Crypto's New Valuation Frameworks with Jordi Alexander and Sam Kazemian

Transcript

what better time to talk about crypto asset valuations than when everything is probably pumping you know dead coins mean coins ftt I saw he pumping so like you can take your pick if these l2s start to use their own native token or usdc for gas then that disconnect becomes even more apparent but maybe Sam doesn't agree granted that there are more coins in type one than just Bitcoin is this just a one-way Street welcome welcome back to the rollup your home for technical talks and open conversations that shape the modular future nothing on today's show is to be construed as Financial advice you can see our full disclosures list at the roll up.co Ventures sit back relax and enjoy

today's episode after a quick word from some of our awesome Partners safe is moving the world's GDP onchain with the introduction of safet safe is taking this to the next step very soon check out net. safe. Global to learn more about how safe is moving the world's GDP on chain what's going on guys welcome back to the rollup today's episode is with Sam and Jordy talking about valuations of l1's L2 and broader crypto asset monetary Theory this was inspired by well a lot of conversation recently but most directly a podcast we did with Justin Drake that Sam had a notoriously viral quote tweet on um so Jord is here today to address some of

Sam's thoughts and hopefully disagree in some capacities and probably agree in others Sam why don't you well first of all welcome to the show again it's great to have you guys both back um and Sam man why don't you maybe start us off with that tweet and uh kind of how that all came about into your writing for sure yeah hey guys uh good to be back again so uh what better time to talk about crypto asset valuations than when everything is probably pumping right but the more important aspect in my view when I think about stuff is how do you actually value it right instead of like how how is the price going up or the technical analysis and so the whole thing for me is I'm I'm an eth ethb I I like Bitcoin and stuff but I'm also like

a big big ethline guy right and basically like the the past year right like Solana's been gaining on on like e the ebtc like uh you know rate is like the all-time low or something like that and I always had this like view of like my thesis is is this there's only two types of tokens and I've never really articulated this out until I posted the thread and it actually went viral and all that stuff but basically like uh there's two types of tokens there's Commodities scarce assets fixed Supply Bitcoin uh also in my opinion ethereum but then there's the PCF uh valued assets people call them governance tokens right price to

earnings discounted cash flow and my main gripe to just put it in real simple terms is like I think ethereum is like Bitcoin uh it is a scarce Sovereign commodity and like I can I define that but you know and I'll I'll talk about it but the issue is it's uh being redefined whether unknowingly or knowingly I I don't know I'm not I don't I'm not trying to give intent uh to a uh discounted cash flow type asset and my view is like that is basically uh going to make sure like Bitcoin uh far away surpasses Ethan market cap and long-term value uh acrel is like a scarce digital store of value as like a commodity is like nation states buying it in reserves

and and everything and so the tweet that you're referencing is like uh you know Justin Drake he was on and and like he he was like well we can muster multi-trillion uh dollar valuations for eth why because uh the burns will be like so big right like the the burns the EIP 1559 the base fee gets burned in ethereum's protocol right and and the cash flows from that will be so big that uh ethereum will be like a large tech company like like apple or or like n from da specifically as well just like da at scale using blobs basically as well exactly exactly like the gas fees whether they're blobs or like the transactions basically they get burned right and in terms of some base fee

calculation and then he was saying from an economic perspective from da you know transactions on on the you know execution layer and and stuff like that uh ethereum is like a big business and and that just kind of uh I guess that was the camel the the straw that broke the camel's back I was like okay this is it this is this is so textbook like my issue with with everything that uh I'm a huge eth eth bull I I still am I I will be but I think this is as bearish as it sounds for ethereum because ethereum has about two three billion in Burns a year it slightly changes now like it's slightly bull market so it might be a little more but it has like a 500 or 400 billion valuation right and that's like

that's like a what like like a 100 over 100x p& and compared that to exactly the companies Justin Drake was saying Apple Nvidia and stuff they have 400 billion Revenue like like annually and they're worth like a couple trillion like eth is already there right it's only a 10x different than than them and but it has 100x less Revenue if you if you want ethereum to be valued as like a a business literally he said all the words right I think if you can actually even put it up later once this this uh podcast is up right right in like a corner or whatever uh and this is my my thesis right my thesis is there's only two types of tokens in crypto all the

other stuff people talk about meme coins and stuff they all fall neatly into two categories there's there's scarce Commodities and by commodity I mean literally something like real Commodities right like digital gold uh like gold silver and stuff and there's digital versions of these right and they have a specific value and then there's uh tokens that represent labor right they represent some kind of actual cash flow from either automated labor right of smart contracts or human being labor of of like Dows or whatever and all of this stuff uh and not to sound Marxist or whatever but like labor it's all just representing labor it's the theory of Labor of the second type of token is is just that and you could say okay these

are more Securities like or these are not whatever those are all for for like Regulators to decide or something right but my my point is ethereum started off as like this typee one asset that I that that I call it that the Bitcoin is there's other L1 tokens or have have typically been like this obviously it's smaller valuations right like like less uh valuable like Commodities and governance tokens and Equity like tokens are like usually things like uh in in Defi and and stuff like that and they're accidentally moving e to this side uh whether or I don't know about int accidentally or it or I don't know right um and if they do that I think it's a

big mistake so that that's kind of my my uh overall uh view of it yeah I'd love to hop in and join join the discussion it's something that um I've been thinking a lot about for years as well and I've recently been saying that um the misallocation of capital that's happening in crypto is like one of the biggest problems towards you know Evolution and like getting serious level and by misallocation I mean you know the next trillion dollars that's coming in is being allocated in a way where we don't know what these things are worth people are just like randomly comparing one thing to another thing like oh you know suie should be 20% of salana which should be 50% of this based on some random metric and um obviously like a

lot of money is going into assets that are not necessarily considered to be um particularly good assets sometimes you know you can take your pick whether it's you know dead coins meme coins ftt I saw his pumping so like you can take your pick um but this like misallocation I think comes from we we haven't done what I think Sam is trying to do and others are um starting to do which is create a a bit of a consensus framework of okay here's the types you know me and Sam might disagree on like how difficult it is to go from one asset to another or these things but at least we can we can agree on like the Rules of Engagement of you know what what makes

sense and it doesn't have to be something that's taught in a textbook you know at Harvard Business School or something but it would be good to get towards that direction a little bit uh I'll say um and ethereum is probably the most interesting of the assets we should talk about more assets not just get stuck there but I think it's interesting for some of the reasons Sam mentioned which is you know it's gone from proof of work to then proof of stake to you know looking at triple point asset I spoke with Vitali today and he's he's like well it's a triple point asset one of three things can go well so we're kind of hedged like this can go well or re burn a lot or like this one might go well I think like you know that's not necessarily the right way to to think

about it is like oh I got three horses in the race it's more like figure out what your horse is and just ride it well um and and eth is is unique I mean just to start like the the kind of like nuances or disagreements with Sam um for me the EIP 1559 is um is a good thing it is a bullish thing I think the thing it's not bullish is to obsess about it and try to model around it and be like yeah like this2 billion dollars this is why we should be worth you know some multiple that that makes no sense but um you know Bitcoin at an 8% inflation versus 4% inflation versus 2% inflation has just much more reflexivity I think we're starting to

see that now where you know literally less than whatever Michael sailor buys on on a Tuesday is like the annual uh Bitcoin inflation at this point it does make a difference and having um this burn creates a good it's a good attribute it's a good attribute for this type of commodity asset but it shouldn't be the the end all be I guess yeah I think like so Jordy said it actually really well in terms of not obsessing with the the burn I actually went even further and I actually laid out my my framework in in like a pretty long form additional like like tweet almost like like Jord say science of of like valuing these things which is like I think the

the issue with ethereum and and actually we'll talk about other stuff too because I actually think this applies to everything salana sounds everyone's super excited for it too right and then it's like this will happen with Solana's age and size too like people will start having to discuss wait what is this thing is it is it like the like do how much does the blockchain make is is that part of the social Overton window of like do you actually like you know do you actually model that where it's like for Bitcoin it's literally not part of the the the Overton window right the the thing the acceptable range of discourse for how to Value this thing Bitcoin holders don't get any kind of Revenue this just not structurally how this designed right it goes to the miners the

miners are not the closest thing to the shareholders BTC holders if you even try to like model this as like shareholders of right and so they won't get any BTC holders won't get any fees right they never will so it's not even in the like social like conception of modeling this right but this will happen to every single like non-bitcoin uh you know asset and my my view is the thing I laid out is like ethereum the technology is so brilliant it's so good and as vitalic said to you Jordan and I was talking to him a little bit on Signal actually about this thing as well a while back uh he kind of agrees with kind of the the direction of of thought here is like you

should you we need to separate ethereum the technology right the blockchain from ethereum the asset and the issue is that and and you do this for every all all assets and then you see does the asset represent Labor uh and so it's literally just intertwined as a representation of you know the the fees from the smart contracts or the labor of like devs or something like that if it's a dow or whatever or is it totally distinctly separate where the the asset is the product and and like the technology is just the the actual uh literally medium for which which it exists right the blockchain technology or or something like that right and like Bitcoin the asset is the the product it's it's BTC

is is the product and so you know a lot of people say oh it's because it's proof of work or something like that I actually think like if you if you really uh had to you could move all of the Bitcoin distribution to like an erc20 token and it would still have most of its market cap if like I don't know some weird like mathematical thing happened with like Quantum Computing or whatever and like the the Bitcoin blockchain broke but ethereum updated faster you just move everyone's balances and it would still have trillions of market cap because the social distribution and the the fact that this is a store of value is important and it's totally distinct from the fact that you know the the blockchain that's proof of work helped us get there by like closing the Overton window of like how you actually Define

it but people separated the BTC asset from the technology much easier probably because the Bitcoin blockchain is is super simple right so it actually got the job done the main issue with the ethereum and again everything we we could talk about a lot of other stuff because I think this will the reason this is such an important thing to me and also how we designed fr's new tokenomics and and and the new road map that we we just announced is like it's a thing for every asset whether they like it uh or not right what's this famous quote that's like you might not be interested in war but war is interested in you like it's like a geopolitical I forget who said it but it's like you might think this doesn't apply to your token but guess what people buy and sell

it it does when it gets big enough people will will will decide okay wait uh how do we value this thing and and so it's it's it's coming for Solana too right this this kind of like is this a type one token or type two like and and the issue is ethereum the technology is so good and it's so powerful there's there settlement da like like the evm that they invented right that it's hard to actually uh separate it unless there's a really good science like a framework of like okay separate the asset first and the technology and it just so happens that this scarce asset is what is used in this technology you can like because everyone knows there's like going to be

a account abstraction so you could technically pay gas and other stuff right it just so happens that this thing is the scarce asset that you use in this technology stack and when you think of it like that the ethereum blockchain technology is just one digital industrial use case similar to it being in LPS similar to it being in Defi and and all this stuff it's just people have been kind of uh mind you know virused or like scoped I'm not saying as specific person's behind it or anything but but like just confused that oh uh it just represents gas Burns right like and and like that makes them think that this is not just a scarce commodity or asset but

they should just uh value it as like a pecf cash flow and then the the issue is then people respond with well you can value it however you want uh you know it it it's ultrasound money or this or that like just ethereum is decentralized guys just just value it everyone just value however you want but that's actually what's really destructive because W uh without like a really clear like Overton window of like the acceptable range of like discourse of what this thing is what you call it and how you value it is quite literally what price it becomes all of this stuff is a social construct right they're just they're just numbers and bits on like on like a on a piece of software which again is itself just a bunch of representation of bits right money is a social construct like you you

literally will it into existence as like a as like a social coordination game right like pieces of paper with Dead Presidents don't have Val Val it's only because we created a society where you pay taxes and can buy food with them and stuff there it's a social construct right and so you cannot say everyone value it however you want because if you if you have like the Wall Street ETF issuers saying hey uh if you want eth or Bitcoin in your retirement fund this is what you should look at Bitcoin is a scarce commodity it has no Revenue but it's really good because like all the nations are going to buy it eth uh is not a scarce commodity it represents the cash flow from like Burns and it has like a five billion dollar uh cash flow or whatever that the fact that they

write those things like that literally causally changes the price right and especially kol's too right like like Justin Drake and all those things that have Downstream uh mental model like like I I I think people buy any of these assets any of these blockchains for a reason and for the vast majority the reason is um numbers been going up it means it's good price begets explanation right and then sort of you just get this momentum and unfortunately this still works tremendously well and it's why we have firms uh Market making firms or whatever doing these like momentum ignition

strategies where they'll put the first $10 million to sort of create activity and then people buy because they see the price is up it must be good must be a good coin if the price is up um and and this mindset applies to all crypto Assets in fact like you know ethereum get got so fed um and reflexively went down because the price was going down and all this debate I mean one thing that uh maybe Sam agrees on then is like this L2 our l2's parasitic to e you know they're taking the fees or like who cares about the fees like that's all like secondary however um just the social

construct of like well price is going down maybe it's because of this but then the price it kind of causes more price going down because people have an explanation for why price is going down they think it's because of l2s um I don't think it's because of that but uh it sort of feeds upon itself and then it's a bad asset now so then the the timeline over the last year for people like Sam who are very like ethaline I'm somewhat ethaline as well has been like witnessing the most deter rating like levels of depths you you know you've never hit this kind of like Rock Bottom um and then suddenly like price goes up and then oh it's a good asset again like you know they fixed it the technolog is

rapidly improving as they say yeah I mean uh Jordy the the tail that Wags the dog or the other way around right does the dog like Wag the tail and uh I think the the main like problem though I I think and I try to take a first principles like philosophical approach with this is like all of this stuff like the l2s and everything is Downstream of the fact that like people are confused about being able to separate ethereum the asset from ethereum the technology and be again because ethereum the technology is so good you can create l2s with it there's like da and and settlement and all this stuff uh people don't know if the L2 is parasitic or not or something because they can't even

value the the the asset and and separate it from the the technology and all of this stuff it's like a downstream waterfall and the the main thing that I I I wanted to you know pause it in that thread and actually said it is like you can actually just model instead of doing pecf if it's if it's not a discounted cash flow token is just the industrial use case of a digital commodity right the way that like gold is used as as a store of value in volts it's used in jewelry it's used in circuit boards as Houston various other industrial use cases the sum total of the demand flow for that literally translates to the actual market cap of gold right and so

in in the digital realm with digital Commodities it's the industrial use case of everywhere that it exists people like issuing lab their tokenized labor right their their governance tokens and stuff to use eth as like a liquidity Source right or to use uh eth in other places uh and and things like that and then also the ethereum technology itself happens to use e right the burns happen to be one sync not the actual representation of the asset itself right and it's much easier to see with Bitcoin because it's it's such a simple protocol right that it just has different use cases people build their BTC fi or whatever and and the ETFs and stuff and

these are industrial demand use cases and the reason I by the way say commodity rather than you you know uh monetary premium I say this like commodity premium or demand is monetary premium and money is such a loose word and it's so confusing to people that they it it's such again it's actually I think it creates more confusion than than actual uh like like like Clarity because money is different so everyone like some people think gold is better money some people think you need a stable currency that's like to a consumer uh B consumer price index CPI like asset that keeps a safe standard of living and then as soon as you bring money right everyone has a different representation in their head and then uh

they're like oh it's a store of value only for uh buying and selling stuff and and it actually brings more confusion so the thing is if you actually have a framework you can actually answer these Downstream questions like rl2 is parasitic or what does it even mean to be parasitic if you remove you know commodity demand for the asset right now you have an answer right if you if you go with this this framework that I'm kind of proposing here right and so the the issue is even moving away from eth what's going to happen is this going to be relevant to Solana and like Celestia actually like I I was watching the um John sh uh episode that you guys put out the other week which is like everything even if you're not interested in this

right this Val valuation framework is essentially interested in you because as the asset gets bigger people will be like okay what is this thing is it like Bitcoin or is it like you know like like a discounted cash flow right yeah and I think that's I mean that's that's what we're seeing across the board is that you get to this this this end game where there's it's what what we've came to know from those conversations with John tun and and kind of just seeing it firsthand is that it's been this spectrum where um these assets have properties of of this kind of commodity premium or monetary premium but also still have uh reminisces of the

technology that kind of like software uh element or that you know that kind of cash flow element based on me on chain or based and so like what what we've identified and curious to understand how you guys think about it more deeply specifically with these four assets like bitcoin's kind of like the special assets pretty much 100% commodity eth has gotten to be more like probably closer to like I in my view even though Sam you think it might be a bit more far off I think it's still like 75% commodity 25% like kind of cash flow type of thing salana I think is much closer to like 5050 or less being like more of like this technology NASDAQ kind of thing less money if not like probably

like 25 75 in in terms of 25% commodity value I think it still has a long way to go and then Celestia I mean Celestia is hardly even in this conversation at this point but I think it's more like to 90 and I mean th those numbers can can vary but that's how I'm kind of thinking about like salana with regards to uh ethereum and Bitcoin and but what's funny about that is that salana has outperformed them all um in the last several months in the last year even though it's not even trying to fight for this monetary status or this commodity status so um yeah Jord I'm curious like like do you think about those those three assets or four assets in a similar way um and do you think that the performance of those three assets is at

all correlated to these narratives driving or is it just complet like outside factors um I mean I'm happy to share my framework that I've been putting together over the years it's a little bit different there are things that tie in the concepts that Sam talks about I agree with but then there's like a disconnect on the um you know yes monetary premium is a weird thing to talk about but I'm I'm quite comfortable breaking that down and uh um you know I've used some terms before that we'll get into like Community money um because I think at the essence of it yes we can say it's all social consensus but social consensus is built upon a couple things it doesn't just sort of magically uh come out come out of nowhere and things

that I've discussed at length before include like Providence um like some of these like religious aspects something like a Satoshi creates this Anonymous and then disappears these things are just um they're not Technology based but they're more important than technology because ultimately like they drive a story in people's minds like these are the social consensus this is what it's based on so I don't think uh of percentages and I um I think that's why you struggle because your example starts very comfortably okay 100% And then maybe this one 75 but then you start kind of like grasping at straws like what is salana the salana one I would say is the one that has always made me refine and sharpen my tool on this

because that's the one that um you know creates the challenge for for these processes and I'll say why I mean you talk to toally he'll say um you know he'll he'll he'll he'll just say it's not money it's not trying to be money we don't care about this money stuff we're just building good Tech and I just want the apps to be valuable and this is this is just like the token you know underlying but like I don't care it's not money you talk to Kone uh you know he'll tell you uh well me is everything it's all about trading in me and like we want to capture the me and then when I try to challenge him and say that you know in a well-design system me gets minimized because it just gets returned to the user he's like yeah

but there's still gonna be a lot it's okay it'll be fine you know it'll be a lot and and so like everyone in the salana ecosystem is sort of unclear what's happening and um what I call it at this point is like why is it outperforming it's like the ultimate meme coin just like you have all the meme coins on there the so meme coin is the biggest of all the mem coins there and it's just it's just the one with like the most attention so um I had to come up with this concept of community money and I'll just like introduce it maybe get Sam's thoughts get get you guys thought but uh it comes from a place of Bitcoin is in my mind um like gold it is because of the provenance that is so indisputably

strong like vitalic will say you know there there'll always be one asset that's five years older than the next serious asset it'll be Bitcoin um it is a macro asset and I was a macro Trader for many years before getting into crypto I see these things you know through that lens sometimes where um this is like a geopolitical asset every countries creating Fiat currencies and there are these like few assets like gold Bitcoin that um sort of act as a benchmark that is like this water water mark that nobody can really break it and so all the countries have to align with it and not align with it but they get benchmarked to it like you know what's the what's the all-time high of Bitcoin

versus Yen oh you know we crossed it ages ago like it wasn't now it was like ages ago so like the these things sort of act as this barometer right um I will strongly agree with Sam that I think that ethereum has earned the right to at least be in that conversation the reason is because it is strongly Provident as well being the first program able you know smart contract platform with an asset and that is different enough than Bitcoin um because the things you can do with it are substantially different but at least there is a um it's it's deserves its place in the horse race like it should have a slot and you know maybe it's

challenging but like it deserves its place it's the first smart contract money and maybe in the future we'll all have social consensus that smart contract money is the money and this is the oldest money it's distributed well at this point has very good distribution um and then when you go further down the list and you mentioned salana and something like Celestia they'll always the proponents of those like the Talking Heads of those things will always be like oh well if if eth has it then why don't I have it and then if salana has it why do the next guy have and you go down um and that's a fair point you know they're all very similar to Technologies um they lack some of the

Providence as you go down of course but they might have faster TPS etc etc I think ultimately what it comes down to is those non-macro assets um are Community money and nfts are maybe like the easiest way to explain that because even though you know we've had Cycles in nfts and you know whatever um the fact that the nfts are an asset that gets denominated it in that sort of local currency is very similar to like you know you visit Morocco and and you got to get the local currency to buy the thing in the market right um the more people that are interested in the market that fly there and and are buying stuff

the stickier the currency is and you can just hold it and denominate your income and your expenses in it because it it's sort of um it's like a GDP of a country it sort of Grows Right and so all that matters is like the strength of the community how many people is it how rich are these people um you know like how dedicated are they and and like sticky are they that's it like that Community once you get outside of Bitcoin and maybe like a little bit outside of ethereum um the valuation in in as I see it is like around around the strength of the community so Jord said a lot of great things uh and I actually

want to go from the top down what I'm what I'm the most uh interested in is categorization uh and and that sounds kind of funny because um I so I I studied philosophy and Neuroscience at college so everything I try to do is I'm like how does how does how do you categorize or how does your brain think about stuff and whatever and that's not how crypto uh people like think of they're like how do I make money from this thing or right or like how do I uh trade it and stuff and so actually when you brought up Solana I actually think you're exactly right but I wanted to actually say I think Kyle and anatol are brilliant they they uh they're not given enough credit where like when anat to

say I don't want to actually like you know I don't care about the the revenue or whatever that's actually the best way to get soul to be more like Bitcoin than than uh what the eth like guys like Justin Drake and stuff are doing that's that's like the the the you like it's like really brilliant and I think when Kyle for example says the Mev stuff I think he's literally just saying something like this is a metric that you can actually use to quasi measure like literally how uh Rich the ecosystem is around like a scarce digital asset like the way that you do how how rich is the

state right and and like how much Mev can actually be produced and like then the downstream discussion is like okay well what happens to them M as they get distributed blah blah blah but it's basically the main two categories I'm just the most interested in is like does it even make coherent sense to talk about this representing cash flow right like like let let's say for example as a thought experiment there was this new way you could use gold in like the real world that changed its molecular makeup and like burned it out of existence like it turned it to lead reverse Alchemy right instead of turning lead to Gold you turn gold into lead we wouldn't say gold is now like a a cash flow stock right you wouldn't say oh well now it's getting removed from circulation what's

the P DCF of like gold that like these companies have this you know interesting industrial use case that like removes gold from circulation you'd say no this is interesting industrial use case and actually when it's used in this way it's just removed from circulation rather than when it's like used in jewelry you could melt it again and then use it in gold bars and like store it and stuff like that and so the like these use cases of like a commodity the only thing you can describe a commodity doing is being used you cannot represent a commodity as like the labor of people or like the fees of some kind of like labor or corporation which is just a group of people right at the end like like doing

some coordinated labor right and so what I'm super interested in is like putting this this clear framework out of like when does it represent the labor of people and when does it when does it just not make coherent sense to represent the labor of people right like it's very obvious for like physical stuff that we're used to like gold it makes no coherent sense if gold was like burned out of circulation if gold was it just it makes no sense right and so like actually what Jordy was saying is is is really uh a good point in terms of these Community coins too is like if the community coin the meme coin or whatever it doesn't actually make coherent sense to ever talk about like dividends cash flow these things it it's it's a

commodity it's like branded with frog you know like faces or whatever and and stuff like that but it's it's pretty clear right and and Jordy said something extremely important that I I I want to make sure we talk like at least bring up is you can't just will it into existence uh only what you have to do is it has to be the correct properties and the correct social coordination and so for example the the provenance that was bringing up is very important because you can't have something that doesn't have a fixed Supply or or at least like a fixed equation like like Bitcoin like ethereum right like like a fixed equation that takes extreme coordination to like hard Fork out of right not like

an Mig that's like three people not like the expectation if you issue a stable coin if it deegs you mint a bunch of it to like like this token to to like keep the peg or something it has to be Sovereign which is why I call it a sovereign commodity right like when I talk about is it has to just be itself it has to be the actual product in and of itself it has to be the thing that is in existence for itself as like a sovereign piece of like digital value and and then you could use it in those places you can say hey like if you have one of these these like units you can vote in stuff and then like we can organize our life around it or something sure like like BTC Maxis and stuff right but like you can't just will anything

into being a digital commodity has to have the provenance but maybe a separate discussion with other time but I also don't think it's uniquely good to to bitcoin I think you can clearly have these uh Sovereign valuations of of Commodities Downstream too they just won't be like a couple trillion dollars of course but like the these properties are in existence it's not just gold that exists right there's like silver magnesium this that all this stuff I think Jordan did a great job of generalizing to the the type one framework sticking with this type type two framework Jordy generalized this type one into this community oriented coins uh ones that aren't Tethered to the labor of their economy and they have

almost like this imagination value of what of what it is um which which helps the valuation um now my my question is uh you know get granted that there are more coins in type one than just Bitcoin is this just a one-way street is this just like the entropy of these economies to devolve from type one into type two you know even if we were to organize some sort of assimilation tactic to to reorient the path of ethereum is it possible to put the genie back into the bottle and move towards the direction from type two to type one Redstone modular oracles are available on 50 plus chains trusted by over 100 clients and

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ecosystem is made of some of the top builders in the space and has stemmed from its OG days of the fra stable coin it is now in the LST space the LRT space and this fraxel L2 joins the existing Suite of fra products including Frack Swap and fra lend you can see fra fairy the bridge to go from any chain arbitrum optimism or main net into the fraxel main net Bridge your tokens and bring your FRA assets into the fraxel ecosystem join today to get the best out of fraxo you are still early join today

take part in our Expedition into the singularity uh Jordy do you well I I guess I could start then I Jordy can can uh round out because my view is on it like if ethereum can slowly become like like you said maybe the entropy is the gravitational force is like only Bitcoin can be this and then everything devolves to like and Bitcoin was was able to aify extremely quickly almost as soon as it started and so maybe they were able to stop that entropy in its tracks or at least slow it down significantly before it was before it progressed yeah although i' I've been in crypto for over like a decade and the the the the max supply of course right but but not the

social discussion of I remember when I got into Bitcoin like in 2013 or something people thought you'd be using it to buy your coffee literally like like the the like Bitcoin like oh this is like this many satosi or 0. like one like bit Bitcoin and that's no longer socially in the Overton window like no one just you know talks about it all and so it it it does take longer but but my point is that uh I think if if you can accidentally start aify from like like the type one like the Sovereign scarce commodity to type two either accidentally or in a concerted manner uh you can go the other direction but it's it's hard because unless you have a good framework for like and and the framework

is right I'm assuming like I think the framework is right uh it you have to get all of it right for example we we actually launched our uh road map for fra uh and know we're we're rebranding the token from fra share to just fra is a scarce asset fixed Supply that is actually the token for the the fra St blockchain uh and and stuff and there's a few things you have to get right but over time you can go from the first to the second and the second to the first if you uh if you get these things correct I don't think it's just to bitcoin but you know people have used that these are it's very difficult to to to test right like in like a closed environment which is like uh some people

say Well only Bitcoin can have this right so there's like devolving of uh entropy that everything will just be discounted cash flow and so like meme coins are going to zero because there's no way there's no cash flow mechanism or whatever but interest know what Jordan is so um yeah I I agree with a lot of uh what Sam just said the attributes that make good type one money like commodity money uh Community money to me uh are kind of indisputable and when I judge all the cryptocurrencies I look at them in this priority and people are like oh Jord is a salana hater or whatever I love salana I use salana like great Community great everything I will

consistently like have my issues with it as Community money for the things it lacks which is one um VC unlocks for years you know I've talked with Anatolia a bunch about this and he's always doesn't get it he's like oh what's wrong with VC's with VC's because because he's not trying to create good money but good money does not have insiders it needs to have this credible neutrality that you don't get reminded of because every you know six months there's some like massive unlock and then you got to deal with uh who's getting tokens plus the fact that there are lock tokens and unlocks coming means that the forward curve is usually negative which means that your expected value of holding the tokens is negative

this is very bad Community money like this should not be the case um you know uh the reason like uh one of the reasons I'm I'm comfortable you know representing mantle in many cases and like you know having this MNT token because everything's unlocked there's no VC unlocks I know there's no negative sloping yield curve that's why it's you know not to show but like it's seem the best performing L2 asset while all these other ones just have constant VC unlock VC unlock it's just a very bad uh characteristic of of of of like a token to have especially if it's trying to be this so that's one thing in terms of going back and forth what what Robbie asked the issue is equities are okay to be centrally held like if one guy has

like you know Brookshire hathway whatever they have all the all the equity it's fine because it's cash flow it doesn't matter like one guy can have all the cash flow and it still works right like there's nothing wrong with it but you need like a really good sort of community Fair distribution that's wide and so if you go too far in the direction of um of cash flow and then somebody just buys the cash flow because uh you know they think it's a good business and then you want to go the other way around I mean you're gonna have to like just distribute it in a way that um you know looks very differently and the S&P 500 the reason why the S&P 500 never goes down and always goes up um is because everybody in the in the US

like has it in their retirement account more or less like a lot of people do and so uh that social consensus leads to then political consensus because you know the politicians care about all the people who are have S&P 500 and then like Trump like number one metric is like keep the S&P 500 High you know if he needs to fire po or whatever it doesn't matter has to get done that's the power of distribution social consensus uh what what it brings to you so that's another one um another thing that uh vitalic made a good point about um is the creation of new coins has to also be decentralized if Bitcoin mining you know like this Quantum Computing

thing now forget like cracking the the addresses and everything but if it uh if like the elliptic sort of um if it becomes very centralized and like one party is is able to just like you know solve all these equations much faster than everybody else and get all the new coins that's a risk as well because then the Canon effect sort of becomes really big where someone is just very close to the creation of money and that's bad money as well um uh so we talked about credible neutrality decentral decentralization of new coins Fair distribution no VC unlocks no negative sloping curve um and the last thing I'll mention is good characteristic and this is where I was

maybe wrong about l1s versus l2s maybe they're a little bit parasitic um there is an emotional connection uh when when someone is directly interacting with a blockchain or or or with something because it's top of their mind you know they're looking at it I'm on base I'm on arbitrum this is the one thing where I think it is a little bit bearish for for ethereum the asset because the emotional connection of people uh what they're using um is not the main chain and even though the asset's there and that's good it's half a battle it's important very important but um uh like something like Celesta if it's used as da Everywhere You Don't See da it's just like it's just a backend system right so um the the the direct consumer retail

interaction is not there creates less of uh of an emotional connection um so that that's another attribute that I'll mention yeah yeah I completely agree on that last Point specifically it's uh and especially if these if these l2s start to use um their own native token or usdc for gas then that disconnect becomes even more apparent but maybe Sam doesn't agree no I I actually agree because like I we're when we upgrade the fra share token to just fra it's actually going to be the gas and staking token on on fraxel so I think that that's a very important Downstream social coordination method for how valuable it can become however uh actually what Jordy was

saying is about L2 you know parasitic is like good uh is this parasitic how parasitic is it can you quantify it uh and I think that that's if if this Frame work is going to get you know popular or accepted you have to be able to quantify these things right and so I think literally the the way to quantify whether like an L2 is parasitic or not is to think what is the actual commodity demand for ethereum in this L2 and could it have been on the L1 or could it have not could could the fact that there's this chain and so like the the chain team right like like fra for example we have fra

could the fact that we have a chain and that we're able to do more things actually create more wealth and then Downstream demand for E then if we only did stuff on L1 uh the demand for eth itself or like the the digital commodity is whether something is parasitic or not and actually the thing that joh uh Jordy brought up with Celestia is really important because when I was watching the uh the Celestia episode that that you guys had uh Andy uh is that like I think the Celestia guys are super smart Nick and then uh everyone there and then John who who's like very close to them there is they that's why they've built those ZK uh accounts so that Tia can be

the uh the actual like product itself the asset on every roll up that that actually uh uses uh Celestia for da because if like Jordy said if it's only da the only way to value this thing is cash flow and I think they understand that that's not a one trillion uh you know dollar or like like a multi-trillion view for for the next decade right and then they obviously have huge Ambitions and their amazing team and they need so Tia itself to be in and of itself like a sovereign commodity that just happens to power the the the Celestia technology the blockchain you just you know you happen to that's that's one huge industrial use

case it's not the only thing they want to distribute it to all of these Downstream uh you know rollups and and things like that in fact if rollups are uh parasitic like if it's just like a rule of nature if what I'm saying is not true if I'm if I'm wrong uh the Tia should basically go to zero right like because because like let's be honest like the The Da cash flow valuation is not ever GNA ever going to by itself uh justify like tens of billions if not over like a hundred billion uh kind of thing so actually uh Tia is a bet that l2s are not parasitic that they have the right structure to actually increase commodity demand of like a

enshrined like Sovereign commodity in in this in this ecosystem it's Tia right and that and that the the team there understands that which is why I really respect like Nick and and them and I I like John's uh writings I was reading his like eth North Star uh um writing the other time and it's like very articulate and it's quantifiable I think I think that's the most important thing because we can all like say stuff that you know feels good or kind of sounds correct or like well what is monetary premium or this or that but I'm like very interested in like creating like verifi like there's just there's two things this and that and then one represents label one is like just in and of itself the product can you quantify

the demand for it yes it's the summation of all the Demand right it's like a very clear uh framework yeah I think that we're in agreement there I mean uh vitalic also put out a piece as part of one of his article series when he was kind of in Wartime mode on the road map and one one one was about wanting an ethereum alignment dashboard and there was several metrics um with with regards to how ethereum aligned some of these l2s are so I'm not sure if you've actually seen that say but we were thinking about work about working on it on the rollup website or something like that but uh more broadly I think there there's some quantifiable metrics there um I I want to pass it back to you Jordy to reflect on on your key points there

that make Community money and then following what what Sam's saying about kind of getting to that point if we're looking out down like like with with celestian in this example and there's going to be others I think salana s or kind of some of the runners right now as far as like on the L1 side um like is there a world where there are a lot of commodity Community money assets with Providence with a decentralized uh creation of new tokens with no VCS like like what does the future world look like five 10 years down the line do we have just like four or five of these two of these is it just gonna end up being like BTC eth or like is there a world

where there could be dozens of these Community monies um and then I assume just by kind of an abnormal distrib bution there's going to be a Perpetual amount or an infinite more amount of um kind of non-c community monies but like what is your future outlook for how that distribution pans out um specifically with regards to what Sam and you guys and you are discussing here um I don't think that the number is going to change drastically from what it is today um unless you know we just look at it that the number of users will increase and so therefore there will be more factions and we can get a few more but I think um you know there's only so much space on the stock ticker board you know there's

only so many tickers that are going to be in the top 30 tickers let's say and um if you're not really capturing mind share then you're not going to be good Community money because nobody is thinking about you um the the attributes we talked about of what make it good uh over time will will aify I think as Sam said we're we're in this point where like we have to kind of collectively understand more and and agree on things more and and I think that will happen inevitably um partly it'll just get driven by you know price performance people will realize like oh yeah like yeah we don't want these like unlocks to happen we don't want the centralization or you know this aspect or um oh you know the richest guy in the world is K

salani now like because salana is at $2,000 like is this is this okay like I don't know there'll be a lot of these things happening that will uh shape and mold the details um in terms of the number I think the number is um uh yeah kind of going to be like a few dozen ultimately like there'll be some small ones uh the small ones would be like Cults we've always had Cults in the world where you know maybe just like a few thousand people have some very strong core beliefs and um and they're willing to do it what you what you need to like imagine because this is how I frame it um to help me is um you know we have our our concept of

net worths and whether your denomination is dollars or something more exotic just call it dollars you need to be able to wake up and say okay um I'm worth you know $2 million and um 60% of that is in this dogcoin and I'm okay with that because like this dogcoin is community money for me and like I really like believe that you know whiff or whatever it is um and this is not a fake example like I do know some people where they they're comfortable because they have such an emotional connection to this community that they're happy to hold 40% of their entire net worth but um the thing that's a that's a stable equilibrium potentially the thing that's

unstable are things like you know om Olympus da in the past where um you got a bunch of these kids and the thing is pumping and so they're all for a while you know it feels like it's like 3 three 3 three we're all in this together and uh the reality is like every day the percentage of their net worth that's in this like Funny Money it goes up and up and then like they're like 98% of their money is in this thing because this has gone up a THX and that's all they have is that a stable equilibrium well they will not sell it um or you know once somebody starts selling then like it's just a fire sale and then you know you get these pump and dump cycles and and we see that with a lot of these short-term meme coins where um the

liquidity is like it's like musical chairs there's only like a couple chairs and then when the Music Stops everyone's like rushing to do this that's a very unstable equilibrium equilibrium and um it's always something to keep in mind like if you see uh like's say like xrp at $150 billion it means that around the world um are there enough people that are happy to look at their wallet and see how much denomination they have in in that thing yeah I mean in that lens it seems just like Bitcoin and and eth so far I believe at least have achieved that level of broad Global denomination there's a lot of salana people that are that are like you know they're just so

all you know they're like I guess they call it sometimes I I I'm not in the trenches as much but I know some people who are and they tell me that in the parament of what they use it's like they go soul soul soul maximize your soul get as much Soul as possible you know play these games and then get soul and then once a while you know you you stable up that's what it's called you stable up I think that's where like you lose faith in the religion you kind of get out of the church and you stable up but then maybe you go back in so like it's it's a bit it's a bit unstable but some people maybe are in that category yeah yeah I I mean and just by virtue of do Dogecoin being like number six market cap or something not to say that people

denominate their net worth in Dogecoin but there are coins that are not Bitcoin and exist in that category and you know you you even mentioned like you know these Community coins I I like how you generalize those to not just dollars but anywhere that you denominate your your net worth in the in that currency for instance you go to Morocco you value your net worth in Moroccan currency and so the these things are different in their different economic zones um one one very general macro soci sociopolitical shift that I think has happened like very recently that has led me to believe that the number of those Community currencies is going to increase has been this this political shift from a globalist society where One

World Government we're all going to be interconnected everyone's going to use the same currency into more localized phenomenon and I think that thesis as as long as we have this this mindset in place in power making decisions I think we will continue to get more localized we'll continue to see more Community currencies evolve more Community econ economies pop out pop up um but that those ties could shift again and we could Resort back to more consolidation no I mean I think you're on the right path I mean if we do end up getting Network States like you know BAGI is trying to make Network States and uh a network State probably issues its own digital currency right does it not um it

would make sense and that would be the the currency of that community that that belongs to that Network State they have a shared sense of belief a shared emotional sort of outlook on on certain things whether it's accelerationism or whatever else um and and they'll have their money probably like why would they use somebody else's money um we'll see I don't know yeah and we've seen these things pop up online and so the internet in my opinion will accelerate this so that now it is we have almost programmable communities someone can launch it you don't have to go Pioneer some foreign land or go to Mars to go find some new fertile land in order to create a new

community you can do so online pull the economy out separate it from the from the state from the geographical position and spin up your own community that way with its own economy with its own currency so at least for the time being it seems to accelerate I I do think it'll stabilize Z will'll end up somewhere near where we are because I I'm curious what Sam thinks but if I look at the real world and I look at something like brick the bricks countries um so first you all break up but then at some point there's an incentive to to group together so you become a meaningful size and you become a block like the EU right the EU had 20 currencies and then they're just like I just you one Europe so we so we're like

as big as the us when you put us together um and now now the brics countries are trying to trying to do something and so when it's digital it's even easier to reaggregate stuff I mean even seeing like some of these AI coins like fetch you got like a bunch of AI coins just grouping together and they make one coin so we might see that at the end as well yeah I mean uh I actually when when bology is is one of the earliest investors in fra and stuff we discussed like Network States and actually flat coins the cpip peg uh kind of the the first kind of thought of stable coins which fra actually issued the fpi which is the first stable coin Peg to basket of consumer items uh it's kind of like

experimental currency bology and I came up with that name in our talk and then that was when he was formulating Network State stuff and so like I've been really big Pro proponent in like you know bullish Network States I actually think that that's actually why uh I'm a pro- like chain isation guy I think this NE the fundamental unit of like a uh of like a community onchain is like a blockchain and then there's like smaller communities and stuff just like how in international Theory the fundamental unit is a state right um and then the states can like join different kind of like blocks like bricks EU you know and and stuff like that or even like military alliances for different parts

like NATO whatever but the fundamental unit uh in in like international relations Is the state right and so I think the fundamental unit is uh the the blockchain whether the da is here or there or whatever it doesn't really matter it's structurally uh that way um and so Jord is right I think there will be a lot but then there will be this kind of you know uh what is it what people have said like everything is just about breaking stuff up and putting it back together I think it's like actually like a startup thing which is like you know an industry like like startups come and then they take stuff uh apart right like the you know like streaming service and then like software

is a service for like streamers and this and that and then and then they put it all back together after the industry is matures like a super app like stream watch blah blah blah all this stuff right and um I think that there will be a bunch of blockchains uh and then there will be um a lot of them coming into like economic zones right you see this kind of in the super chain fraxel is is like kind of signaled that it's in in the super chain area there's uh Cosmos you know the Celestia has its own with with its own Zone essentially with like da communication um but I think the fundamental unit of of this stuff of like the network state is a is a blockchain and then does it have Downstream you know communities or like a real world community of like land or

things like that um and actually I I think fra might be like one of the closest First like Proto Network States because we we call it uh the decentralized central bank and you can't have a blockchain without like a kind of an underlying enshrined like kind of like Financial layer right that everything else can be built on with like stable coins stable units credit and all that stuff so it's like it's kind of like has all the Proto ingredients of life so to speak for like a network State yeah it does um and it's it's interesting because in the context of this framework that we've been talking about um we have two very like fundamental uh uh things as part of a

blockchain and if we're treating blockchains as this fundamental unit of a network state or you know an onchain economy you have the denomination of economic activity in that economy and then you have something like labor like you mentioned earlier and so how Bitcoin has been able to decouple the economic activity in its economic zone and denominate it in Bitcoin and maintain its Community currency or L like type one type currency status and decouple that from the labor that occurs in its in its Network state or economic zone is very it's it's very interesting to see how how Bitcoin has been able to maintain that decoupling and so you know once once we start to denominate more of

its econ on of these economic activities in its Choice currency I think it is very natural to denominate the labor that occurs in on these chains on these apps on these chains in these economic zones as such as well and that's that's the struggle of treating something like eth or another currency that is currently and it's at least Fading Into to that type two realm and bring it bring it back to the type one realm yeah I think there's a few important things where it's like that's why uh I said before like I think the enshrining something as like a gas token is not in and of itself like brings value like it doesn't matter like the burns of of like it being eth or something because it's

gas again that that's like a like like almost a a like trap or like a like a Pitfall it's more like it has Downstream coordination effects uh about what it's dominating like LP pools in all of this stuff trading nfts like Jordy was saying and and it's it's basically in in shrining in software a social contract and like people miss that they think oh it's like on on like base like eth is is like gas like okay but it doesn't even matter like how much it burns like that's not even useful what matters is everything on base there's no base token all of the LPS are eth all of the memes that launch on like Bas most of that

denomination goes to eth or at least it has a it has a privileged position uh socially of of being that that unit and systematically it it increases it's actually uh denomination power so there there's a lot of these social coordination things like in Shrine gas token other things uh that I think people mistake as like oh this will burn a little bit more uh increase the discounted cash flow but it's not about that actually it's like the exact opposite that's like a side effect but the main thing is the social coordination of treating it uh like more like Bitcoin rather than like uh a labor representing token yeah I mean just to

give my final thoughts and and wrap up on my side um I think just to hammer down that of course like this like social coordination we we see it we um can't deny that this is what everything is is based on I mentioned a lot of the characteristics that I think kind of drive this s coordination or more appropriately like make it sticky where it's like a it's like a game theory like equilibrium and you can you can go through Cycles with it and and sort of s when you go through these like bull market Manas like we've had recently um these things go out the window because people are buying the crappiest of assets or going up it doesn't matter grab money money money and then like when things wi and down everyone starts

reflecting and and we start seeing and we're learning I mean I'm learning Sam's learning when I say learning it's not just like the first principles thinking uh which is what we both do but also um you know some of our assumptions get tested in reality like one assumption is what makes a good asset for a balance sheet and nobody's had digital assets on their balance sheets like maybe a couple companies had Bitcoin last cycle I think Tesla and uh and maybe a couple more um if this cycle we start to you know having more of more of this institutional adoption we'll see like what assets they choose and I'm I'm guessing that they want credibly neutral assets they don't want um you know some blockchain that is 80% held by you know

a few people like they they want this like neutral uh asset that can be Diversified on a balance sheet and U um and so we'll kind of get some empirical evidence as well and it'll be an ongoing process but so happy that we're we're having this discussion like like thank you guys for inviting because uh i' I've been Keen to to consume more content and there hasn't been enough content so it's good to start making it and then other people can chime in and then then hopefully we can kind of stand on each other's shoulders yeah now this is uh I'd love more discussions like this and uh Jord is always great to to talk with you and and your view we agree on too many things next time bring a

guest it's like we can uh fight with get get Kyle Sani with with Sam next time thank you guys appreciate you staying over a few minutes