Why most Layer 1s may not justify their valuations: Santi Santos

Transcript

Look, round it out. It's an exciting time. Putting prices aside, this technology is very real. It is exciting that we can now actually deploy it at scale and the technology has been built. So now is the time to kind of go hard. And so I I would I would definitely not come away in this conversation saying, gosh, I should really pivot and go do something else cuz the industry is dead. Again, it's like prices, you can't control that. The market will do its thing, but you want to lean in to to a secular trend. This is very much a secular trend. Everyone has their favorite layer 1 in crypto, but how should investors value an L1 and how many of them does the market need? Hello and welcome to the Milk Road Show, the daily crypto show that knows that even if L1's did have moes, they wouldn't be

deep enough to keep dejens from swimming across. I'm your host, John Gillan. Today is Wednesday, December 17th, and we are joined by Santiago Santos. Santi is a longtime friend of Milk Road and the founder and CEO of Inversion Capital. He has invested in over 150 different crypto startups, making him one of the most prolific digital asset investors in the world. Santi is going to break down what's going on in the markets right now, what he's looking for in 2026, as well as takeaways from the great L1 debate, and a whole lot more. So, if that sounds good to you, make sure you like and subscribe, share this episode with somebody who needs to hear it. And speaking of what you need to hear, we want to know what you want to hear about. Here at the Milk Road Show, we focus on the most important things

happening in crypto going into 2026. We want to get more feedback from you on what you want us to cover. If you have a specific guest or a topic that you want to see more on the Milkroad Show, let us know in the comments or jump into our Discord and and send us a message there. Today's episode is brought to you by Chain Link Links Web 3 to Wall Street. Bridge sends stable coin payments instantly. Simple, global, friction-free, and reserved ETFs, the onchain equivalent of ETFs. And without further ado, welcome back to the Milk Road Show. Santi, how are you, sir? >> John, great to be here. Thank you so much.

Well, I'm glad to have you back. Uh, I think that there's a lot of attention on you right now on crypto Twitter um on the back of this uh debate that you'd had uh with HB of Dragonfly Capital over L1's. And by now, I think a lot of people have caught up, so I won't make you rehash everything, but I am curious to know coming out of this conversation, what were some of your key takeaways? What what are the biggest lessons learned for you? And and what what what have you taken away from this conversation around L1's? I think no one debates the potential of the technology anymore. And a lot of times people confuse you believing in the potential of that technology and then making a very clear distinction of is that priced in and are you taking are you getting paid enough

for the amount of risk that you're taking. So that's point number one. Point number two is I think we're in a very different state of crypto. It is maturing. You have more competition. You have 100 billion invested in infrastructure. Everyone wants to be in L1 because historically that's where most of the value capture has happened. 90% of crypto valuations are captured by layer ones. Less than 20% of the revenue is captured by layer ones. That was very different. And I get it. Look, if you're a VC, you could have run that strategy and you would have made a lot of money. I was I did that.

But I think it serves as well as an industry to then think about where's value going to be acrewing. We're building the city. We're building the highway. We're building the plumbing for the internet. Whatever sexy analogy you want to overlay, I believe it. It's real. Companies are using it. Every day we have headlines that we would have dreamed as an industry. The question is who's going to make who's going to capture that value? And that is the nuance that I think everyone that's where the money will be made or lost, right? And I think uh like everything in the classic Silicon Valley meme is Don't show revenue and sell the dream.

We the genie's out of the bottle. We're showing revenue. And when you show revenue, I think it's hard to pay 380 times revenue for a company. I don't care what kind of valuation you're running. It's hard to justify that. It's hard to pay 100 times revenue. It's particularly in a world where most values keep being captured by DeFi and deep projects or exchanges and stable coin issuers like Tether. Those are very profitable businesses. Why? because they control the user. So for me, it's I like to use Twitter in these discussions and debates to pressure test my thesis. You know, it's like, hey, where can I be wrong? There's 30 different reasons why my thesis can be wrong. And I'm not here to convince

anyone other than just really make sure that whatever I underwrite, I only manage my money and my family offices. Hey, am I am I am I seeing stuff the correct way? And I think Case and others like have very valid points, you know, that by the way, I'm not debating. It's like in 10 years, yeah, maybe we can onboard the entire internet on on these crypto rails, but that doesn't necessarily mean that I should pay 380 times revenue for that today, >> right? Yeah. So, I think it's it's helpful to kind of hear some of these thoughts and takeaways. And for anyone who missed it, we did an episode with Hib last week um getting his takeaways as well. So, and I I want to go back to the point you made about debating this just being a way to pressure test your

own thesis and to sort of try out your own thinking. And I really appreciated the spirit that both of you brought to this because it wasn't hostile. It was really like just like you said, like comparing ideas, sharing thoughts, uh, and really like strengthening our understanding together. I I do want to ask you about this though because Hib is an investor in an L1 that you're building and I'd love to hear your thoughts talking us through the process you went through on deciding to launch an L1 versus an L2 and and what is the unique value proposition that you're trying to bring to the market there. >> Yeah. Look, succinctly for people that might not be aware, inversion exists to solve the biggest problem in crypto that we have and the biggest opportunity which is solving for the demand side.

We've built great highways that exist all the layer ones. They're good. They can scale. They have massive highways that can have a lot of traffic on them. Problem is there's no there's not that many cars in the highways today. And the only cars that are there are they're drunk and on leverage. And and so that's the opportunity that I saw after investing in so many projects in the space across all different parts of the stack. I started noticing that for the most the vast majority of the companies that went out of business is because they built good good products good applications the problem is there's not enough users and so the question you

know starting to really understand okay what what's really the issue in crypto you know I was very actively involved in D5 when I was at parifi I have always felt that using this technology allows you to see where the future is going to go and what's being built and the utility that these services provide But it's a shame, right? Because we only have 40 million active users today. So, so why why do we need another layer one for inversion? It's very simple. We're we have a private equity approach where we we say hey look crypto is a very good technology to leverage and inject into pretty much any business because you can cut costs you can improve the unit economics you can in the same way that technology's done that for businesses

over the last you know throughout the history but you could have said the last 25 years every business used software a CRM uh HR payroll all these systems AI now and blockchain's going to do that. You know, stable coins are going to do that, Deepen's going to do that, DeFi is going to do that, right? Tokenizing stuff and the opportunity that that's that's what we are doing at Inversion. We are saying, "Hey, there are very interesting businesses that have been around for a while. They're not growing and they could be made very efficient." So, it's that imagine that's a car. These cars are good, but they're, you know, the engine's malfunctioning for a variety of reasons. You know, we're basically running finance on systems that predate the internet. Well, gosh, what if you built a system that is

efficient lowcost instantaneous atomic, transparent, huh, I don't need to tell me that. I was investing in that before he did. And I love him for that, you know, and and they're super actively investing in this technology. And so that's really the opportunity we see, which is let's go buy real businesses where we can make them more efficient with this. And then if we do that well well we bring all that flow of stable coins and transactions into our blockchain because we can capture that right you know if you if you own the cars and you can own the highway well why not do both and so that's really the opportunity that we see and then recycle that capital to buy more and more businesses right because what I want to do is

really accelerate the timeline by which we see that we reach that end state of good technology which is the infrastructure is invisible like John, you don't really necessarily care what type of engine or how the car works as long as it get gets you to point A to point B, as long as the highway is reliable. And and that's really I think the state that I want to get to. And so anyways, we're lucky to have Dragonflies investors. They were our lead investor in the last round. So naturally, people ask us say, "Well, wait a minute. Why is the seed debating uh why are you guys debating on that?"

But I think if you were to listen to the debate, it's it's very clear that we both agree on one thing, which is we built the plumbing in core infrastructure for this digital city. We only have one a casino there. Well, we got to go build other buildings and other kind of round out the rest of the economic activity on these systems. They could be massive, way bigger than what they are today, right? trillions and trillions of flow settled on these cities and you're building the next New York, you're building the next Singapore, but we only have 40 million active users in crypto today and most of them are just interacting with this technology in a very narrow use case which is not recurring and it's all kind of driven by monetary flows. I know

we're going to talk about macro and that's really the issue and the that's really the investment and where I spoke with them back in the day and I said, "Hey, let's agree this is a big problem and we see eye to eye on that." So, so I think that's perhaps lost in the debate, right? >> I'm going to pause there for a second. If you're listening to this and thinking, "Okay, but what is the move I should actually be making?" Then going Pro is for you. Every week, our research team drops a full deep dive on the biggest themes everyone else misses. Plus, you get access to our full Milk Road Pro portfolio that has real-time buy and sell signals and access to our Discord where our analysts will answer any question you have. If you want to level up, honestly, that's where you got

to do it. hit the link below. >> Yeah. No, and that there is broad-based agreement on some of the technology. So, what I'm hearing is you saying that you have great faith in the technology and in the the benefits that it brings and what you're trying to do with inversion and with your layer 1 is to bring that to existing businesses, bring them into web 3 and and and you know, turn that into a a feedback loop of of continuing to do that with more businesses. Um, I wanted to ask you about this. you're you're building your L1 on on the Avalanche um blockchain ecosystem. I interviewed Bart Smith, who is the CEO of an Avalanche or an AVAC um digital asset treasury company. Um and he said that he's been trying to position Avalanche to investors not as digital gold like Bitcoin, not as digital oil

like Ethereum, but as an enterprise software solution. And that seems to broadly align with how I I think you're treating this. I'd love to hear your thoughts more on that. Do you think that defi that description of enterprise software solution fits um and and how does this narrative go about getting more traction for the the broader digital asset space or just yeah hear your thoughts on that would be interesting >> blockchain is uh the operating system it will be for finance it is for uh decentralized infrastructure these are like operating systems it's software and I definitely agree with Bart's assessment and that's why I always exclude Bitcoin Bitcoin is a commodity it's digital gold. It's you value it like based on flow, supply and

demand. Everything else is like a technology business is enterprise software and will trade and be valued like one particularly as companies start adopting it. And so what's interesting now is you're seeing companies like CLA which is a large uh consumer finance business buy now pay later went public. I think it's 1012 billion business. they've now come out and said, "Hey, we're going to use stable coins and we're going to launch them on Tempo, which is Stripe's and Paradigms um blockchain and they've made that decision and they're going to do that because they can um you know offer more services to their end users and and stable coins allows them to offer interesting like instantly settled atomic transactions and that has really

interesting implications for their their uh P&L." So, it is enterprise soft. It is no different than enterprise software. back to what I was saying earlier, that's really the the most interesting thing as an industry, which is historically we've sort of made a determination that, you know, the techn is good or bad depending on where the prices are. But I mean, John, you don't necessarily make a decision whether you're going to use AWS, Asia or Google Cloud based on the price of these stocks, do you? >> Right. Yeah, great point. >> So, you mean like and I think that that's an indication that we're growing up as an industry. It's a good thing.

And so, yeah, back to your question of why we decided to use Avalanche is it is out of the box. It allows us to launch the highway fast, reliably, and safely. Cuz I'm not in the business of building a highway, meaning a layer 1. I'm in the business of acquiring the cars, making them more efficient, and then saying, "Hey, I own the toll booth. So, I want to deploy the highway as quickly as possible, but my real edge is saying, which cars do I want to go buy? Am I going to go buy an electric car? Am I going to go buy a Fiat, a Honda, a Ferrari, a Bugatti, a, you know, Audi, a BMW? Why? And and what vintage car?

Because what I want to do is change that internal components and wiring that you, John, have no interest. You know, the chassis probably stays the same. Meaning the end relationship with the user, what people see doesn't really change. you might see some really good upgrades like, "Oh gosh, you know, the the car is not bumping as much, the the fuel economy is better, you know, the highway is great, my travel experience from point A to point B is made better." That's the really interesting thing about this technology, which is that that's really the end state. We want to deliver a better product to the end customer without requiring them to learn new driving skills.

Um, but feeling the impact. It's like, hey, there's less traffic on the road. Hey, I can get more added benefits. Maybe there's a fuel station and I could get a better sandwich here or you know the fuel's cheaper. And I think those are the noticeable things that I'm using an analogy even though it's not perfect because what I'm trying to convey is crypto is not relatable for people other than your DG trader. It's starting to kind of get there because we just, you know, you have very good folks like Larry Finins of the world and JP Morgans of the world say, "Hey, hey, you should pay attention like this. Everything is going to be tokenized. Stable coins are great. Digital dollar, all of these things." I mean, I don't need to rehash

that narrative, >> right? >> But I mean, John, go on the street, and I keep going back to a very simple question. go on the street and you ask people, hey, have you heard about crypto or bitcoin? Yeah, yeah, probably heard of Cardano or you know, Ripple or something, be like, do you use it? And and that's the gap. >> That's that's again go back that's the biggest problem and that's a gap that we have in an industry. >> We need to get to at least a billion users to justify any valuation. >> Got >> for most of these high weights. >> So, okay. So, I want to ask some more questions about this before we move on to your thoughts on 2026. Um, but you know, you you described wanting to own the toll booth in the highways. It seems like there are more and more layer ones

launching. There's, you know, you referenced Tempo, there's plasma circles building their arc blockchain which is going to launch in early 2026. JP Morgan has one called Kexus and there are on and on and there's just more of these coming all the time. I want to hear your thoughts on how this evolves. Do we see a situation where everyone has their own stable coin, everyone has their own L1, or do you think eventually the market starts to collapse these down into, you know, fewer stable coins, fewer L1s? What is your your your thoughts on the direction of travel there? >> I think you will see a proliferation of like more highways and people say, hey, maybe I can go and launch my own highway. However, I do think you then consolidate and you have vertically integrated highways like Stripe is a

good example of that like Tempo, most other companies very likely will want to use a public highway and and look when you when you input, hey, I want to go from San Francisco to LA, for instance, you can take you can pay like toll booths or you can go through back roads or you can go through dirt roads. modes and I think you'll see that. Um I I do believe we're going to have a consolidation eventually. I don't think we're there yet. It's very competitive like there's there's sort of like this mania to build as many highways. We've overindex on that because you know historically that's been a good investment. But eventually I do think

large institutions will deploy on credibly neutral infrastructure. Meaning again, if you're using a highway, you want to make sure that it is safe, it's reliable, you know, that it's open for business, that it's not going to close on you for no good reason. And you want it to be predictable. And even JP Morgan, you know, use deploy their they've been building Kex's Onyx privately, like private instances. Now they're deploying on public infrastructure on base. And that I think is indicative. Why? because it it what you care about is counterparty risk and so you want to use sort of the Switzerland model credibly neutral where you're using infrastructure that is very reliable and I think that matters

particularly if you're moving billions and billions of dollars and settling which I think you can but but it's going to be very interesting you know I think for instance stripes tempo probably has a lot of adoption amongst customer base anything beyond that there's probably a whole set of companies that don't want to use tempo because it's competitive they want to use stripe for competitive reasons that you know public infrastructure like Ethereum doesn't have that problem or Salana doesn't have that problem. So I think we're in that still unbundling phase where you're having many many L1s and you already have many L1s. I mean I think you have over 100 different L1's L2s of flavor.

Not many of them have a lot of meaningful traction and activity on them. >> So they're irrelevant you know. >> Yeah. Well, so I think that that's an interesting observation and I kind of expect a similar thing. You know, I think we're going to see more proliferation, but then it will be really interesting to see what actually captures product market fit and and you know, lasting market share. Um, so yeah, it's something I'm paying attention to, but I it's it's been really interesting to see just how many how quickly have come out. I want to pivot a little bit to something that I' I've heard you speak about several times in in sort of this whole L1 discussion, but you've been particularly bullish on deepen projects. Um, and I'd love to hear some examples and just some more context as to why if there's anything specific that

comes to mind you want to talk about that'd be great. But, um, yeah, I think this has come up a couple of times even in this conversation. You referenced deepen projects. Why do you think these are are so bullish and why do you think the market is undervaluing them so much right now? >> Uh, well, I'll start with the first part. Deepend is probably the most overlooked category in crypto and it's one where is catching a lot of interest from traditional enterprises because they can lower costs. If you're a telco company in the US, go look at T-Mobile, AT&T, Verizon, they're all using Helium in areas where they don't have enough coverage.

And they're doing that because they can save on a per gigabyte basis. So if you John are circling around San Francisco and you have T-Mobile and T-Mobile doesn't have coverage in that area, they would have had to find you know connectivity with another provider and historically that would have been a large telco and you know that would have cost them hypothetically say a dollar or two per gigabyte and you John you're seeing Sunday night you know football you want to stream it and you already have an unlimited plan so they're going to source that and it cost them $2 per gigabyte. In come Helium that has deployed this mesh of hotspots that are using excess capacity of wireless and they can serve you that same Sunday night football game that you so much love for 50 cents per gigabyte. So

they're saving 50% 75% 80%. And it's already happening in real time. So that's just an example of deep deep in the I for a long time invested in enterprise software. What software as a service did for the software industry was explosive because you went from on premise expensive licenses that cost a ton of money to deploy to a more flexible spend model that was a per seat. So when you buy a subscription, it's per seat and it's very flexible and it's cheaper and the marginal cost of that it's it's super easy to deploy and scale and so it radically collapsed the cost for any business of any size to use this technology. Deepend does that for

infrastructure in telecom in mapping data. And the nice thing about is these are these are systems that have scaled for a fraction of the cost because it's crowdfunded and using existing infrastructure and collapses the cost for companies to use this because it's it's not only cheaper but it's reliable. Helium is quite reliable for large because because they your telco provider John doesn't want you to have a buffered streaming and Helium uses X's wireless capacity. So again, it's deployed on wireless and there's been a huge investments in fiber and whatnot and says, "Hey, you know, if you have a a

wireless, if you have a contract in your home or business, well, why don't you put a hot spot? If you're not using it, we're going to provision excess capacity." In the same way that Airbnb kind of said, "Hey, you have a spare room in your house, go rent it out." And that's really the beauty of deep end which is it is showing the world that you can have systems that scale really fast at a fraction of the cost and are reliable. Hivemapper same story. It has been able to map I think a I would say 30 40% of the world's roads because it's relied on a community to install a D you know cam in the car and map these roads and the alternative would have been one centralized company doing mapping

services and data and is that super expensive or Geonet doing like precision data that is useful for agriculture uh or like you know robotics or drones like you need to have like per like at the inch level precision and so so I hope that answers the question like deepen is a is very interesting to us because you can buy utility service companies and say hey if you think about how much they're spending to source that you know x amount of gigabytes to their user base or mapping data or you know precision data you can imagine that you can transition a big part of that to deepen networks And who benefits the most? That

company that is paying maybe hundreds of millions of dollars for the service now can pay 50% less. >> Yeah. >> Now, the question of why deepen networks are not as valuable today is interesting. And I think a lot of that has to do with the way that the tokconomics were designed and the value capture was was kind of engineered in a state of the world where you had a lot of regulatory roadblocks and you have a disconnect between tokens and equity. You have different entities and you're kind of seeing a lot of that try to remove that scar tissue. But you've seen now I think two to three acquisitions of companies that have been

acquired, equity's been acquired and the token holders are left holding the bag and there's they sort of quickly realize that the token has is not going to benefit from that. I'm hopeful that that gets fixed. Uh we've just, you know, we're in a different regulatory environment now. So that's I think a big part of it of why these deepen networks are still in my opinion relatively overlooked within the crypto industry. But there's a disconnect between again, you know, it pays to do the work. I mean, there's just because you provide a really good service doesn't mean you're going to acrue value, >> right?

>> Uber is a perfect example of this. Great great service, better than a taxi. It took them a decade to be profitable on a unit economic basis. and they started to really kind of break even and be profitable in some of their more dense profitable cities like San Francisco and New York, but you have to had record low interest rate environments and a lot of investors putting in money to support that. I'm not saying it's the same for deep in, but I do think that some of these deepend projects ought to kind of restructure their tokconomics because it's a bit broken today and I don't think the market's dumb.

>> Stable coins are the biggest use case in crypto right now. But let's be real, using them on chain is still way too complex. That's exactly the problem Bridge is solving. Recently acquired by Stripe. Yep, that's Stripe, Bridge helps businesses send, store, accept, and launch stable coins instantly. Explore the future of global financial infrastructure at milkroad.com/bridge. ETFs provide investors with a structured, disciplined, and diversified approach to crypto, which is cool, but the world is moving on chain. We need a crypto native equivalent. That's exactly what Reserve's decentralized token folios, DTFs, bring to the table.

Reserve ETFs are rule-based baskets of crypto assets packaged into a single token like Coin Market CMC20, crypto's version of the S&P 500. Go to milkroad.com/reserve to find out what's on offer. >> Yeah. So I think there's a lot of wisdom in what you shared there, but I think what I'd like to highlight to the audience is the way that you're thinking about um digital assets, web 3 infrastructure, deepen as as uh like infrastructure and tools to be used in existing businesses that are already creating value, already have market share, already have users and revenue, but to improve their outcomes, improve their experiences, and get better outcomes for all stakeholders. Um, and that being a major major value proposition that's come out of crypto and out of digital assets. But yeah, I

agree with you. I think that the SEC and the CFTC are doing what they can to sort of, like you said, clear some of this scar tissue that's made it difficult for some of the the projects that are are building great tech um to have, you know, tokconomics that make sense, too. To that end, I I did want to kind of get your thoughts on this. The Clarity Act uh is supposed to go a long way towards helping with that exact problem. It's been delayed till 2026. I've heard some people getting nervous that it may not come at all. Do you have a view on that? Are you worried about that? Do you think it's like a foregone conclusion at this point and at some point we're going to have to get a bill. Do do you have a view on that?

>> I think it will eventually happen whether it's in the exact form. You know, government shutdowns have played a part in into that delay. Let's zoom out. We're in a way more friendly regulatory environment than we were a year ago. And I don't think we peel it back for the simple reason that Wall Street can now make money out of this industry. And you know, you have a lot of buying from these constituents that you historically didn't have. They're going to want to have their say in how it's regulated and they want to make sure that they play a part in that. So I I think we still have a couple of rounds uh to flesh out legislation and policy, but you know, we we >> we're not back to the state of the world where, you know, people try to kill the industry. now you know they might

>> they so I think we're we made a lot of progress uh the stablecoin bill is probably the most important because stable coins are phenomenal onboarding mechanism they are a killer product we constantly think about the businesses that we acquire and layering in stable coins because you can offer a really interesting compelling value proposition to that user which is you know sending money faster better uh allow collapsing like a checking savings and money market account, you know, capturing yield and and there they might seem simple, but it's it's a if we just stop there, John, I mean, it's a huge improvement. And you're already seeing businesses, you know, you know, I think

everyone that eventually wakes up, uses a stable coin says, gosh, feels better than sending a wire transfer, especially if you're sending it overseas. And again, businesses are not dumb. You have Visa, you have PayPal, you have companies like SpaceX use stable coins and and I guess as we look towards okay who who in this state of the world where you see more businesses more folks like us say we're going to go buy businesses we're going to layer this technology like who wins in that case is it layer ones is it deepend projects is it is it D5 projects is it user aggregators I think more and more value is going to be captured in that middle to higher parts of the stack meaning deep and D5 projects and user aggregators

meaning our companies that we buy and then we lower costs and you know increase you know revenue by selling higher margin financial products like those are the winners in my opinion layer one's super competitive super competitive it's a commodity >> uh it's it's unlike real infrastructure digital infrastructure is hard to spin up sorry it's easier to spin up like the marginal cost of spinning up a layer 1 is basically zero you have to solve for some other nuances. But if you have real demand behind it, you can you can spin up a layer one. So, but importantly, if we again we go back to Uber. Uber faced a lot of resistance from

regulators particularly because you had the taxi lobby that hated Uber. I mean, go look at the price of token of taxi medallions in New York. I mean, quite literally got crushed when Uber enter New York. I think taxi in New York used to cost a million dollars each. I think above a million two now it's like 400k just looks like pretty much every altcoin chart these days. Um but again when when Uber went and talked to regulators the consumers were really behind it.

They're like it is just safer. It is convenient. Uber is a phenomenal product. I still think that as an industry, we can't control there's going to be more government shutdowns. We can't control and there's going to be likely a lot of resistance for people that stand to lose in a world where, you know, the world transitions to these systems. But you have to deliver a compelling product. That's what we need to do. That's what that's the biggest problem that we have as an industry is a regulator still might look at you and say, "Okay, wait a minute. Okay, I get it. You built all this infrastructure and you're talking about deep in and defi and all this great stuff, but like you have 40 million users today and most of them are here because they can go 10x

levered on a perpetual product on meme coins and it's as much as you want to explain the technology and explain deep in, they'll always kind of potentially use that against the willingness to draft and pass legislation. So in investing in everything you always want to understand like what are the things that we control as an industry. We definitely control how we go about onboarding more users and serving them a really compelling value proposition like a good good product.

Unfortunately most of the products in the industry today are speculative and it will serve us well as an industry to expand beyond that. There's always a place for a Las Vegas or Macau But we need to build other stuff in that city to, you know, make it real for >> there's got to be more than that, right? >> There will there will be more than that. Like I'm optimistic. I don't want to come across as cynical. I love I think that there's a lot of potential, but brother in Christ, I'm not paying 300 times price to revenue for a casino.

>> Right. Okay. Well, let me let me ask you this. I I think a lot of investors are like really like confused, frustrated with crypto's underperformance. Bitcoin's underperformance in 2025. Some people are saying we're going into a year-long bare market. I'm curious your outlook for 2026. Do you think that we're forming a bottom here and and setting up for for a bullish 2026? Do you think it's going to be a bearish year for crypto and Bitcoin? What what are your forecasting for 2026 here? >> I wrote a lot about it in my first piece. Um there was like why your coin why your coins not pumping? Um and not to rehash that article, but it does beg the question we we've gotten a very different regulatory regime. We're

seeing larger and larger companies adopt this technology and prices are just going in one direction. So I think that's the market telling you is very much priced in. Thematically it's hard for me to predict what's going to happen in 6 months or a year. I do think you're going to see a very clear divide between the have and the have nots as we get more adoption of this technology. You're going to then start to test, okay, what's a really good highway here. A lot of them are just kind of saying that they have the highest throughput TPS and all these everyone has a way in their marketing materials to say that they are the best.

But when you know and and when you have just white papers thrown around, it's hard to dispute that because you have a bunch of really smart cryptographers and marketing folks kind of say that. But who's going to be the first chain that onboards 100 million active users? And when you have a chain that has 100 million users actively using the chain for anything other than speculation, then the market says, "Wait a minute, why is this thing that doesn't have nearly enough users and is just mostly speculative activity worth five times that?" And so you have a normal reset because you're getting adoption. And I think this is normally true of every technological revolution like Carlo Perez has this like framework of thinking about how technology gets

adopted. We're very much in the not the installation phase. I think the the last since 2014 we've been deploying infrastructure meaning we're and I think that has you know been a h 100red billion invest deployed uh sorry invested to in you know now we're in the deployment phase meaning how are we going to use these things and so for me I I'm not um I'm not optimistic as it relates to valuations across the board and I'll put Bitcoin side because I don't that's in a whole category of its own. It's trying to be competing against gold and all you got to focus on there is do more and more people believe

that it serves a purpose in your portfolio and you have the likes of Larry Frink and you know Wall Street really advocating for people to have it in its portfolio and as long as that continues to be true I think there's a place for Bitcoin to go higher. how high it's valued at, you know, 1.7 trillion and gold is 30 trillion. So, you know, you make your own reasonable assumption as how high you can get. But I'm more interested in the technology side of like valuing these things as like to your point on enterprise software.

And I think I'm excited about that. I think there's going to be a lot of value created there. But I do think that these valuations are very disconnected from the real usage and the value acrruel happening. Put a finer point on it. I mean Ethereum is a $350 billion asset and it has producing a billion dollars of revenue at most. You go back the dot crash valuations are not as crazy. Amazon at it at its peak traded at 26 times price to revenue. And and you're talking about the most profitable marketplace, the most valuable, not profitable, the most valuable marketplace. And there's a reason why they kept reinvesting in growth and it sort of like did not make a profit. But

but you believe that like they they retain the user. You John, your wallet share, you just kept buying more books and then electronics and then pretty much everything in Amazon, right? The everything store. But you could underwrite that. Right now you're seeing for instance not not to just focus on Ethereum but Ethereum is the largest. So so let's just focus on that for a minute. You have fragmentation across L2s and most value being captured by L2s and then the applications in those L2s. And I think you know now people would say dude you're you're totally midcurving this. And I said I'm fine being midcurving this. I'm just saying I don't

think that there's a world where Ethereum gives me the type of return that I need. And I think there's way more downside than upside here from a flows perspective, from a mimemetic perspective, from whatever framework you want to adopt. But, you know, historically everything in crypto is traded as a as a relative valuation. Oh, Bitcoin's a trillion, so Ethereum is worth X. And if Ethereum is worth X, Cardano should be worth Y and so and so on and so forth. But I'll say again, the biggest re-underwriting, the biggest thematic here is >> when you think about flows, it's going to be mostly much more institutional,

more sophisticated, >> and you're competing for attention and capital. By the way, AI is the main character now, not crypto. So, you know, there's a lot of people that just would rather punt AI. Um and you know as it relates to AI going back to price to revenue or price you know you have companies that videos of the world that are very mimetically driven people understand them they're trading at you know 20 30 times price to revenue even less than that there's always going to be one example that contradicts my framework you know what I mean like there's always like the well what about opening it has 800 million users but it's not profitable it's losing you know >> the debate's over man you don't have to I look I think I don't mean to interrupt

you, but I I think like you know you you've made a lot of these points and I I think that that's like you know you've given a lot of context and I think the value of this is just to you know like we said earlier like have people reunderite their thesis and you know I don't mean to make you like reitigate all these things but I think that that's you know the question on people's mind is like we're going into a new year and and what's the outlook there? Um, but I think, you know, you've shared some thoughts. Um, there's there's a lot of value in the space is is what I'm hearing you saying. And that the speculation, the the the casino culture is maybe uh, you know, a place to build from, but not a place to stay for forever. Um, and you're looking forward

to the opportunities that are that are coming from from value coming into the market. Yeah. So, I think that's that's that's helpful. And it look, we're there's always going to be counter examples and counterpoints and other ideas and that's Yeah. But you don't I don't I don't want to make you feel like you have to constantly defend yourself. Like you're not against the ropes, buddy. It's fine. >> Oh man. But but you know what? I do want to emphasize one thing which is it serves like I always have reasons why my thesis could be wrong, invalidated. But I will say it again. This is an operating system. It's going to be used. It's going to be adopted. It will be explosive. Like every company will eventually start transitioning or transition their entire flow.

I'm not I am worried generally about just the market in general. I'm not I'm not a macro guy, but I do believe in very simple things like mean reversion. You know, the overall market's trading at, you know, 30% of the market's technology. We're at 30 times price to earnings like P ratio. Even if you look at the forward growth because they're like, wait, we're growing. AI is explosive. But, you know, John, you you've been around for a while. We've the best thing about crypto is it's you sort of speedrun cycles and you see the severity of cycles every 3 four years and this time is not different and I think there's just early signs of

hysteria in in in AI that I'm just not I'm not I'm not feeling the need to take a lot of risk in my portfolio. Capital preservation is the most important thing. And I get why like if you're managing other people's money, you need to sort of tell them that justify why they're paying you fees because you're like, I'm doing stuff, you know, I'm I'm I'm rotating the portfolio and I'm taking, you know, I'm buying this and doing that. I'm like, but again, if if you kind of zoom out a little bit, you're the focus is preserve your capital, wait for the market to come to you. And right now everyone's kind of bowled up on a lot of things. I will say like there's some really good

podcasts of like this guy General Atlantic who's a large private equity fund and a couple other folks that have talked about like AI and they've said we're willing to hold out a little bit before we go out and make an incremental investment in a startup. We want to see how AI kind of is used in companies and how they're willing to use it and what kind of benefit they're reaping to then really underwrite a real case of like why we should be paying these sort of seemingly crazy valuations. And you know, we've seen that in crypto time and time again, right? Like we sort of like we get ahead of the narrative and then eventually we correct and we mean revert and then and then the market pendulum turns to extreme negativity and doom. And and maybe that's where we are

in the crypto. I saw a chart earlier today that was like the unrealized losses are now at a have are second to FDX collapse, >> right? >> So the magnitude of unrealized losses. So, so maybe we are kind of at this local bottom where like people have really struggled this year in crypto and you know maybe we mean revert up upwards but I'm not particularly optimistic. I mean John let me ask you a question. If AI sort of if AI if the market goes down, the S&P goes down as it goes down because you know OpenAI or whatever like all this AI hype capex investment slows down and people

are just a bit marginally skeptical about what AI is going to deliver in the in the short term, not in the long term. Market goes down. What do you think crypto does? >> Sure, tokenized financial products are the future, but there is a big sticking point. They all need to speak to each other. This is a tough problem to solve, but Chainlink does exactly that. It's the universal language for financial markets, linking Wall Street to web 3, banks to blockchain, and so much more. See how Chainlink is linking the world by going to milkroad.com/chainlink. >> I Yeah, I mean, I definitely hear you. I don't think that uh it's going to be super bullish for digital assets. Um but we're already a little bit over time here. Um so, I think, you know, I I was trying to look for some sort of like uh

grace note. Um, but you know, maybe Doom is where we are and Doom is where where we're going to stay for a little while. Um, but yeah, on the macro channel, we we talk about a lot of things that that might be uh headwind or like tailwinds and bullish for for the space. And on the Milkro AI channel, we talk a lot more in depth about the the investment situation in AI. So, for people who are interested in more thoughts on those, definitely check out that content there. Um, but Santi, look, I think, you know, I appreciate you coming on. you've been very like forthright and clear in your thinking and you know there's a lot of people who have a lot of problems with what you're saying but you haven't let that deter you and I think it's really good for people to hear some like some

clear thinking and some sobering um thoughts about the space um so yeah thanks for coming on the Milkro show and sharing this with everyone where can we send people to find more of you and your work online >> yeah well appreciate John Don you know I'm not going to shy away from my thinking and views if you if you're interested you my handles is here Santiago Royel uh in inversion scorecap if you're interested. You know, we're we're hiring. So, if this resonates, um you want to learn more about what we're doing, we're looking to bring on investors and engineers that can help us in our journey. And look, round it out.

It's an exciting time. Putting prices aside, this technology is very real. Uh it is it is exciting that we can now actually deploy it at scale. And the technology has been built. So now is the time to kind of go hard. And so I I would I'll definitely not come away in this conversation saying, gosh, I should really pivot and go do something else cuz the industry is dead. Again, it's like prices, you can't control that. The market will do its thing. But but you want to lean in to to a secular trend. This is very much a secular trend. It is going to be explosive like over the next 25 years. Every business is going to use this technology. So you know, lean into that, learn about that. And I think it's a very exciting time.

>> That is a great message to end on. Santi, thanks so much for that. I really appreciate. It was like pulling teeth to get something bullish out of you, but we got there. >> Listen, I'm optimistic. I'm skeptical, but super optimistic. Not not soon. >> Gotcha. Yeah. No, I skeptical, but optimistic is the healthy place to be. Um, Sanji, thanks for being here. I really appreciate you coming on the show. >> I appreciate, John. Take care. >> All right. Thank you all for joining us. We hope you all learned something today. Um, so stay skeptical but stay optimistic and uh we will see you on the next episode of the Milk Road Show.

Thanks for being here everyone. Bye. If y'all are making swaps or trades right now, highly recommend you check out Milkroad Swap. This is a deck that we built in partnership with Cow Protocol. Why did we build it? Not to make money, just honestly so we could have a place to do our swaps for the lowest fees that we could find. This is the fees on Ethereum, Arbitum, and BAS are only 0.15% fees. Uh this is a huge difference from uh other centralized exchanges that charge half a percent or even up to 1.2% fees on their swaps. Also, you can swap on Salana all at swap.mmillgrow.com.

Check it out today. You won't be upset. And you can join me in my favorite place to make swaps on chain. Want insights on what's moving crypto markets and how we're trading each event? Subscribe to our channel and join the Milk Road daily and pro newsletters and start investing like the top 1%. This show is for educational purposes only. Nothing we say is financial advice. Investing is risky. Never invest more than you can afford to lose.