's no statefulness you could argue that like the routing tables and the routers is a form of statefulness in the internet which is technically true but like is not a constraint in any way in the system um and like that's statically coded right like hey I'm in this router

where's the other router I gotta go send it over there um and like that that that fundamental discrepancy breaks all or discrepancy excuse me fundamental like first order difference in what you're doing with the system changes everything about how to reason about tradeoffs you should make usability what you should optimiz for ETC because of the the statefulness of the system okay so just to actually refine that a bit more because like okay if I did have and again I actually do agree that comparisons of blockchains the internet kind of suck but what I'm trying to compare is the technological concept of like you have a fixed resource and at some point like you hit limits of what that resource can do so

if I have a network pipe between two places and uh I I just start bumping up against bandwidth constraints packet are going to get dropped or something like that but I think what you're saying is actually the stateful uh property of blockchains makes a huge difference here because I literally like can't do the next useful thing in a blockchain if I'm not recording State uh correctly whereas I guess in the network example if a packet gets dropped maybe someone's kind of pissed but it's like less bad or kind of that's not quite how I think about it I mean like if there's a pipe between your server and I'm a user and like you're trying to set more packets than can fit in the pipe then what happens is

you you wait for the rest of the packets to come through there's there's no other solution um and so that means either the ux degrades and you if the user has to wait for the load system to load or to buffer or whatever or the application doesn't exist and my favorite example of that would be Netflix Reed Hastings is very famous where like in the seed deck for Netflix he's like mail is stupid we're going to go to streaming but the band's not there yet uh he drew a chart of nielson's law showing bandwidth and he's like here's like six years before they launch streaming he's like here's when we're going to launch streaming and but we're gonna do mail until then um and like so so the you know there wasn't enough of of bandwidth in the pipe so

you couldn't do streaming and so the application didn't exist right until that the bandwidth was there um but that's an inherently kind of a bilateral transaction in blockchains you have a globally stateful system um and so it's just you're moving from a bilateral stateless transaction to a multilateral stateful transaction so Kyle aren't there some examples though of like um right your your name used to be composability Kyle right aren't there some arguments that there are network effects to have all these different applications on the same and with like that can touch the same pieces of state right like you saw this with ethereum in the early days um you see it maybe a little bit on salana now I think that's broken a tiny bit with

well actually it's kind of a pain point in ethereum right now because of the uh lack of interop between l2s so like aren't there some advantages to all being on the same protocol and network oh oh oh for sure right I mean again so let's like specifically State what blockchains are useful for so that we can reason about them blockchains are asset ledgers they keep track of who owns what um and then defi is really what defi is doing is encoding mathematical relationships basically between the prices of various assets um so the simple example would be Unis swap right you got x y equals K and you're now encoding that relationship based on the state that is in in the contracts with you look at a borrow lend protocol

you're encoding a relationship between uh debt collateral debt from borrowers against collateral that's deposited and you're making sure that like one's not higher than the other or rather one is always higher than the other um and and so like that is what defi is is encoding those mathematical relationships um and and so like in theory it would be great if we can just have a bunch of asset ledgers and like you could just say well you know debit one from here and Credit One over there um obviously is very simple in theory and as as you all both well know very difficult in practice um and so like that that's like the fundamental source of tension um flash loans are a very cool concept um intellectually not worth

optimizing for in overall system design um and like look if we got to a world in which we believed that you could have six different forms of collateral locked in six different contracts borrow lens systems all of which act as a single collateral pool on which you can draw debt on another chain and like and and the system designers believe that like they can collapse you know uh wind positions down if necessary and all the ERS also con are convinced of the fact that you can wind positions down then like then there would be no network effects around uh a single chain and so like the better bridging gets

Loosely speaking the less a given chain matters um so far it doesn't seem like for a bunch of technical reasons that like bridging is going to get anywhere close to that point um and so like all and so because of that now you have to think about Financial Risk the longer these things take to move around obviously that's a huge source of volatility and risk of liquidation the if if you don't have guarantees that like you're if chains uh what's it called um if uh what's it called the liveness failures and like part of the chain goes down you're not finalizing blocks that impacts your ability to do these things and so now you just have all of these like cascading complications on you know relaying uh states of change to to one

another and again in theory these are tractable problems like we you can describe theoretical ways in which it all works that does not violate the laws of physics um but then getting everyone to agree on the right set of Standards to do those things is like very very hard um as I I I like to joke sometimes every problem in all of technology is a standards problem um in like the sense of like if everyone agrees to use this thing then all the problems go away but like of course no one ever gets everyone to agree to use the same standard um so I've been ranting for a while I'll I'll pause now well no I mean KY I got I

think Mike has a bunch in there and I don't want he's got a really nice agenda that I want to make sure we work through but I do um uh I do want to push on a couple so first of all on the bridging stuff sidebar I'd love to talk to you about how we saw bridging but that's a different conversation um on the um um the what blockchains are useful for because I did just in prep of this rewatch your um multi-chain or multicoin Summit um and you make a a strong push that blockchains are useful for trading and payments um which I first of all I actually agree that they are very much useful for trading and payments and I very much agree with your analogies around like what defi is encoding rules for how you transfer or

transform assets um but it's actually I think it is a pretty controversial view to say that blockch are useful for trading and payments and like less for other things um because I do think there's a lot of people out there that want to use blockchains for decentralized social media or building their game or whatever else there is and in those use cases I feel like the argument for those applications owning their own Ledger could actually be pretty compelling where they want to own their own Ledger even for like political or monetary or sort of just control reasons and even if uh even if it makes the ux mildly worse for the user and I'm kind

of just curious what your thoughts are on that um so like the market seems to ascribe a premium to things that are asset ledgers whether those are l1s or l2s and I assume fairly soon l3s and L Force um but I can't explain from first principles why that should be true so there's a weird perverse incentive that skews how developers think just because like they're following the money um from first principles I cannot articulate why you are better off uh being on your own asset Ledger the best

arguments I have heard are so that you can capture meev to yourself um which is a pretty reasonable thing to believe and I did believe for some period of time but I have come to realize that like you can generally capture the me back to yourself um just by controlling the contracts and by if you control the front end and you control the contracts you don't need to control consensus um to capture me so like the the very simple example here would be if you're like a for liquidations well like the contracts dictate like okay you submitted liquidation request like just take part of the liquidation V and send it to the a DA right and you can enforce

that contractually um if you look at uh if you got to step through all of the various forms of me other than sex Dex Arbitrage uh and or and Dex Dex Arbitrage obviously I I think you can construct ways where you take the fees the me back to the front end me back to the contract and then you look at things like even like nft mins I mean again there's very easy ways to to get me back to the contracts you can run any form of auction system you want auctions don't need to be run on chain like you can host them on a server and like you can get the me for yourself that way um so I'm generally skeptical of the me argument U to to get Revenue back to

yourself I I think the notion of like dealing with consensus is and that is like not worth doing and then also you're creating complexity because now the user has mult Bridger assets and like do they know where their wallets are it's like all these other weird second and third order effects that I I would prefer to avoid for users um uh so that's part of it um the other part is like control and uh performance stuff um control is control and like some people want to have control over their own stack because that's what they want and like you can't ever stop people from wanting what they want so if they want it go for it have fun um it makes the most sense in games and specifically

um creating a side chain or an L2 makes the most sense in games because the front ends to interact with that state are inherently non-global um or in fact rather the opposite they're hyper localized typically to a canonical front end people are talking about like mod front ends and crypto gaming and we'll see if any of that stuff goes anywhere but for now let's just assume a game has a single canonical front end um in that configur ation like then you control the front end you can just and and like all of the state of the game is only relevant to users through your front end because you control the conical front end so you you effectively are are guaranteeing localization of the

economy so to speak um so that's fine and well if you want to be on your own side chain or L2 for that reason I think that's okay uh to me the most interesting thing about blockchains is is Global Financial markets and that's the be of why D5 summer was so exciting was it was one it was for the first time in human history a permissionless Global Financial market and you had people on Twitter at all hours of the day and Chef Nami showed up and like forked uni and like people forked all the contracts and had food coins and whatever right and that's why salana meme coins are fun right now is for the same reason people make funny memes in Chinese and in Korean and English and in Germany and like it it goes viral and you have a glob you have a global market um

and and so that I I I haven't seen anyone be able to well it it has not define the laws of physics to create an L2 for your app that is a global market that but we have yet to see a single instance in which you can you know create small or application specific l2s and have Global Financial markets where all of the requisite infrastructure around liquidity and indexing and wallets and users and just all that just works um um again it is possible it just has never been done before and it's fundamentally it's a standard problem the reason it worked on ethereum in 2020 and the reason it works on salana today is because there was one standard it was

the eth L1 standard and then there's a bunch of secondary things are on top of that with liquidity providers and same is true now with salana there's another place where it sort of works interestingly uh sort of I'm putting because the ux is still very challenged but Cosmos also figured this out with IBC there's a really interesting path dependency between like basically Cosmos has a bunch of app chains ethereum now has a bunch of app chains and genp purpose l2s inop is quite good in Cosmos it's not very good in ethereum and I actually think it's this like squishy social thing where actually the vision for Cosmos to begin with was this interoperable set of different app chains and so they built these basically like I don't know what you'd call IBC you could call it a public good it's just like a set of pipes that everyone

from day one was like I'm buying into this and now the intractable problem to your point Kyle is just just like and heart and I ended last episode talking about this is just there isn't a real incentive for big l2s to become interoperable right actually the incentive is sort of the opposite right it's to not be inoperable it's to become interoperable within my little ftim right but not um and there's a few other like angles at work here so I thought like Kyle I think your answer was like very honest right like so the market today does seem to have ascribe a premium to owning your own asset Ledger on your own chain for whatever reason and that's creating incentives um and you know you and I have been talking for years about how cool Global permissionless Finance is and I do

generally agree at least at a first principal level having everything on the same asset Ledger makes that easier and that's kind of cool and something we should be excited about period um but like there are there are other reasons why people want their own asset Ledger that are again kind of perverse if you think of um like okay the cleanest example I would have is poker chain I want like or my Casino chain where people are going to play my Blackjack and poker on my chain I actually want it like a casino where money comes into my ledger and then never really leaves it's in my best interest to actually be like a like a like uh vacuum that sucks assets onto my chain the same is also

true with any kind of like Perpetual exchange or margin trading account where I actually want to design my margin trading application to get money into my margin account and it never leaves and so um this is just where I think it's a really interesting conversation where kind of like paternalistically it would be better if everything was on one Ledger but there's lots of incentives for why teams would want to actually suck your assets onto their own place and make it hard for them to come off uh don't I I agree with that there's incentives to do that and then it's like oh you deposit a dollar I'll take the yield and like there's all kinds of other funny games you can play um for

those reasons I think there will be l2s right for at least a while um but I also think that like over time uh as the as we have more and more stuff scaling on a single Global Market at some point it'll just be like only the weird things on the side that are explicitly exploiting the perverse incentives will be doing that and that mainstream folks just won't um or if you wanted to frame it in like broader historical terms right like the Arc of History bends towards Justice and like yeah you'll never have a perfectly just world but like in general we will move in that direction I think that's a reasonable assumption he everyone want

to give a big shout out to today's title sponsor SE now I want to talk to you guys a little bit about why I think SE is cool from a design standpoint a big problem that it solves for E theevs out there and then some cool stuff that say has coming up the reason I like say from architecture perspective is again it's a very fast blockchain parallelization all of that stuff but say has essentially been custom building block space which is for Consumer apps and dexes now they have some very cool features which enable that so twin turbo consensus optimistic parallelization sdb all of this stuff allows you to reduce the time to finality make for very very fast transactions so if you're building a consumer app or a DEX this is basically the blockchain for you if you've been building in the evm you love the evm but

there are some restrictions about it that don't support your app so maybe you can't do fast enough transactions or it's not parallelized whatever it is you can now take all that stuff that you built you don't have to start from scratch and you can build it on say now recently they've launched V2 but also public Dev net so the way that you can follow that and keep up to date is go and follow say Network on Twitter all right thanks guys hey everyone this episode is brought to you by Unis swop delivering the best onchain trading experience period Bar None in all of crypto here's how I would divide the protocol today there's a web part A mobile part and an extension part you can say goodbye to the pop-up wallet extension was just not great from a ux perspective now what they've delivered is this nice clean sidebar where you can

just very easily track swaps sign transactions send to receive crypto anywhere just a huge ux Improvement on the web part of it huge improvements here you can buy and sell 700 plus tokens at your price on your terms and they've got limit orders which are powered by Unis swap X and there's gasless they've also got real-time charts transaction logs pool data project information all this cool stuff that just really improves your ux trading on the web and again all this is powered by the smartest protocol in terms of Unis swap or Unis swap X click the link at the bottom Unis swap extension is in Alpha right now and we'll see what you can do about getting you moved up that list thank you very much Jus swap hey everyone this episode is brought to you by Supra delivering the freshest Oracle price feeds across

50 plus blockchains when it comes to crypto speed and security are both critical and luckily for yall super has you covered on both of those things be that for liquidation triggers critical price levels whatever it is supra's got your back the other great thing about Supra they love listeners of bell curve so they're going to hook you guys up with 12 months of free Oracle services and verifiable Randomness they call it dvf decentralized verifiable Randomness so 12 months free you just got to go to supra.com blockworks two more cool things about Supra they're really secure easy to integrate they run on 12 times lower gas speeds than other oracles out there so you're going to save on that as well and if you're listening and you know builders that need services like Supra you can actually refer them and get 1,500 bucks in referral so to get

all these goodies you just got to go to supra.com blockworks and again the link there is in the bottom of the show notes click that so I know that I sent you cheers guys moving into this whole idea of like integrated versus more modular spread out approaches one of the things that Hart and I have been trying to reason about this season is this combination of as you start to unbundle what has traditionally been bundled into one blockchain like what are the sticky parts of that like one where are network effects like in those layers as they as they're now getting unbundled uh but to where does like user lock in and will end up happening so like one way to reason about a blockchain before everything was spread out was that you kind of have this network of computers these computers all do a certain thing

and then there's a token which is used as a as a ledger for that computer and the more things that that this set of computers can do and the more applications that are built on top of this computer like the set of computers theoretically the more valuable this like unit of account sort of thing is uh now I think there are some interesting data points which might dispute that like pretty simple view of the world and uh now we've had um you know in many cases like even with ethereum's rollup Centric road map you have like a protocol that has an asset which is eth but then you're kind of exporting wrapped versions of that asset up to these new uh uh layer twos right that are next to it um another really interesting data point here would be

Bitcoin Which flies in the face of this very simple worldview which is that protocol hasn't really improved in many years like arguably there hasn't been a major upgrade since like tap r I'm not even sure how well actually with ordinals I guess that's going to indirectly end up being really influential but like really since like the block size Wars in Tapo not much has happened in Bitcoin land but Bitcoin has expanded its market cap of its token by you know a full order of magnitude or or whatever um so it kind of begs the question here like I think you can point to a couple of areas where there are network effects and they're actually a little bit divorced from this idea of just like more useful apps that are being built these platforms like one would be Bitcoin and that implies to me that there's a very different set of

network effects that takes hold of the token as opposed to the underlying protocol where there anti- Network effects that you were describing I think another area of the stack would actually that's pretty sticky is the execution layer like the evm uh and the svm certainly have some amount of network effects that accred to it although it's TBD like how or if that filters back up into the token price so I guess like to you know to put to you here like what is your take on how Bitcoin was able to grow its Network effect uh and the token and sort of the value of the token while the technology underneath didn't improve and do you see this world where the tokens versus the actual Protocols are starting to sort of separate and compete on different

vectors uh Lots there to unpack I'll there's like seven questions there in one I know I'm yeah I'll I'll I'll do my best here I'll start with Bitcoin because it's the funny one um agree Bitcoin is the special snow or sorry Bitcoin uh the market action and the commentary around Bitcoin as you alluded to would make it the Special snowflake I believe it's just the ugly child and is actually worthless um but I understand why people think it's the wow that's a a flaming hot take Kyle wow Kyle this isn't new I I've been saying Bitcoin is not

worth anything for a long time uh and I will I will stand by that and take it to the Grave um I I I think innovate or die like is like the core of the world and everyone else would be like the point of Bitcoin is it doesn't innovate and it's special and like Kyle you don't get it and we can go back and forth on on that um but uh I understand why Bitcoin story is not one of of usage or usability so the notion that like it's it's technology matters is by definition irrelevant because of the story that you're told um Bitcoin is an RNG that has historically trended upwards excuse me the BTC USD price is an RNG that has historically trended upwards um I

generally think it will go upwards probably for another year or two or three I don't think it would be an RNG with an upward Trend I think it will become just an RNG uh within five or six years um uh because at some point the market cap can't just like keep outpacing all other assets like it will just become too big and so it will turn into an RNG uh and then eventually it'll get flipped by salana or something else um that's SE story um but yeah Bitcoin is special because it's special like it's it's circular right so uh you have to just accept that for what it is um ethereum I guess the question is like how do you explain ethereum price

performance even though eth is like being as an asset is being disintermediated is that is that the question at hand Mike yeah it's well can I actually push on that whole like ugly child I'm not like defending Bitcoin one way or the other but like I think you could actually attach a more rational explanation to it which is that like I don't know this has been as long as I've been in crypto there's been sort of these like two camps of people like over oversimplifying here but there's like the Monitor ists and the technologists and the monitor say like the the way that these assets are competing are the way that money competes like liquidity Lindy all this stuff right and then there's this other group which Kyle maybe it sounds like you fall a little bit more into which is like guys like that feels really pie in the sky like

ultimately innovator die the tech has to get better the has to actually do stuff and the doing of the stuff and the creation of like real revenue and demand like that's what's ultimately going to drive uh what's going to drive value and like empirically maybe this would be a data point that flies in the face like this could be sort of Point number one in the camp of the monitor where like really maybe this stuff like once you achieve some sort of critical mass it just kind of takes off and like isn't it kind of funny to you guys that like not that anyone on this channel is like a TA sort of Trader but like you can look at the price appreciation of like eth and it looked really similar to like what Bitcoin did the last cycle and like salana looked very much like that you

know the price fractal for uh salana last cycle look very much like ethereum in the Ico days like doesn't it just feel funny to you that it moves in these like very sort of consistent patterns and to me these are all data points that suggest that like maybe it's not all about the technology and The Innovation and these networks actually doing stuff like maybe it is like maybe all these networks are like way more commoditized than we all give a credit for and they're all just going to trade on kind of like Lindy liquidity something like that I know that sounds so pie in the sky and that doesn't sound good on a podcast but like aren't those like data points that support the more monitor point of view as opposed to the technologist point of view I can it all be true Mike like I don't know I'm

curious Kyle's view on this but like it can both can be true right so they tra on this like weird ta technical hype cycle thing but I do think like I do agree with Kyle that innovator die should be the the motto of anyone Building Technology and the technologies that are not innovating should die right now I also will say that Bitcoin might actually truly be a special case of like digital gold and it's just doing something else and like I actually think I actually think that's a very reasonable view um but um I'm pretty bearish on like Bitcoin l2s for example that seems like just like trying to innovate with your hands tied and your

feet tied like just seems very hard to do um I don't know Kyle your thoughts uh agreed exactly on bitcoin l2s um look will you create a casino that has a Bitcoin that's orange on the front like yeah great um will will you build anything that is going to change Global Finance or power Global dpan or gaming I I think no chance I I don't think anyone who's building a Bitcoin L2 like that's even entered their mind that like that's what they might be building one day that doesn't mean it's impossible to get there I just think like the the because of a the technical constraints of the system and be the kinds of people who have been attracted

to build there today in 2024 uh you're basically just getting people who want to build casinos um and the people who like want to change the world wouldn't deal with Bitcoin because it can't change the world like it's just there's just too many constraints there and if you wanted to change the world you wouldn't impose those constraints on yourself um back to your question of like how do you explain the the price cycles and and the movements um I I um the monetarist thing is real um and obviously Bitcoin is very monetarist and ethereum is monist is um depending on who you ask it's more or less of that and salana is like almost like pure Tech IST kind of through that through that

lens where anat's like yo man ultrasound money is stupid salana is not money it's like he's like we're here we're here to build NASDAQ um on chain so I I think that p uh what's it called spectrum of views is is clearly there I think the reason that like the valuation of eth is what it is is mostly because like the entire outside and the and also the explanation for why crypto generally moves in cycles and clearly there are correl B correlations is because the asset class relative to all other asset classes has been extremely small and so if dollars leave other asset classes to flow in the crypto then kind of sort of like all of the top things have to go up together

just mathematically that must be true um so that explains a lot of the correlation effect that will become less true over time as crypto gets bigger and we're starting to see that now um and then the other part of it is just like crypto is just weird because like in some places it's illegal or like borderline illegal or like in the US it's like legal but like gendler is like n man crypto bad and you know and like you go ask people who work in finance fulltime and they're like I don't know what crypto is like my compliance team tells me I can own it but I shouldn't own it so I don't pay attention so it's just like it just treated as the like the ugly stepchild of financial markets and um

so for that reason the knowledge people have is weird people learn about Bitcoin first inevitably and then they try and apply that frame to ethereum and salana and ethereum and salana are like first order different things but they're called cryptocurrencies and like you go a coin market cap and like it's Bitcoin ethereum and salana so people think they're the same they're called currencies and so people like oh it's you buy coffee with it but then like it doesn't work for coffee and and so there there's just so much um uh like background and information AAL context that is somewhere between outright wrong or like unhelpful that people have when they start trying to learn about them and then like then you get to the questions valuation and and like you're already so misinformed and unconfused that like I

think all of that combined can get you to the point where ethereum is trading at adx salana and like salana at this point I think has a higher probability of having a better scaling road map ethereum may get there but like I I don't know how you say ethereum has a higher probability today and salana is doing the same volumes as ethereum on chain these are trading systems like that's what they're for like we have the data and and so like that's the only way I can explain it is just like there's enough inertia and confusion uh that this I think if this was equities and you had like equivalent like NASDAQ versus CFC or excuse me NASDAQ versus CME kind of a thing I don't think the discrepancy in valuations or narratives would be this large um I got like I don't know I guess

I have to I it's too dangerous for me to just reason um out loud about something that I'm trying to articulate in my head here but I I do think it's like it's worth pointing out uh I guess what I was trying to get at before is these things aren't equities right like it's not like these things don't generate cash flow which acre to some sort of balance sheet that these uh protocols can then spend and like compound their advantage like it's different um and maybe the the clearest way that I could articulate that is like if salana was a company it would be actually taking some kind of rent which would then go into a balance sheet they would spend hire more employees and do that whereas I view the the point of both ethereum salana and Bitcoin is to get its asset out into the

hands of as many people as possible like the reason why salana might go up if more people trade on salana isn't because it generates cash flow for salana that can then be reinvested it's because if you're trading on salana then the dominant pair where liquidity is is probably salana whiff you know or you know Soul whiff or sold Doge or whatever and then more people have to go out and hold salana and then the more distributed the currency is the bigger the network effect that It ultimately has the more liquid it is ETC and I don't know that's why I think that's how I think you can explain some of these differences in between like why sometimes technology doesn't end up driving the same type of gains uh like Tech and Innovation advances don't end

up driving the same type of gains that you otherwise might expect to see but I know uhart you got one question here for Kyle about the the finance use case I want to I want to ask about Data Network effects next which I know Kyle you're into so I I wanted to on that Mike oh really well push back push back push back that so so I agree which is if you hold ether you hold soul you can earn yield and that yield comes from two places one is meev which I think is the more important source of yield uh and the other is people paying the gas fees and then the inflation and so you end up you know owning a higher percentage of the network over time uh which means you get to get more of the Mev right which is which is real cash flow yielding so I

um so so you can just through that lens alone you can use a DCF like construct to produce evaluation methodology it where it is not like an an equity is like there you're right there's no balance sheet there's no it's not Microsoft and you just cut a few of Windows or office and you just get the Fe the money magically um so I agree in that sense but like you you can value these assets um through that lens and that is the primary way we think about valuation um it's also why I'm more bullish l2s than ethereum just for that reason but that's a whole separate dialogue Kyle I was gonna add to that too like Mike as a thought experiment you know you're saying you want to get the asset in the hands of more users

right so it's like how many transactions are there but as a thought experiment like we don't have any identity so it literally could just be two guys spinning up hundreds of thousands or millions of wallets trading with themselves right in in concept here and that's that's not real but I do think that Network usage um is what actually matters here and generally speaking Network usage is going to be correlated with more users but it doesn't have to be it could just be correlated with a fewer number of users using the network more and I that's where I kind of do look at that as being like a cash flow like argument like Kyle's saying but you know well I mean the the more trading is happening

on chain the more me there will be that is that is a guarantee and so the more assets there are the higher the market cap of those assets and the more people trade those assets that guaranteed will produce me yeah I I empathize with that view a lot uh I guess we're just going to have to ultimately end up see like seeing how this plays out like the again maybe Bitcoin is like this special all right lot lots of reasons to assume that Bitcoin might be unique Immaculate Conception right like all of this stuff that uh is really hard to re replicate but maybe it's not um I actually like I used to think about like bitcoin's on its own separate Private Island over

here and then there's every other blockchain like honestly the more that I think about it I don't think it's actually that separate um and actually like you see these design convergences like okay maybe Bitcoin l2s like don't end up working uh okay maybe they do um and like they're all these reasons like right now people are talking about salana l2s for sort of different but sort of similar reasons why people talk about eth l2s it's not about cost savings it's about sovereignty and control over your block space um there are all these different things that are uh sort of like suggesting to me that at the end of the day like really what separates all these different chains is just the specs for your L1 validator and uh everyone chose different tradeoffs but now you know people have gotten to

such a point where like well actually I've kind of like solve this you know I've maximized the the positive tradeoff here now I'm going to try to solve the negative and all these blockchains are starting to look more similar um and honestly for eth I don't think eth is pro eth is underperforming relative to Soul right now I'm not a Trader I don't know ignore any of this you know this is not Financial advice but like probably the next thing that is needed to make eth go up has nothing to do with usage um or or DCF uh you know me future me rewards it has to do with a uh an ethereum ETF and the reason eth is getting get an ETF is because it's been around long enough there's a reference rate there's a Futures market and uh it's liquid enough that you can put an

ETF wrapper around it so I don't know I think I don't know I don't know what I'm really driving towards here but I'm probably more in the camp now that um there's people aren't valuing these things based on some sort of rational DCF and these things are more commodity like than they are Equity like although they're obviously elements of both I would say I I agree that they're not being priced as if there's people running DCFS strongly agree with that even though folks like myself have tried to put that out there but has not been well received yet but it'll take time I agree that they trade more like Commodities than like equities I also agree with that again that I think that will change over time but for now is

true um but yeah I mean like if all you're saying is the reason the price is going to go up is like your grandma's going to buy it in her IRA then like it's a trade it's not an investment I mean that's kind of implicitly like what what you're saying I I do think L ones are traits actually I wrote I actually and I have this on record I wrote this in a newsletter like two years ago like I think I'll show you guys this chart we're really going down a road that I didn't plan for this podcast but like my whole view of crypto got changed by these two charts which look at if you look at the like on a 200 or 300 year basis like the returns of uh Commodities gold yield bearing Cash Cash equities it's like equities up here everything

else um and then if you look at the way that gold performed around these like crazy monetary things you can you can see it like kind of spikes like this and then goes back down and my uh my the conclusion that I came to was the reason why equities perform so well is you can compound Returns what you don't what you can't do in any of these cryptoeconomic systems is compound returns just doesn't work their anti Network effects you because uh you can't there's no organizing body which reinvests the profits even in your example where you're DCF based on the me all of that is basically just like instead of in the company analogy that would be like I'm just going to pass a use a dividend to pass all my returns back there's no or Central organization

which like takes that me and then invests that into new resources for the network so it's like a constant dividend I think uh I push back so I understand what you're saying but I but I think that's not capturing the reality of how these systems work um there is real compounding coming back to network effects which is the more state that is in the system both literally like how many accounts have how many token balances and also how many exchanges have onramps how many thirdparty providers integrate with it um indexing providers all this other forms of things that hook into the asset Ledger um that that is a that is a source of network effect and then and

then where the where the actual compounding comes from is hey I'm a developer I see that there's a million people who have usdc on chain or whatever I I I want to tap into those people so I know that they're so I'm gonna go build my own app and like the difference between Microsoft in the 90s and this is like yeah Microsoft just charged you $25 per computer or $50 per computer and they got to acrew it to and so they could reinvest in Windows right and make Windows better sure but here like the state is growing the more state that grows the more types of apps you can build the more that you know as you try to get new users for your app they will have state and they can do stuff um and so that is an actual structural

source of compounding um and and then as those apps do stuff and people do stuff that will produce me which will then go back to the the the stakers of the L1 so so the mechanics by which the value flows is different than what you would have had with Microsoft but it is it is there and you can see it happening yeah Kyle I actually like gen generally agree with that I think Mike one other way to frame this is you know my bare case for crypto is we reinvent finance and like uh like we're the rails for Finance in the future that's my be case and the bull cases we do a bunch of other cool stuff that we haven't yet invented on top of that and um but if if you believe that that we're going to

reinvent finance and crypto will be the rails for finance that doesn't feel like a commodity like investment that feels like an equity like investment like you're making a bet that this is a big deal technology that powers our our world totally but who gets to who gets to capture that value is it the apps that are built on the substrate or is it the substrate itself and like to me like it's both yeah it's definitely both um but like even Kyle like I I hear you but I'm also just you know what you're describing a littleit sounds like this commodity type Network effect where okay there's more State and the more State there is the more useful the commodity ultimately is here's a really good example of a commodity where you could make a really similar analogy oil so oil actually used to be it was so useless um

that when Standard Oil was getting created they dumped it off in the kyoga river because they couldn't come up with anything useful for it and then eventually cars got invented and then all of a sudden it was like hey we could use this like effluent for uh you know driving machines and then like the more different types of machines that got built around it it created like a network effect and you know more machines are built that use oil all that gas stations and all gas stations all that other stuff right that's kind of what you're describing but at the end of the day oil is still a commodity and I think that these things are all Commodities basically and I think empirically yeah but but you I think oil and get yield from more cars driving around like that's a good point that's a

good point you can do that here yes yeah yeah Mike um we can make another fun uh analogy to blockchains to the internet here right which Kyle loves where you know you're basically arguing that you know um block space is like the tcip pipes that connect the internet right it's a commodity and the value AC cruel is on things built on top of that and and again I actually I'm not convinced of that I actually think that the the state of blockchains is valuable not just for Mev but for lots of other reasons some of which I don't think are figured out yet but that's a very interesting debate I do think it's a kind of good segue back into the network effects bit and a question I I wanted to have for

Kyle which is you know if we focus on this Finance use case for crypto which I am is my is my bare case crypto reinvents Finance um wait why is that your be case part just because you want you think crypto should be doing more than that or why is that the bease yeah that's why it's like it's like maybe it's super optimistic but like I think it's obvious to me that crypto makes for better Financial rails than trafi like it just does and I I honestly think yeah C Kyle's thumbs up it's like that is a mind-blowingly obvious statement to anyone that looks at how broken trafi is and so you're just like this is obviously the better way for us to uh kind like asset ledgers like control make payments and do

trading just seems straight up better and so um the bare case is that crypto just reinvents all of the financial rails and then the bull case is we do a bunch of other stuff that we haven't yet invented on top of that so that's my super Optimist it sounds optimistic but I actually think it's just well reasoned from first principles um anyways uh so in that view Kyle we're we're thinking okay if we it makes sense for there to be one Ledger um at least kind of I don't want to say naively but it makes a lot of it seems a lot easier if there's one Ledger for all of these Financial applications to interact with but when I think about just what what Jamie Diamond is gonna want to do

with JP Morgan chain and what Larry fin is gonna want to do with black rock chain like I just think that these guys are smart enough to believe that owning their own asset Ledger is extremely valuable and they won't don't want to be integrated and it might be almost perverse but I feel like it's almost human nature there too and I'm just kind of curious if you had any thoughts or views around that um there's there's definitely a real chance that Wall Street tries great a bunch of permission asset ledgers and then you try and use chain link or lar zero or Wormhole or whatever to make them talk to each other Andor to public chains I think there's a real

probability that that is the endstate configuration um if you talk to all the people both at the banks and at the crypto teams the chain links L zeros Etc um they'll all tell you like very high probability that this was be be the future State uh which is the siloed permission chains and then they talk to public chains somehow I signed a much lower probability than the people working on it do um because I don't think that that like they're getting a lot of benefits from having their permission chain other than like ego and control which like is is a real thing but um

I think over time they'll just kind of realize like hey like there's all this money over here like I'll just go drop a contract down in the UI and I am better off doing that than I am having any notion of bridging at all um we aren't yet at the point where like that is the expectation of consumers but I do think in three to five years probably cons that will be the expectation of consumers and so the the companies will conform to those expectations is my general sense of of the world I've got a um a question for you Kyle uh maybe just getting to this um what's your maybe just skip to right to the end

here like what do you think ultimately is going to be the market structure for like l1's here because there's you know they're always they're everyone's got their favorite one for the most part right like you know you're like a Bitcoin guy or an e guy or Soul guy or maybe a soie or Aptos or like whatever um probably at this point we could all reason L say there's not going to be just one right there's going to be multiple you know but we've just been we spent this whole episode talking about Network effects and i' would be curious to get your your sense of like I mean how many l1s ultimately do we really need in this end State especially if Network effects around state are a very real thing and yeah and like what does the sort of par look like right is like

80% of the state is on the leading blockchain and then maybe there's like a really long tail or like what does that sort of end State look like from your perspective well the theoretical efficient answer is one but that's but but the reason it's not going to be one is not for technical reasons it's will be for political reasons which is just like hey there's like different just like CIS versus risk or like svm versus evm and like maybe move you know a I don't think move has ACH achieved escape velocity yet but like there's real non-zero chance that it does um and so you know we will for just like in the fact like people have different

preferences of like developer environments and stuff um so you you'll have some number uh of generalized l1s for that reason I I think the number is like somewhere between three and seven probably closer to three than seven um and then you know how many l2s are there that's harder to reason about I I think the l2s are generally nonsense um but like for the game the game use case I get it um the question is just like how many useful crypto games will there be I think so far the answer is somewhere close to zero uh I think the number will grow above zero at some

point uh it's but I I I don't know like is it just we have the trading card games that like look like Hearthstone or uh prime or whatever I don't know does really need to be on chain is it going to be stuff that looks more like Star Outlet and parallel Colony those things I buy them being you know on their own chain more if like they have like a real thriving economy and like um but like how many of those games are there going to be I don't know like that that's like 0.1% of all games are of that mold in shape because they're very hard to build and like the scale required to build them is very high and then like are there other classes of games that really need this you know there's people playing around with Roblox Style ideas

Minecraft style ideas we'll we'll see those things need chains or not again very much TBD so there will be obviously a lot of side chains that people will build for these constrained environments that those numbers will be very large but I think that they will be economically irrelevant relative to the General chain that are supporting Global Finance um it's going to be like hey like there's NASDAQ and there's like you and your buddies playing poker like like that'll be the scale of difference in terms of economic activity and like yeah there will be a lot of small poker tables but like obviously the volume that NASDAQ does is you know much larger so so you would imagine a pretty steep

Paro then between like it's mostly the number one chain and then like really steep drop off after that basically oh I think the top two or three chains could all be very large I mean like as far as I'm concerned NASDAQ and CME are the same so I don't actually know what their volumes are but to me they're like close enough to the same that they're the same um so one two and three could I don't I don't think it has to be 8055 I don't think you need that kind of a a power L Dro it could be 30 30 30 I don't think that's crazy because at that level of scale all of them have enough scale to have all the Integrations and touch points and everything that like they work um or like what's n versus NASDAQ I actually again I I don't

actually know but I'm G to assume that they're effectively the same um but then there will be a very steep drop off to like all of the poker tables side those will be each game there is something interesting in here like I kind of if we use the N NASDAQ CME type anology like these are all if those are the chains there's like you know a handful of them and then I drop off to a bunch of smaller exchanges but then the the the long tail stops because you you know you really can't just spin up like a tiny ass exchange doesn't make any sense and so the difference in yeah yeah yeah exactly there's a regulatory barrier here and so now with permissionless Innovation and all that

advantage in this market structure we're talking about there being this long tail that's really really long um with all these like whatever people just deploy their own L2 because they can and it's kind of interesting and then you think about what might happened there and then in my bull case of of crypto inventing new use cases maybe there's some very cool new use cases that come out in those longtail asset ledgers that we never even thought about that's like kind of fun um and that's pretty cool I was just going to relate this back to like the interrupt concept too because I don't think there is consensus yet between how these different chains do communicate or talk like I have a pretty uh I think the view of sending messages

between these chains is pretty idiotic in my opinion and it's just not going to work very well and there's the whole like a cross pitch about using intents and whatever which I'm not here to Shell but I I do think uh Mike we should spend more time thinking about okay if this is what the market structure looks like how do how did these things actually get connected and like again where's value acrel lie here too maybe just to t pin that for future discussion yeah maybe we could close on that uh Kyle actually like one like one like I'm very uh it's it's a uh what did Sam Hart say it's like a luxury type question like where does value acrew right because everyone's just trying to build this stuff and make it work today but I don't know I think I feel like there are a

couple of levels that maybe this could all like value could accreate like one is at the very base level which is like the L1 type asset maybe you can even divide that there's like a couple of different sort of lockin areas like there's a VM sort of lock in like the evm has been really valuable to eth I don't know can you like directly attribute that to e token price I don't really know maybe it's more settlement I'm not sure but like maybe it accr somewhere around there um there is another uh there's another argument that you could make that maybe this is ultimately going to end up accruing to apps and like one just bogey that we haven't really seen is like real successful apps with product Market fit like there are very arguably none really but like there are very few that actually fit that defin at least

decentralized apps like the centralized exchanges are probably the biggest bucket so like where're Kyle like I don't know on a 10year sort of time Horizon like at what layer of the stack do you see like value really acre or like being the stickiest uh oh I think I think the L those one those top two or three l1s because they will they will be the substrate that cap um me for Global Financial Market and and sorry I shouldn't have said l1's uh I should say whatever asset ledgers have the assets issued um that could be arbitrum it could be optimism it could be salana it could be who knows but wherever if if you have the assets

issued on L2 and then L1 is Da your L1 is is worthless um da is is not worth anything um but uh yeah well so I guess I think your thesis here which I I I generally agree with but I think it's highly levered to uh how seamless interop is then where if like interop is more seamless I think the pedo curve the shape of the power law distribution flattens where they going to have you could have more acid ledgers because it's easier to move things between them but if interop is kind of shitty or expensive or risky then I think we get steeper and steeper in that power law distribution because like it is so hard

to move between these these these acid ledgers do you does that make sense to you I I I agree I mean look in the world in which interop is so smooth you don't even know it's a thing then there then all of this is is M to entirely um but then also there's like different degrees of interrupt interrupt is not like yeah the Bas example is like trade asset a on chain a for asset a on chain B but then there's like the borrow lend example which is more complicated and there's like per derivatives and perpetuals and there's like selling options like as the financial contracts themselves get more complicated it will lend itself more towards one chain just because like enforcement of those

contracts it just becomes riskier and trickier and like if scaling the dollars you know uh with like additional assumptions around finality and Trust assumptions and bridges and all all this other stuff it just gets wonkier and wonkier um so there one is like spot trading and the other is like getting higher levels of abstraction there's a handful of teams trying to do for example like multi-chain Bend I'm not actually I forget their names really hard it's really hard it's just like a really but like and like borrow end is like the foundation of financial markets um and so like that concerns me a lot right and I haven't seen you know really good

answers for that stuff generally agree the better the in dropper is the the less steep the Poo curve that that that's definitely true um I have yet to see compelling Solutions on the interop side such that believes me makes me believe that the Curve will be meaningfully less steep guys I think we have to wrap up here but Kyle this was an awesome episode yeah man thank you so much for for coming on and you know if folks want to find out more about how they follow you or find out more about multicoin or or whatever what's what's the best way to do that appreciate the kind words Hart and Mike um awesome to be on the show uh and in terms of where to follow us um I am Kyle Sani on Twitter it's my name uh

multicoin does have a Twitter account we do not tweet from it there's been several times people thought we were dead because the Twitter account didn't have any tweets but no it turns out that we just don't tweet from it uh you can follow me on Twitter at C money and then our website is multic coin. capital and if you want to subscribe to the blog there's a little email subscribe thing at the top sweet cool yeah Kyle was awesome thank you so much man Mike har appreciate the time guys great to be on the show all right man that was a great interview often very contrarian always interesting always interesting what do you think I want to do more uh podcasts with Kyle that was that was fun I I really appreciated like the honesty of his takes um and you know I think

people out there think Kyle's just like a soul bowl and whatever and it's good he should be he should be proud of it but I also think he's like pretty open to I thought thought he was pretty open to feedback and pretty open into uh different Arguments for why his thesis might not play out which was really actually refreshing me too I I also got to give I think one of the things that Kyle's done well over the years is he's been extremely consistent um in his views and his credit honestly like I think a lot of his early thesis which were pretty I don't know unpopular is not the right word but not uh mainstream accepted have proven out to be pretty correct um so I don't know if you have I had a couple takeaways but I don't know if anything jumped out of you

to start um I think the takeaway is politics here like uh so at at a very high level so it's like okay I I don't want to use the word naively because I think that like almost discredits like Kyle's take here but I think it seems simpler if everything is on one Ledger if everything is integrated and let's even say that that's not a technolog technology problem that we actually can build a single Ledger that scales to do whatever we need to do um which might not actually be possible but like put that aside why would everybody want to be on the same Ledger um well the real answer is why they wouldn't want to be and the

answer is control ego uh capturing value just other aspects of this that I think are real and like can't be ignored and so then I think Kyle like accurately Embraces this there will be some distribu tion of asset ledgers um and that distribution of asset ledgers will be flatter there'll be more of them that are more equally sized uh if we have seamless interop and it'll be much steeper if we don't and to me that seems like a really logical take uh that was my big takeaway I think so as well and I think that agrees with something that I was I think it's the closing thought that we that we

ended last episode with which is you know when you're talking about l2s like the big problem isn't a tech tech one it is a social one and I think that equally applies for L1 to L1 like there's going to be this constant perennial incentive for you know I mean control or ego is kind of uh it maybe sounds a little bit derogatory but like opportunity right like if you are some bright enterprising developer and think you can be a founder and see problems with the existing ecosystems and you think you could build a better one like that's kind of the that's beautiful like go and see if you can build it create value and I just think that is uh it's I've never really bought into the one chain to rule them all Viewpoint because of exactly that and I would even go so far as to say

it's a moral imperative uh to create new Chains new sources of competition that will force existing incumbents to not act like incumbents and challenge them to keep innovating and be better and yeah that's I think it's a really positive thing so I I also I agree that it's generally a really positive thing I think something else I was debating about whether we could talk to Kyle about it um I do think in a world where launching your own L2 becomes an easy way to have your own token I think that there is another set of incentives there that are purely financial and again not all bad right but I could see a world I don't think it's un I don't think it's a low probability world that six to 12

months from now we have everybody launching their own L2 because it's a clear path to monetization for them at least in in kind of of like a excuse to have a token type way um so yeah yeah well I I know we one one of the Crocs of debate there which we kind of went down a rabbit hole but I thought it was pretty interesting is like are these things more Equity like instruments or commodity like instruments and I think the answer is that they're probably a mix of both there's a really great podcast I can't remember was on invest like the best years ago but it was this guy who was investing in Google in the early days and he talked about how analysts tied themselves up in knots as you know is it a media company or a telecom company ultimately it was

something totally new it was a different category and if you spent time trying to apply a comp for Media or Telecom both of them were going to be wildly off so you should have just looked at the thing for what it is instead of like what buckets you could put it in but one of the commodity like aspects to me of this industry is that the at some point the cost of spinning up Alternatives becomes very low and and this is ultimately like why a huge contributor to why I think crypto operates in Cycles because and by the way I love Bitcoin but one thing that I has never I think the bitcoiners per just always underestimate is this 21 million hard Cap Supply what happens when in commodity land when you have an extremely constrained Supply and price goes up is

one of two things either the price goes down or people find Alternatives because your solution is too expensive it's a commodity usually there's a substitute and the cost of in crypto spinning up new substitutes be that new l1's in the past now it's new l2s or whatever is extremely low and so that's why you know I I don't know how I feel about I think the L2 landscape today is probably a little bit overcrowded I don't know what you think about that but that's that's why that's there many commodity-like Dynamics see here okay so I like the push that it's like is it a commodity is an equity or going back to like is Google a media company or a telecom company they're like no it's something new um one one thought here would be like okay I am a

software developer when use this term very loosely so I'm making some application that's primarily software that people want to use and 20 years ago the way I sold my software was I shrink wrapped it and put it on like Best Buy store shelves and people bought software that way right and then there was like uh the app store and now I like had inapp purchases and that's how I monetize my software and then for games there's like freet toplay type too right and I kind of wonder if like running your own blockchain might be another way you monetize your software um and I I don't think I don't think it'll plan pan out exactly like that but I think it very well could be a way that

people monetize their own software um because it just becomes an easy way to do so um and you have a a token that trades and you know something like that and I don't think that's a bad thing I think that's a good thing um it does suppose though that you have like seamless inter up or relatively was interop um and again I think depending on your use case um your interop challenges are going to be very different and I think you know Kyle agreed with that uh games on their own L2 U made a lot of sense to him and uh again we need useful game use cases here but um if the technology is getting better and better and l2s are getting cheap and fast and all these other

things maybe it becomes like the next free-to-play typee business model um for game developers I'm I'm not totally sure yeah I think may maybe one way to knit these two different perspectives together would be uh this guy uh Preston Evans from Sovereign Labs gave this great analogy of like trust zones and maybe the reality just the political challenge here is getting different ecosystems to adopt the same set of Standards but maybe intra ecosystem like that's ultimately what defines the border of these different ecosystems like standards that get adopted within this like maybe one set of trust zone is like ethereum plus rollups or something like that and yeah you get a game that

has its own block space like its own dedicated L2 but maybe it just sort of agrees that like yep I maybe because the background of the developers or the founders they come from ethereum or they're comfortable working in whatever I guess there might be a custom VM for a game but whatever like these set of Standards feel right to me and I'm going to build my own I'm going to own these economics and block space but I'm going to agree to work within the set of standards in the e world and maybe they'll be the equivalent in Salon land or Celestia or wherever so maybe that's ultimately how it goes but I Bas I what I hear from you a lot Hart that I think is basically like the interop people are still underestimating the difficulty of it and maybe a lot of these apps won't

require as much as we're assuming that they will is is that a fair sort of assumption or summary that's totally fair and I think it makes it I'm yet to see strong arguments against this with few use cases so Kyle brought up you know cross-chain borrow lend that is a very hard interop problem and I think that's that's something that I think is extremely difficult um but if you're going to run your own application what are your interop or composability needs for the most part like if it's poker chain or your own Perpetual decks or margin trading platform your only interrupt need is to have people get assets onto your chain and then you've

got to at least offer them the ability to get off your chain and that's much more solvable and I think it's solvable you know again show what I'm working on with the cross but there's like stuff there that works really really well really fast and cheap today um I thought Kyle's Point around yeah so I agree Mike like I think that people have this idea that I need to seamlessly talk between all these blockchains at the same time and I just don't actually see the use cases for that I think that there's very very few of them okay and that that you know I think that ultimately is the driving Factor right it's like is there real demand if there's demand we'll always find a way if there's not demand maybe that explains why it's been a thorny or

more persistent problem than everyone predicted so I think the data agrees with you Hart um all right we've got a wrap it here we've got an absolute Banger uh of last episode uh that we're playing so make sure to tune in guys and then heart up Mike huh we'll keep it secret but is it very close yeah yeah it's we on the final final final lap here of scheduling but yeah it's gon to be great um and then we're going to do a recap the season I I honestly I've loved every season I really do feel like I have updated my the mission of this season of like updating my mental model uh has been successful at least for me like I've learned a ton and I am thinking about things more differently about almost any other season than I was in the beginning so yeah feeling good me

too man yeah me too yeah all right sounds great and yeah looking forward to uh that next episode cheers partner hey everyone want to give a final shout out to this episode's title sponsor say now there are a whole bunch of really exciting reasons to be building on say V2 outside of just parallelization I want you to head over to say. to looking into building on their public devet again click the link at the bottom of this episode and head over to say. start building something [Music] today