The ETH Merge: BULL OR BEAR? David debates Jordi Alexander

Transcript

bankless nation it's debate time debating i think the most interesting topic in crypto today is the merge over hyped we get the bear case and the bull case for the merge we try to answer the question on whether it's over hyped or not today my role is a bit different in bankless today i am the moderator i am the host of this debate we have david hoffman who of course is taking the bull position and we also have jordy alexander who will introduce later who is taking the bear position he thinks that uh merch is over hyped while david thinks it's probably still under hype or appropriately hyped and we will get into all of that um i think the market still might not understand the merge it's

going in both directions and so hopefully this episode gives you some clarity on that i'm going to introduce our debaters in just a minute but a few quick announcements i'm going to have david help me do this as well of course you know bankless not me today as the moderator but bankless is overall bullish on the merge so is consensus the merge is happening next week and if you want to pick up an nft to commemorate the merge you can do that for free all you have to do is go to the website we'll link a uh something a link in the show notes and you can click this link on being the first to know and get a merge nft as a commemorative collectible from consensus david i think there's one other

announcement we need to cover before we get in and that is you are going to a conference pretty soon yeah converge 2022 in san francisco that is at the end of this month september 27th through 30th one of the first conferences post merged so we'll be able to talk about and have conversations and content around the post merge world we got brian brooks we got philip zutner from from li-fi we got vitalik buterin also giving a talk i will be hosting a panel as well as many other speakers in the crypto and fintech space over in san francisco there's a link in the show notes to get a ticket and also a link in the show notes to get a discounted ticket more importantly so you can check that out if you want to go to converge 2022 with me i think you've got to pick up that

discount by september 15th it's 250 or something like that use the code bankless you'll find that link in the show notes as well all right david we're going to get to it um so we're about to introduce i guess i no one needs to introduce you but um i i want to introduce jordi alexander in a minute he is the merge bear in this episode today and he put an excellent post out in bankless on why he thinks the merge is overhyped jordy welcome bankless how you doing good to be here i'm excited uh david you of course are the merge uh bull and you are bullish on the merge uh and you are also known to host a podcast

in the space that is also well known to be very bullish on ethereum and the merge uh welcome to the show david thanks ryan thanks for having me um i i gotta ask maybe before we get in just a little chit chat david are you a little bit worried about this debate i mean the last time we had jordy on a bankless podcast for a debate the coin that he was bearish on went to zero in six weeks all right so uh are you a little bit worried about this one uh well you know data point of one um however i will say that uh the sobriety that it that one needed in order to be like bearish luna in the time of complete luna

just so the narrative tailwinds behind luna where the strongest was was hard and took a very smart and and rational person to do so uh and so i think maybe i'm perhaps the person drinking the kool-aid this time and now it's my turn to have to terrify up against jordy yeah uh jordy just real quick before we get in um what was kind of like the aftermath because i don't think we've we've talked to you much about this but the aftermath after that debate and kind of the you know the crash of of luna did you hear from anyone just uh what were the kind of the months after that event like for you um yeah obviously there were six weeks so between that time there was quite a big run up in luna i mean

it went up another 50 percent i think like to 120 125 it really had like it's uh it's like an uh you know next surge there um i i got involved a little bit in trying to understand uh you know the exact mechanics of how luna might be leaking because i kind of felt intuitively like it was leaking value um sadly i didn't really because there was so much other stuff going on i didn't spend the time to really understand exactly what the what the switch the kill switch was i did that work as it was falling apart and then i'm like okay now i really need to like just not sleep the whole night stay up the whole night and really try to pinpoint like why is this happening and i did but it was too late like it was falling apart at that point but i realized that

um that design could never work uh ever because it basically uh people can just like arbitrage luna and get a cheap qst so they can mint ust forever just by kind of buying low selling high luna back and forth so that means that no matter what like it was doomed to fail like it was gonna go to zero at some point david and i have um i talked about that episode a little bit and it was really funny sort of as the episode was uh being live streamed and in the days after there was a lot of vitriol from the lunatic community i would say about that episode a lot of negativity negative comments and then what you see

is like a couple months later the comments begin to change and there's there's start to be like appreciative thank you comments like thank you for airing both sides of this argument i should have listened a bit more rationally to jordy's take on it i'm wondering if you got any uh thank yous in the aftermath because i know post that episode uh there was a lot of anger from a community who felt like maybe you maybe bankless or at large was kind of just you know trying to uh trying to knock down uh luna and we were just kind of haters of um something that was innovative and new yeah i mean definitely like there was a lot of that it wasn't surprising or new to me i mean i kind of had my first go around with the olympus dow people back

when it was like over like a thousand dollars and um it kind of crashed soon after and i saw a lot of the same thing is jordy just this reaper meme just going knocking on doors dude you're in trouble david that's what i'm trying to tell you um you know it's kind of like something that has opened my eyes a lot about you know the power of community when things are going well where they're you know it's just kind of i don't want to say eth is is showing that as well now but when things are going well there can be like a huge momentum um and maybe like less critical thinking and then when things are badly like people are trying to like reevaluate and see like you know what they missed this is uh an amazing setup for the

episode that we're a bit about to have because i think the most valuable part of debates on bank list specifically is uh to bust bubbles and to inject some of that critical thinking into some of our theses so we're hopeful to do that and we're going to get to the debate in just a minute but before we do we want to thank the sponsors that made this episode possible lens protocol is an open source tech stack for building decentralized social media applications it is the new era for social media we all have toxic relationships with our web 2 apps we want to break up with them but we can't these applications own our digital lives and all the relationships that we've made we need to break through to a new paradigm of social networking applications that we control rather than them controlling us lens isn't a social

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case on the merge and trying to deflate some bubbles jordy alexander of course is the cio of salini capital which is a multi-strategy trading firm it's also a liquidity provider specializing in crypto assets he's also a seasoned debater he came on to make the case that luna was on shaky ground uh did that six weeks before luna then collapsed to zero jordy welcome back to bankless it's great to have you oh it's good to be here guys uh of course david hoffman is a leader of the bankless movement he's the co-founder of a media studio of the same name he's a well-known writer he's also appeared on this podcast more than a few times he's also known to be bullish on eve david you ready for this one i'm indeed ready been preparing for this one for a long

time ryan all right well let's start yes you have indeed for your whole crypto career i think um let's start with jordy with uh kind of the preamble and the question uh jordy you wrote a fantastic post that we actually published in bank list that kind of goes through why you think the merge is overhyped but why don't you start there with the preamble we'll get into the details of all of your reasons and rationale for why it's overhyped but give us the big picture uh why is the merge overhyped in your mind what are the the main reasons or the main things that are overhyped about it yeah i mean you know people have different time horizons but i think there's reasons on the short medium and long term to potentially be like

concerned about certain parts of the narrative on the short term i think people assume that you know once this merge happens price will just continue to flow up because it's happened but in reality i think very strongly that we will see the usual sell the rumor you know but by the rumors spell the news um for many reasons including the fact that it is such a huge catalyst that people are really looking forward to it the the price action on it is going to happen now as people are like expecting it after it's done you know in two months time people are gonna be moving on to the next narrative and the next thing as they always do and so i think that's that's like something to be mindful of in the short term in the medium term what really concerns me is the fact that you know

ethan's an asset is supposed to be this like yield bearing you know base interest rate financial instrument i'm very concerned about gas fees i don't think they're going to recover to the levels that they were and that creates in unsustainably uh the expectation for yield being high is just not sustainable um so i've kind of done a lot of work looking at you know what yields are actually going to be once things settle down and it's it's it's less than treasuries so it's it's not very exciting compared to like you know traditional market riskless rates and then lastly on the long run um you know my thesis on eth is that it needs to find what it is is it this is it that is it money is

it you know is it like global computer is it financial sector it has to kind of pick and choose you know vitalik wants to say that you know the community just wants to do everything so we'll just be all of the above and i i have a belief that unless it chooses and kind of focuses on one thing it will get eaten up by other cryptos that want to specialize on on a certain uh you know theme uh this is great so if i were to summarize you've got short medium and long term concerns related to to the merge but then you know ethereum at large and in the short run you think it's maybe priced in like the narratives out there the narrative is over hyped and maybe it's maybe it's kind of priced in in the medium term you're concerned about the expectation

around yields you think they might be less than some people think it is and over the long run you're concerned with the um the value proposition of of ethereum as a network i think that's one of your criticisms is that the the bulls and the over hypers uh think of this world as as one chain to rule them all we'll get into all of those in just a minute i want to hear from our bull before we do so david just give us kind of your preamble uh don't have to address all of jordy's points but um where do you contend the most with uh some of like the the the arguments that jordy has raised both in his written form and uh just now on on this episode

yeah there's two ways to go there's like what is the fundamental bull case for the merge and why is it not priced in and then there's like specifically what about jordy's arguments i think are are wrong uh and and so i'll kind of do a little bit of a hybrid on that um uh fundamentally like the whole like triple point happening aspect of ethereum and the ethereum and the ether merge i think is like the most under stated thing about this uh and so like really what that means is like you know the bitcoiners are always perpetually bullish on the happening right and they claim that like once a happening happens it destines a bull market to happen there afterwards and it's because of the structural supply flows that we all know how press to be super bullish on uh and

like the it's called the triple happening because we get three of them all at once uh and so i think it follows is that if you in a decent proportion of the crypto industry does believe this is that uh you know if bitcoin does cause bull markets if the bitcoin happening does cause bull markets like two years later you would expect the triple happening to cause like either a three times larger bull market or an equivalent bull market three times faster or some somewhere in the between between those two ends of the spectrum just because of the raw sheer magnitude of how bullish it is as a fundamental catalyst and like the reason the overarching reason why i'll say it's not priced in is that we have not yet seen as an industry collectively

some bullish catalyst of this magnitude never before seen since 2000 uh and like uh 2009 2010 when bitcoin was created so as a market we don't have a history of understanding how bullish this thing can become we haven't seen something so bullish yet so we don't know how to price it in and therefore i'm claiming overall that because it's the most bullish event in crypto history it's just generally not priced in uh because we haven't had to like deal with it yet uh that would be my main argument i would say all right that's great all right let's go into this in a bit more detail and uh jordy i think you have some fine-grained arguments that that you've written uh in your post and uh including some fantastic memes by the way and i

gotta ask with this uh with this meme in general where this is kind of like the eth merger if you guys have seen that that meme template uh of somebody who who thinks that you know none of this is priced in and then eth price is going to infinity you kind of do a play on that in your post i gotta ask is this a picture of david we're looking at right here jordy is he a merger no no it is not it is a generic merger it is not this specific major well can you go over maybe your four points here that you raised and then we will um we will hit the first one so we'll hit them one by one what are kind of the ways that um mergers or super

merge bulls kind of over over inflate expectations here i think there are four of them yeah i mean to get to david's you know main point that um you know this type of thing has never happened before i mean that's true from a crypto aspect but what i find consistently with the crypto communities they well now they're starting to respect it more but historically they have not respected macro enough they haven't understood that it's just a subset of like the global kind of liquidity system and the liquidity flows that are occurring and it is a really bad time to have a monumental kind of you know supply event and no matter how how many habitings it is even if it was like you know 10 halve

innings if you're about to enter like a recession and everyone's tightening and taking liquidity out of the system yes there can be there can be some idiosyncratic flows and and kind of uh price pressure and action but ultimately you know the bitcoin uh happening the last one happened at a time where we were really entering an unprecedented like liquidity flow i mean that was like really once once that's like once a lifetime the previous one you know 2017 that was like the first like real mainstream adoption kind of curve where you know people were like rushing in so using those examples i think kind of ignores the fact that we're entering a

very different monetary regime where you know right now people are not getting stimulus checks to like get into eath they're they're not having like extra money like laying around that they need to like kind of fomo if anything fomo is kind of like reducing and we're seeing that in traditional markets as well maybe uh maybe i'll allow david to kind of um you know rebut that if you have anything to say so jordy jordy's saying macro essentially dominates uh and so you know the merger deflationary aspect doesn't really matter in the scheme of things what would you say to that yeah i think that's a super fair take uh i i think the macro like no matter how bullish the ethereum merger is like you know macro is something completely uh

relevant to that right um uh like it has its own uh machinations and plans for all markets regardless of crypto markets or not i think the frame of mind that i always really come for as like somebody who holds all of my net worth in like crypto assets is that like i'm kind of already exposed to crypto no matter what and so this is coming from that perspective of i'm already i've already committed to ride the crypto wave and many others in the crypto industry are like maybe like there's like the perspective of like are you a us dollar bull or are you really playing the market inside of crypto and are you trying to find the asset that beats the rest of the market in that short term time frame and so i'm totally ready to concede that i don't have the same level of conviction on the

ether us dollar price and macro terms than i do on things like the eth btc ratio or the eth avalanche ratio or the eth you know a solana ratio uh because that like that really just closes out like it closes out a factor that i'm not in control of and this is why like my current position is actually short bitcoin long ether which takes the dollar trade out of that move uh and so i will yes i will agree that like i i have tons of like conviction about the merged trade and a lot of that conviction comes from being ether being related to the rest of the crypto asset market so david is willing to like atlas take all of the crypto risk on his shoulders but within that he thinks that eth will

outperform other equivalent crypto assets what do you think about that take jordy um yeah i mean that's that's generally fair i mean we have seen already a large move though in each btc for example at the low is 0.5.055 now it's it's kind of hit at some point obviously today is a little bit of an aberration but it's been rallying in the previous days and it's gone up you know over 50 um so i would say you know that's played out and that was fair uh i do want to acknowledge that i am bullish the supplies please i do think it doubles the value of eth compared to what it would be in a proof of work state so you know that that is significant um i think that that's playing out it's it

has been playing out quite a bit already um i will i will again like reiterate though like i strongly as many years of trading i believe that once the event is in the back mirror instead of in the forward mirror as a trader right now if eath goes down i'm very comfortable buying the dick why because i know that you know they know and everybody knows that this thing is happening in a couple weeks and so like it has the attention and it kind of like it presents a defense mechanism like a professor floor like no one's really going to let it drop so as a trader i'm being very aggressive and like i can buy eve dips aggressively as i have been doing you know i'm not like sure either i'm longing if here um i am short at like you know over 2000

given given this environment and i'll talk about like why that specific price later on but i do think that there is an element of you know going forward in two weeks time people will start wondering how much btc needs to catch up and so even having an east btc trade where like btc has been lagging there could be like a catch-up phase so i'm i'm really not convinced how east btc is going to do in october for example jordy i i read um you part of your post i think one of the points was um around eth being maybe the eth merge being kind of a narrative play essentially and and your take that hey like everyone knows about this narrative they've known about it for a long time

can you get into that uh criticism that you have and the reason why the merge is overhyped do you think it's it's mainly a narrative play and maybe that narrative has already been priced in talk about that i mean there's a few narratives i mean we should go into the different narratives because you know people are looking at it from different aspects in terms of the ethereum community of course they're already all in right like that that buying has happened like they're they're waiting and they're you know they have their eat in their hands and maybe steak teeth as well um and that's fine um they should kind of know what to expect in terms of yields and in terms of price action in terms of other things but you know as a general uh narrative that's okay if you look at like institutional narratives about

yield especially you know this is gonna bring the institutions in because they're gonna get yield i think that's just a completely wrong narrative uh very misplaced and the kind of thing that maybe kind of you hear an echo chamber but i want to like really kind of look at some of these narratives that i disagree with a lot and that's one the other one is like the deflationary meme it was a good meme it looked like it might be deflationary my estimates are that it will definitely not be deflationary that's not a big deal i don't think deflationary is a big deal but as using that as like a meme when it's not correct you know people should not have that expectation and then it doesn't happen i know you guys and many other people have been talking about the deflationary meme i just don't

think that the math adds up that there will not be deflation on a yearly basis so we've got um you know three different pieces there that jordy just just laid out or three reasons to rational and i want to get you to to respond to that and then the first um i heard was that hey like if people have know about this the perma bulls they've already bought in so just discount that entirely and secondly the institutions are coming and kind of the internet bond and yields on eth that's way overplayed uh and then thirdly um the whole ultrasound money narrative with eve being deflationary that's not actually going to be the case is what jordy's saying david i want to get you to respond to uh to those

critiques yeah the first one that you know that's it's uh it falls into the category of like there's a bullish catalyst the traders trade around that catalyst and because that that happens it like prices out that catalyst saying it's more or less saying like all catalysts get front run by the market right which is generally like more or less true to like some degree uh you know if there's something bullish then like people will front run this that's how markets work it's basically like i feel like it's an articulation of the efficient market hypothesis right it's like there's another and but like it doesn't leave room for it's just like a catch-all argument saying like it's a fun it's a bullish catalyst therefore it's priced in uh and and yes i and i think this really is

about like time frames right like could i see ether dumping after the merge because it's a sell the news event two weeks four weeks six weeks afterwards yes i could see ether being in the red for six weeks afterwards eight weeks afterwards two like maybe we go up to 16 weeks afterwards and it's still in the red versus where it was in at the post of the merge but i think really the merge trade is about like every week after the merge the likelihood that ether flips green increases and maybe that's not very likely on week week one or two or up to 20 but like beyond like 20 weeks we're starting the likelihood of ether becoming green because of the fundamentals of the merge it goes in ether's favor and so like yes traders can always front run the trade and get ahead of it and then they can

dump post the news and maybe it wasn't maybe it was priced in people already front ran this but it's really about after the merge and like uh and with really the like this btc trade that i'm on and a few other people are on is like you you win this trade by holding it not by like playing the merge like you you hold it through the volatility and so like yes i could totally see ether dumping but it always the merge fundamentally puts the tailwinds at ether's back so if it is a sell the news event you just wait and then all of a sudden eventually like the fundamentals catch up to it and then i'll also go back to what i said earlier is that like it's still so fundamentally bullish that we haven't had an experience the market

hasn't had an experience like this and markets learn through experiences like markets are shared collective memories of all market participants uh and so like this is like markets learn through having like a scar in it and so like people that got blown up on leverage are likely not to take leverage in their lives because of like the early 2022 um people that trade the bitcoin happening will learn that the bitcoin happening is fundamentally bullish in a two-year time frame and but people haven't been able to learn the data about the merge because you only merge once and like this one time event that will never occur again in history and has never occurred before in before history is not something that the market has learned and so if you combine that with with the fact that like okay maybe and

even if you are still right and like people front ran this that you still ultimately win by waiting out through the short-term volatility that's i'll kind of say that this the merger isn't priced in right because it'll only not be priced in for a short amount of time short to medium amount of time post merge um so that that's the first argument i could go on to the first two but jordy in the in the uh vein of being categorized are about our conversations i'll i want to give you a moment to respond um i mean you talk about kind of waiting for the fundamentals and waiting for those to kick in i mean i agree that the supply change is a big deal um if it was happening in a bull market where we were like burning a ton of youth every day and like nfts were

going crazy and and you have the merge i mean there would just be like supply squeeze and and that's like totally true that i don't expect that to happen now because of what's happening on chain which is like the activity is very low if we get like another surge of activity in a year two years yes it will amplify the fact that there is like no supply um that is equally true for bitcoin once some of the like bitcoin supply overhangs that are kind of you know the mount cox and the different kind of coins that are expected to dump into the market at some point similarly you can have a supply squeeze i think for both currencies long term i am very bullish because they're they have a lot of uh the mind share of the space and both of them can

eventually lead to a subsidized squeeze where the long-term holders have all the coins there's only so many coins even if you say you know heath is not going to be deflationary and it's going to be 122 million let's say whatever justin drake something that that's his like most recent he's kind of updated after i called him out on his last estimate i think 122 and and you know 21 million bitcoin in the long run once there's like global adoption both those assets will have a scarcity squeeze at some point like that is for sure gonna happen but in the short run southern use medium run concerns about gas long run there is a lot of potential for you still but i think it needs to kind of get its narrative right um so i mean i don't disagree with a lot of what

you're saying i just don't know that the timeline is is going to happen right away uh but yeah i'm interested to hear your take on uh if you've kind of done any work on looking at the yields and this internet bond and if you actually believe you actually believe that institutions you know you have a bank or you have whatever balance sheet on some institution are they going to say i want to get my if yield forget this dollar stuff like do you think that's going to be the case certainly not immediately um i think it's going to be one of those slow rolls into an eventual crescendo um and that could be a multi-year long process um and again like the conversation of the eighth trade the ether merged trade is

like always a timeline conversation right like do i think that institutions will one's like are our institutions waiting on the sidelines with like cash in hand just like waiting for the merge to happen no no they're not doing that um i think slowly one institution will do it like one market money manager who's privy to bankless and the ethereum merge maybe they are and then like that you know folds into two folds into three but that's a that's a multi that'll be like throughout slowly throughout 2024 and like it'll kind of feel and look like in my mind a normal crypto bull market in the sense that like there's like the quiet year where prices are discreetly up only and then there's the next year after that where people kind of figure it out and it turns into a

mania i feel like that kind of catalyst is where i'm seeing how institutions play in is like some institutions smart institutions are like oh you can get yield on this thing and it's not only is it real yield but it's also not correlated to the dollar uh and so uh yes it's volatile but like you can take on that risk um we can talk about that later uh i think i think one thing that jordy you said in your post though is that the eth merge bulls are vastly overestimating the actual yield that will be received by the quote-unquote meme internet bond uh can you talk about that criticism for a minute and then maybe david could respond

yeah absolutely i mean in general like in all these pieces i do spend a lot of time on research and i try to compare like you know i go to the source i don't just kind of rely on some internet resource and i you know copy paste it from there i really look at the actual numbers and i have gone quite in depth in this and it has been quite disappointing to see how over-inflated this specific narrative on the yield is and i would say like out of all the things that have researched this is the one that really stood out to me as what are the what's going on like something's really wrong um there is no free lunch i would say that in terms of yield we've seen this in crypto many times promises of high yield people think that somehow you know eth

being uh you know a more legitimate play than a lot of the other you know usts or whatever else you want you want to look at that promises high yield they just thought that yeah like this is let's take it at face value because it's eth you know it's it's wholesome um sadly even in the case of eth there is no there is no free lunch there is no like low yield there will there will no there will not be any like low yield um the yield will be like close to zero basically like you know even after a year it will it will really dilute we need to understand a lot of where the yield meme came from people initially were not staking eth because they were

first risking that liquidity because you have to wait many years until the merge happens until the shangai fork happens so people do not want to stay the amount of stake teeth was so small and the pool that was given to them was substantial that they have been generating a decent amount of yield when you flip the switch and you give block rewards to people who are staking which they're not getting the block rewards right now similarly you know six months ago a year ago those block rewards looked like they might be a big deal because there was a lot of gas tips being paid there were a lot of um mev kind of uh you know plays going on all that all that sort of uh financial front running that was happening and

people put one and one and one together they thought that there was always going to be only 10 of supply staked and they thought there's always going to be like this huge amount of tips being paid they put them together and they got these like 10 to 20 yields in reality over time there will be a lot of staked heath in fact if yields are significant there will be even more because people will be more incentivized to stay a keith and they will have to like share uh that eth between like more and more stakers more validators and as we're also seeing like you know generally like tips are a lot lower now so when you put one and one together you end up with two two percent yield that's what i see and out of that two

percent yield some of it is going to be inflation because like i said eat will not be deflationary unless like some crazy like um you know bull market happens again and so part of that two percent will be inflation so the real yield will be like in the one ish percent range wow so that's incredible i just want to recap so right now when you stake your eath uh you are receiving a nominal yield not necessarily a real yield of like you know 4.5 percent something to that effect and you probably discount the real yield by the the issuance right um a lot of uh merge hypers uh merge bulls think that the yields post merge are going up some have even said into the

double double-digit range so we're talking between four and you know ten percent plus in terms of yield and what you just said jordi is that's a load of bs we're actually talking about a real yield of around the one percent mark is this what you you're saying correct there there is like a three month period right after the merge where i expect there to be a long queue for validators that will only allow about four million youth to join maybe 6 million depending on kind of how how exactly it pays out like over the first few months it will be more and more allowed in uh but let's let's discount those first months because first of all you'll have to wait in queue so you

won't get it right away if you buy steak teeth like lido you will be diluting all the other little holders so that's like a different story we don't need to talk about lido specifically just talking about steak teeth in general first of all it would be hard to get a validator in because it would be a long queue once the queue clears the yield will at that point be a lot lot lower so i don't think it's worth looking at a three month yield because that's just like a little bonus that you get as a one-off bonus i think it's more important to look at it you know when you're in where do things lie when you're in wow okay so low yield and of course if there's a low yield then it makes sense from your perspective why the internet's bond is not very interesting if it's

just half a percent or you know one percent yield in each denominated terms david what do you say to this critique from from jordy yeah yeah there's there's i'm sorry you gotta unmute there's two parts to this critique right uh it's um that the yields are going to come down and the gas fees aren't sufficient enough to like prop up that that decline in yield right so gas fees are down bigly from defy summer and the the yields inherently are over hyped because as more people come to stake their ether then the yields will come down and that makes just ether less attractive of an asset so let's take these one at a time it's actually always been my bold case that the yields on ether come down because what that inherently means is that a significant amount of ether

becomes staked and we we've uh described like the three pillars of ether's value accrual on bank list a couple times before uh staking sucks up a large supply of ether and that becomes staked and therefore removed from the market right like you can't stake your eat and sell it too you got to do one so if you're staking your ether you're saying i'm not selling it um and generally people will stake for a long time i think rather than just like go and like you know i'm gonna stake my eat this month but then sell it the next month and buy it back i think people are staking for the long term so i think the generally the churn of stakers is going to be relatively low and i'll talk about why that's not just speculation but actually built into the proof of stake model

and so like if we're talking about like yeah the ether yields are coming down to like something very modest three percent or less two percent well that follows that a ton of ether supply is now staked and i think in order to get to something as low as two percent real yield like we need something like 50 million ether 40 million ether locked up and that's like almost 50 percent of the supply uh and so if you're telling me that ether is going down i'm bullish that makes me bullish because a lot of ether comes off of the market and you also get this compounding effect of defy because if you can borrow ether from defy and lend it into staking and stake it to get that yield because there's an arbitrage there

so like say it costs you one percent to borrow ether and you can stake that ether for two percent people will do that to arb that right out so like not only do you get like 50 million plus ether locked in locked in staking but that also increases the ether demand out of the defy side so you get like a nice bonus multiplication multiplier on ether demand because then d5 also sucks up some ether and so that's like the second pillar of of each value accrual is like how much ether is in d5 and when there's like sustainable strong demand from ether on the staking side it actually bumps up the amount of that defy will demand of ether because you can also get yields and d5 on your ether and then the third pillar is of course the ethburn rate and like yes transaction fees down

bigly i think right now like we were looking at the numbers yesterday we are barely deflationary i think we're like 16 17 18 way average on the last month uh we've been reporting it wrong at bank list with the mean rather than the average with the mean has been something like 12 10 or 12 way but the mean is the uh excuse me the median the median yeah this is actually the average that is like the correct ultrasound number and that one's like barely deflationary and so i think if we compare the ether gas markets to what we were all starting to talk about this ultrasound money meme way back when in 2021 when gas prices sustained like 100 200 way for a while yes we're not burning that much ether uh and and and so like those numbers are

down bigly so the narrative has lost some tailwinds but the fundamentals has always been the reduced issuance and you know okay so like we're we're going from four per four point something percent issue and four point four percent we're going down to point four percent and then the ether burn does take us down to like point one percent issuance or zero percent issuance or like negative point something percent issuance and so like we actually do get deflationary and so maybe we re do recapture some of that narrative but like when it's really the point is comparing these to all other crypto assets where you have bitcoin at 1.7 percent inflation solana at 6.7 avalanche at 5.2 uh cardano's doing pretty good at 1.8 but it's really comparing it to these

and saying like yes like if ether is not as ultrasound as it once was if we had merged like in the bull market but the comparison is like off the charts again compared to other crypto assets and if we compare this to like a treasury yield i don't know what we're getting on treasury three percent like but that's the dollar note though like and the dollar doesn't go up in price ether i mean it goes down in price and went down from 40 800 down to where it is now it also goes up in price too uh and especially as we get into like wartime currencies where like currencies have to be inflated to pay for europe's energy debt crisis and just generally the the poor store value nature of fiat currencies i don't think it's fair to like compare treasuries to ether because you don't get the upside potential and

eventually like as once a bull market returns like if ether goes to 10k which i think it will like the yield that you get on your ether now maybe it's just two percent but if it goes up 5x that effective yield is then it is then 10 in today's terms if you are also willing to express bullishness on on ether so that's what i'll say holistically to all those arguments um i want to get back to jordy in a minute but just real quick david so do you think that block space demand for ethereum will come back um the way it was earlier in this year or like in previous years i think jordy's argument that we're not ever really gonna come back to like it's like sustained 200 gray gas prices

is totally accurate like when we had like 200 300 400 gray during d5 summer we didn't have a flourishing ecosystem of their twos there even weren't competitive layer ones to like offload a lot of that demand and we and i think we noticed that like each price each gas prices weren't high in the second half of 2021 because we had ways to get offload that block space demand on other chains so you think the new normal is low lower than the bull market i also think that we are in a depressed gas market environment and so i think like maybe what's a range david for you 30 to 50 is going to be 30 to 50 gray is going to be the more normalized once we get to back to some like sense of normality and on gas markets yeah 30

days and remind us again when does eath go deflationary 14 15 18. so jordy there's there's kind of like two pieces i want you to pull apart from david's counter argument the one is he's saying hey um to get the yo low yield that you're talking about you're criticizing you have to lock up an awful a lot of eth in order to do that and that is fundamentally bullish and then secondly i think he's saying block based demand you just heard him uh is actually in a kind of a temporary recession and we're going to see guy prices at least 30 to 50 maybe not the bull price uh for for block space demand but at least 30 to 50 which is deflationary so what do you say about those points

yeah i mean starting with the first one another one that i feel very strongly that i disagree completely about let's go a year forward and let's just imagine that indeed 60 70 percent of ether staked when you go to the exchange and you go to ftx coinbase you know binance you're going to be surprised that maybe the pair that you're trading is not going to be eth usd it's going to be staked usd or maybe you know some other uh version of that that doesn't protect the price from going down like it's locked people are trading it it doesn't mean it's locked locked like people would just trade the other one they'll just trade state teeth it'll just go up and down exactly the same way it's going it's a misconception to think that

supply will be like off the market it'll just be in a different form the only way to really take it off the market is to like lose the keys in that case sure that's super bullish like if if like you lock it up and you actually like throw the key away but if you're locking it up into a liquid instrument by definition it's a liquid instrument it will have the same price impact so i've seen this brought up many times and i think it's misunderstanding um on on the yield aspect i want to talk about that a little bit as well because 30 to 50 is way out of my expectations so uh we we do kind of disagree a little bit there um in terms of like the inflation reduction like i said this is very

bullish this should double the price of eth from what it would be otherwise that that's kind of like important to say now in terms of like using it as a meme first of all you know bitcoin on the next albany which is only two years away we'll go down to point eight uh eath the 15 way that's been quoted is actually incorrect it goes up as more people stake there's two things happening as more people stake more eath is being issued at the same time it's divided by more people it's kind of confusing because both are happening not linearly so it's like both are happening a little bit there's if 15 million people stake versus 30 million there's not going to be twice as much eath being issued

the the inflation of eath will only go up by like you know there's like a formula maybe it's like but instead of being times two it'll be let's say like 1.5 and you know you're dividing that 1.5 by more people but in terms of managing to stay in uh deflationary i think you're on a race that you'll never catch up you kind of start at the point where like for the first few weeks you're very close but one is up only the amount of steak teeth is up only like you can't even withdraw right now so even if you want to you can't take it out for a long time and i agree that you know the structurally we won't really see like a reduction in mistake over time as people get used to it the wallets integrate the exchanges integrate

each will just be steak teeth like it will be like a mistake not to stake it so we will just see like that up only at some point the amount of eat issued every day will go from 1500 a day to 5 000 a day possibly more if you get eighty percent which is what we see in solana and some other uh later ones in terms of staking five thousand each a day requires very high gas usage and as david said layer twos are giving a lot more block space now they will potentially become much more efficient in their block usage when they want to check back into layer ones protocols themselves like openc are spending a lot of work on getting their smart contracts more efficient to burn less less gas as well so a lot of these things are kind of

inherently reducing gas usage and therefore i think it's a losing race and we won't actually see any sustainable deflationary eth and in fact i think that in two years the if the issuance between eth and btc will be very close to each other maybe eth will still be a little bit lower but it'll be quite close jordy i want to ask so if david's projections i think you were saying um a couple of things but let's talk about the block space demand if david's projections are 30 to 50 gwei is kind of a more normalized post recessionary block space uh rate like what are your projections eight to 16. and and the reason you're giving is because

we won't see another you know uh 2000 to 2000 you know early 2022 period of like 200 plus square prices because applications are getting much more efficient in their usage of block space including layer twos that's only on the margin that's something that maybe reduces everything by 30 percent the main contribution to the difference between what we saw before is the existence of layer twos of other layer ones so that if you have like a new mania like an nft mania so it wasn't just defy summer i mean the nft like boom initially openc just had ethereum that was like the only integration they were the only platform that people were really like doing a lot of volume on going forward if there's a new mania uh

semi-fungible tokens let's just say like there's a new thing that the people want to do a lot on they don't need to do it on the main chain they'll be able to do it people don't want to spend like 200 on a transaction like i i can afford it and i still bothers me like like it just it just feels wrong people want to just spend like small amounts so they'll do it on you know if they want to do it on the ethereum ecosystem they'll do it on arbitrum you know some other layer two there's a ton of them coming online for different use cases and they'll also have app chains which we can get into at the end but i think that you know that's another important thing to consider so uh they'll have a lot of other options for like excess blocks based demand that

weren't present in 2020. exactly i i do agree that there will be like at some point a new mania that people want to do things on chain i just don't think that they'll have to spend a lot of gaps for it uh these are uh tantalizing critiques i think and i want to get david to respond but uh we're gonna do david a favor and cut to sponsors so he can have a couple of minutes to think about what he's going to say and reply guys we'll be right back with this debate between jordy and david is the merge over hyped or not but before we do we want to thank the sponsors that made this episode possible juno is bringing crypto friendly banking straight into your trucking account with juno you can send money from your juno

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to the brave wallet download brave brave dot com bank list and click the wallet icon to get jordy alexander and david hoffman uh on whether the merge is overhyped or not jordy says it is david says it's not where we left things uh jordy just gave a you know fantastic critique and criticism david i want to hear you maybe push back on so two things he said you know that staking lockup you're talking about you know 50 million each or so locked away well that actually doesn't matter because it's all pretty liquid and so when you say locked up it's not really locked that was the first critique the second is around block space demand now you were saying maybe

the normalized rate is between 30 to 50 gwei jordi is saying now it's a fraction of that 8 to 16 gwei and the reasons he gave were there are far more options than there were in previous cycles and that is new for ethereums never had to compete for block space demand in that way so david back to you what order do you want to take these uh these critiques in and also on that gas market uh argument he's also jordy's also saying that well as more state comes into the market which i think we all agree will happen more ether will become staked the threshold for being ultrasound also goes up because more issuance comes in and more rather than 15 gwei it becomes uh okay so i will admit that like i hadn't actually fully accounted for the

whole staked east derivative um meta which i mean i do believe that over time staked derivative tokens are like rocket pools r eth lido steak d there's like other competitors coming onto the market coinbase's cb eth does approach like slowly but surely does like begin to approach 100 of all stake like that's just like the logical outcome maybe in practice it only gets to like 70 80 80 90 percent of all staked ether but like the utility of staking your ether and creating a derivative token out of it is higher than not doing that so like naturally the consequence will be all staked ether will become a safety derivative token like with rocket pool coinbase whatever so i do agree with that and so therefore yes then like the

whole supply coming out of the market maybe is is overstated because it's not actually locked you can actually just get liquidity on it and the whole point of these products um so yes are you conceding a point here i'll concede a point there um my but the my brain then next go next goes to like this inherent nature of proof of work uh excuse me proof of stake is that it rewards bulls for being bullish and this is in direct contrast to proof of work where proof of work miners are in like a race to sell bitcoin because or their proof of work asset because of the very nature of what proof of work is it forces you to have operational costs that theoretically approach 99.99 of your profit margins because if you have

any more profit margins you would reinvest into your business to produce and consume more bitcoins than your counterpart the proof of stake completely inverts that and it actually starts to like make a game of chicken of who's more bullish it's like oh you're gonna stake your ether down to three percent yield well i'm going to take my ether down to 2.5 percent yield because i'm so bullish ether that i'll take a lesser yield than you and i'm still holding my asset i'm still a holder and because i'm still a holder and i'm super long on on ether what do i want most in the world more ether the most and so i'll stake it for the least amount of yield and so when we get to this game of chickens like oh you're you're bullish down to like 1.5 well i'm bullish down to one percent i'm

still holding and so like it kind of doesn't matter so much if like the yields go down because the way that proof of work work or proof of stake works is that whereas proof of work creates the theoretical 100 cell pressure proof of stake creates a theoretical 100 hoarding supply and so the stakers are always going to be the most bullish people on ether the asset and they're the people who get the issuance and so while real like well real yields might compress the holder supply the people that are holding all of that issuance are the most bullish people who aren't sending it to the marketplace uh so i that's that would be my revised rebuttal to that particular point let's start with that jordy what do you

think i mean there there is an element of hoarding for sure because once you have the asset that's also getting you more of the asset you want to you want to keep it um you know there's no there's no reason to be negative on everything my point is you can't have you know your cake and eat it as well so if you want to say that no one's going to sell because they're going to you know they're just going to hold it they're going to hurt it and that's that's possible there's two problems one the distribution of is going down so like you know as new teenagers are becoming adults and they want to partake and have like a sizeable meaningful amount of eath it becomes harder and harder if people like hoarding it's harder and also for usage as well which is the other thing i want

to get into uh which is very important which is if you're actually using this as a hoarding asset if people want to just use it to actually do stuff on chain they're not gonna do that so maybe that's fine maybe like all the activity moves to l2s and all the fees come from like l2 is kind of checking into uh checking into state on l1 so maybe that's okay but you won't have this like romantic vision of like you know guy going to college and working and getting his first eath and being able to like just go to main chain and buy some nfts on main chain whatever um it might be a different world if it ends up being like this hoarding acid so that's true and i will i will also say you know to the

i will agree with with um one really positive argument that if you do get a lot of stake teeth this is maybe like what i want to focus on the most ultimately one amazing good thing is that you're getting a lot of security and proof of stake there's two ways to count security uh there's censorship resistance which you can make a lot of cases that proof of work is better for censorship resistance in the sense of you know china wanted to shut down people just moved to different country but if everyone owning the eth you know the exchanges are based in the us and the us government says something uh you know that might be a problem for uh for the exchanges and like we've already seen all the discussion around coinbase for example what would they do so we can kind of like look at the

censorship resistance i'm actually happy that we will have the two biggest coins each take a different approach one proof of work one proof of stake so that if the state ever wants to destroy crypto they need to find a way to attack both and that's just going to be like very very difficult to do at the same time so i i'm happy that we have both and i will say like very positively having a lot of stake teeth which we will have because it's incentivized uh it creates a huge amount of security in terms of dollars needed for somebody to do like a 51 attack for example or you know really to to get enough ease to to mess with um you know the amount of validators that are needed so this is true and in a way there is a way to look at it as the value proposition

for eth because where if you're an app you're not going to build your own like 100 billion dollar security model you're just gonna latch on to this one and we have a few different security models the eth one is is obviously like a really important one to look into there's a few other ones uh i would mention three uh we have polka dot i i've always not been a fan of the polka dot one because basically you're it's like a landlord that has a mall and it's charging people to get a store in the mall it's like you have an auction and you figure out how much you need to pay for your security inside my mall and you get access to the mall i think what we've seen is that apps don't want to pay for security they want

to get paid it's not like uh they actually uh want to like give money for security they want to kind of partake uh we have near which is a very interesting one where we've seen things like sweat point now kind of choose near because they get 30 of the gas back so they get it's kind of like a jv and i think that's extremely interesting and then we have cosmos which is like the other interesting system which i think will be like the two the second biggest one after after the theorem ecosystem and that has its unique uh points so maybe part of the discussion is which security system is going to be long-term better because you will have a lot of security i do think this is a interesting um

criticism maybe that we can dive into i do want to get back uh to the blocks based demand piece of it but let's let's park that for later so i think one of jordy's points that i heard him just make now david and i i certainly saw in his um in his article is the eath bulls on the long term horizon seem to think there's going to be one chain to rule them all one global settlement layer that is going to accrue the vast majority of the model jordy i don't want to put words in your mouth but i think what you were saying is like hey that's not true like that's some rose-colored glasses we live in a multi-chain world there are some other protocols with unique approaches near the cosmos where you have sort of a the

idea of all of these sovereign chains not one central settlement layer um maybe we could get into that david what do you think about this are eath bulls being like merge bulls in particular too long term bullish that the ethereum model of one change of rule them all is going to win what do you say to these pushbacks and criticisms yeah i do think i've fallen the camp of the believers who the beliefs that one chain will become the dominant settlement layer to rule them all i do believe that and the reason why i think this still works while also preserving our ability to produce chains that have different philosophies on how they work is that like the long the ethereum vision the

roll-up centric roadmap vision to ethereum is about producing one central blockchain that does one thing extremely well which is having and providing a ton of security and then the other thing that like not really accounted for by core ethe devs but what i think is naturally going to emerge is that the ethereum layer one largely kind of just becomes like uniswap and curve and maybe openc is like the dominant nft liquidity engine but basically exchanges like decentralized exchanges for assets and i kind of can totally see a world where like uniswap block space demand is like 50 of ethereum or like exchange block space demand is 51 of ethereum then we have

all of these roll ups plus the combination of eip4844 which if i were to summarize what ei eip 484 does is that it allows for a roll-up to be built on ethereum with minimum viable rent extraction as in the minimum amount of layer 1 gas fees that these roll-ups need to pay for ethereum to provide security so it's the minimum amount of couple between the layer one ethereum and the layer two roll-up that gives the maximum amount of security so it's it's a theory i'm saying like hey we want to extract from you the absolute minimum amount it takes to provide you with the full might and power of the ethereum layer one security and so on with that model you can have whatever

and everything that jordy just said on these other models like you can put near as a roll up on ethereum because we like that model you can put whatever you want on top of ethereum because of your particular philosophy or political leanings or design choices and so it is like this whole like one chain to rule them all and that property that that chain wins by is security but that it's the the very nature of that is it actually creates a flourishing of many many many many blockchains on top of it that does actually tick the box of hey what is your what is your values how are your design principles what do you want to do here and i do kind of think that like all of these alternative chains like the cosmos ecosystem the near ecosystem celestia if they had the money if they had the

dominant security asset they would be the ones that are like no it's our model that's gonna be the one chain to rule them all and everyone else is gonna be built on us so i think all the subdominant chains are like it's gonna be a multi-chain world because they're sub-dominant and as soon as they become like the dominant chain they're like no no no everything is secured by us we have the most security everything's gonna be built by us uh and so it's really just a matter of who's in the lead at this point i think this is really interesting and it links back to the block space argument because i think what you can sort of see where david is coming from versus jordy i'm talking to the listener now so if you believe in what david believes with one chain being kind of the global settlement layer and its

gravitational pull sucking all of the other chains in then you could easily see a 30 to 50 uh gwei price in like a normalized ethereum mode probably roll up settling with each other right probably even higher but if you believe as jordy does that there's not going to be one dominant chain to rule them all that ethereum block space ain't nothing special or at least not too special if you reject this idea of ethereum exceptionalism that maybe maybe you think david is preaching here then you can easily see a world where eth is no longer deflationary and you have gas prices of 8 to 16 way i want to have you weigh in on on this argument a little bit longer jordy because this kind of goes to your

long-term criticism with the eath bulls and the merge bulls um what do you say to david's points about ethereum being kind of the the gravitational pull for settlement for everything digital everything in crypto yeah i mean in general i agree with with parts of what dave was saying but one of the main things i wanted to put forward in my article and in general i think is very undertalked is we should really look at things from the app perspective because we've kind of like a lot you know 2021 really was like a layer one year it was all about layer ones and all layer ones and that's really was kind of like doing very well and we had all this like explosion cambrian explosion of different uh attempts and and different like models

but i think it's time to start looking at use cases and apps and i really want to focus on the app perspective rather than the base layer perspective because you can kind of look down from the base layer and say like hey i have all the security come here and do stuff or you can look at it from an entrepreneur who's building an app and he's like you know i'm going to get 100 million people to like do push-ups in in the right way i'm going to reward them with this token they're not necessarily like thinking about i need 100 billion dollars of security they might be thinking about like you know what's gonna give me like a cheap throughput and uh you know share the fees with me and and like i can have my own store and my own decks and whatever so

from that perspective which i think is very under looked at there is a reason to be quite confident on the multi-chain world which which i am because not everything needs security certainly like certain financial transactions and like if you have a lot of uh you know money parked on stable coins you probably want it on eth you don't want it on like a chain that can get attacked you know quite easily that's that's for sure but if you're doing like an nft project do you need ethereum i mean maybe initially because it was kind of where everything was happening on openc and everything else but uh you know if you're building a game does it have to be a layer two um on ethereum can it just be like its own uh completely separate chain there's

different layers of decentralization that are needed for different use cases and as we look at the use cases a lot of them will go in different buckets and we'll say like okay this one does need like 200 billion dollars of security this one needs to have like full ownership over what it's doing it doesn't need that much security maybe adam is the coin that kind of provides a shared security for like kind of you know a group of chains there's different models that we can see and i would disagree that you can just kind of have all of these you know you can take near and put it as layer 2 like that you know ultimately like either there's a red extraction happening or there's not and if you don't need the red distraction then nobody wants to pay for it so i think looking at the use cases it's

hard to know exactly what they're going to be like which ones are going to be the successful ones nobody like you know italian didn't see nfts coming um that the next one could be like something out of left field obviously like step in you know move to earn whatever was like another you know successful one that was out of left field um i'm not sure that money necessarily will be at the center of it it could be entertainment and so you know ethereum's security layer is mostly useful for the monetary kind of uses that are high value like stable coins things like that um and even for those there could be other options as they as

they grow bigger so needing eth as a security layer is a maybe and it depends on on the apps and i really think people should think about apps more so how about um i want to get to the the crux of the question maybe the crux of the sort of the disagreement between uh you and david on this story so david might agree with you that the vast majority of applications will occur off of ethereum l1 or even layer two ecosystems where i think you might disagree is the value accrual so if you say something like all of the money type applications are still on ethereum i think david might retort and say yeah that's because that's where all the value is and the

other block space will be low commodity low fee block space the ethereum block space will be the block space that's valuable and so maybe just distilling this into like in a fully realized multi-chain world what percentage do you think ethereum will be of the total layer one uh market cap let's say of a hundred percent are we talking ethereum at you know ten to twenty percent are we thought talking ethereum at like 60 to 90 percent i think market cap about 30 percent and i think tvl could be higher but that doesn't it won't scale with market cap because there'll be less demand for block space even with things that don't

have a high tpl like we talked about like you know gaming doesn't have a lot of tpl but it can burn a lot of transactions it can be a lot of gas so i think ultimately you know in the in the one third range is is kind of where i expect in in like the 10-year horizon to see eth and i see like another big successful story like maybe adam maybe something else having a similar kind of size and then a bunch of smaller niche uh decentralized blocks blockchains david i want you to already have a picture um ten years from now uh so what are we looking at as far as eth for layer one percentage of market

cap geordi says 30 what would you say yeah it's a hard question jordy do you think in that world that ethereum ether is not the number one crypto asset by market cap um as it's currently designed i don't think that it can scale and i don't think that unless changes are made um that it will be the number one crypto asset i guess like we're eventually going to get to like the monetary argument the monetary premium argument because a lot of it ultimately this is like one of my main points you you're you're having this hybrid thing where you're looking at it as like you know bitcoin like gold digital gold a digital kind of uh asset that people

will just store value in and then you have you know the block space argument so when you look at the price if you look at it from the block space argument what i've laid out in the article is like ultimately what you should look at is how much money are people spending on gas and how much will they be willing to spend right now it's less than a billion dollars a year but let's take like one to two billion if the market cap is 200 billion which is very close to what it is right now it's around 200 billion you have between 100 and 200 you know priced earning ratio like a pe ratio which is is obviously like a very high i'm not saying it's wrong i actually think it's okay it is a growth asset it's a new asset like you know something

like um amazon in in like an early days or google will also have like an extremely high pe ratio but what we're basically saying is that if block space if if the block uh cost doesn't change and and things kind of stay where they are and people are only spending one billion dollars a year on block space it'll take 200 years for this business if you look at it as kind of like a business to you know get its valuation so people will say like well then you know it's part of it's monetary premium it's not just it's not just that and it's such a complicated um argument and we can get into it but i i guess that's my first foray into how how

i mentally construct the the two elements yeah i think the logical flow of this conversation is is like yeah the reason why it's 200 price per earnings is because the pe ratio doesn't price in like uh reservation demand as collateral inside of defy apps and so like you'll buy ether and stick it inside of maker and that'll pump the price without creasing the block space revenue um i think that conversation i think is generally well understood by long-term bankless listeners and also like the lesser interesting part and kind of going back to what ryan was saying is that when he was like making my argument for me is that you know ethereum block space is super valuable because it's the most secure right like if you have something of high value you buy a very very good

safe to put that in you don't buy like a cheap amazon safe to put your put to put your expensive transactions into uh and so like yeah like if we have this gaming suited chain that does a bajillion tps yeah it's because like my like long sword of fire is not going to be this need the same amount of security as like my unit swap trade and so like sure like you can have like you put all of the like non-value transactions on like a specific chain but that chain isn't going to generate is going to have an even worse p e ratio than ethereum uh because and we've seen this anecdotally in like solana avalanche every like ethereum competitor that scales on as a monolithic chain by

scaling the layer one their p e ratios are like off the charts in comparison to ether ether as an industry i think has the best p e ratio of any like layer one asset but proof of say smart contract asset uh and so again it goes back to a little bit of just like what are we comparing it to uh and so like we could say maybe there's like a bear case fundamentally for ether on the horizon but compared to all other like things that we actually see in the crypto world like the p e ratio on ether is the best uh people are willing to pay the most block space because it's the most secure the willingness to pay i think is really the big one here david before we get off of you i i do want to make sure you you do answer that

question that jordy answered which is he said thirty percent market cap and you asked him if he he thought eth was number one in that he said no he doesn't think it'll be number one so ten years from now percentage of layer one market what do you think uh ether is at that point in time i don't have a strong conviction on the percentage i don't know i do have strong conviction that ether is the number one crypto asset i think i would be comfortable saying 30 is like the floor as in it won't be below that um i could see a world where ether is not above 50 of all total layer 1 market cap do you want to be are we including are we including bitcoin as player one yes

we are okay yeah then and then my number is is probably lower than 30 is it closer to what what it would be closer to um yeah like twenty percent twenty percent and then uh david what do you think as far as ten-year like um market cap in terms of dollar numbers dollar numbers i don't even know what the value of a dollar is going to be in 10 years ryan all right so like really really really big fair enough well let's get to this last piece of the argument then i want to round trip and talk short term again and then we i think we can call this a success and i think bankless listeners are really learning a lot from from this conversation that it's just a pleasure

to have you both on we get to have david on all the time with jordy it's a pleasure to if you're ever looking for a podcast host okay [Laughter] but anyway um so uh just kind of round tripping on this converse conversation because i don't know if i saw it in your article explicitly but it seems to be a point that you're making is you seem to doubt entirely the mod not maybe not entirely that's too strong for it but you seem to doubt the monetary premium aspect of ether as an asset that i think is probably fundamentally inherent in the eth merchable um overhype case they think that ether is actually money and they call it

ultrasound money and this means that it has a monetary premium but you seem to think that's not the case can you poke some holes in the monetary premium argument that the ethiopians are making yeah absolutely i'm happy to talk about it i i do think it is complicated um even in the real world we have the reserve currency the us dollar we have other currencies that are not reserve currencies that still have value just because they're used in that ecosystem in that country like the brazilian real may not be the best currency in the world but it has a lot of value like a lot of people use it in a way ethereum can have monetary a premium that does not reserve asset digital reserve asset monetary premium if it has a very strong community and the community wants to have ethereum it can have

potentially monetary premium i don't know exactly what that means because we haven't seen it before it's something that you know we have these new digital communities digital countries so the the the the fiat or the digital kind of currency of the ethereum country if you look at it as kind of balaji talks about it like a you know decentralized country can have monetary premium without even necessarily acting in the global world as a reserve to back you know some some other use case or to back like uh you know central banks or whatever else it is so even without it becoming a global store of value it can have some monetary premium which is sort of like a community or a global nation monetary premium and

i don't know how to value that exactly so i don't discount it completely but i will say that in terms of the store value thesis and competing with bitcoin and the obsession a lot of eth pulls have with the flipping um i i am completely against the obsession i think it's possible there's a flipping it could re-flip in there could be like a third thing that comes up i don't think it's what really is important the idea that somehow um eth can act as both a you know global reserve currency of the digital world and also act as something that people are actually transacting with um does not work you have to kind of specialize in something and you know other people have said this i

know arthur hayes talks about this as well but the properties of money if you actually want to have like a base money sort of like a hard money are very different than the properties of ethereum it's not that ethereum is a better version because you can do stuff with it it's a worse version because you can do stuff with it and i think people who really philosophically understand like why hard money exists and what the purpose of it is eventually get to this conclusion and so i think the current like catch-all of it's a better version because you can also spend it and also this actually is is mistaken um and ultimately my my hope for ethereum and like really what i would like to see and will make me extremely bullish long term is if it kind of settles into what it is and

understands that taking the role of the digitally scarce asset which bitcoin serves quite well not exceedingly well it has long-term um security concerns so that's a completely different topic in a podcast to get into separately like you know how those will get resolved but in terms of like ethereum acting as that asset it is not designed for it and it should kind of maybe be the currency of its own country and maybe be like the cost of valuable block space and look at it as like you know what is the benefit of an app being able to use this very valuable security rather than trying to be everything i just don't i don't see that happening

so are you would it be accurate to say jordy you're more bullish on bitcoin as a monetary premium asset in crypto than ether yes as a digital reserve currency like i said the the concept of a monetary premium i think even dogecoin can have monetary premium which is like a meme premium which it will always be that you know the pure first meme it will always have that that aspect to it that will you know potentially in 50 years people will will still buy dogecoin which is useless because it has like a monetary premium as you can call it um so i think eth can have a sort of monetary premium just within within its community and not be viewed outside as outside of its economy as a

reserve currency asset correct exactly i don't see how eth can become a macro asset where you know in the macroeconomic conversation they're saying well gold is up today and bitcoin is up and oh actually it's ethereum that's uh like that's hard to get from point a to point b all right so david uh way in here jordy sand pick a lane enough with the uh the manifest destiny around the the flipping right you're their sound money you're some sort of utility asset in your economy but don't try to be both bitcoin's already got that use case covered what do you think about this yeah the whole idea of like its money inside of its own community in its own like sector uh is actually a concept i wrote about way back when and i think

like a 2009 article called like ether is equity i wrote about it like as a version of company script you're probably going to be in 2019 rather than 2009. oh yes yeah i was not writing about crypto in 2009 sadly david is satoshi yeah and then like the the idea for this is like there are these like coal mining towns and they issue their own currency to their own town and like you use that currency inside of your own community and it has value because like you can use at the general store and the bar and you're paid in it or something like this and that's kind of like what ether is like we made to our own money you can use it in unit swap you can use it in maker dow it's good for our own community the thing is is that like

it starts off small but eventually like ethereum i think just naturally fills the container that it resides inside of and that container is the internet and so like the reason why ether will become a macro asset is because ethereum is as large as the internet itself it comes to put financial roots into like all relevant corners of the internet that can see that and we're seeing this like right now with like reddit for example doing their like avatars as nfts on like an arbitrary layer two uh and that's just like one small part of reddit in one small corner of the internet and like you know you can layer on gaming and like it goes back to the fundamental belief that i do all think that ethereum does become the generalized settlement layer to all financial corners of the

internet and like the thing that the internet has not yet become because of web 2 doesn't allow for it is like financialized so ethereum is like best positioned to like put not the layer one but many layer twos and app specific layer threes as like a fractal root structure that just grows into all corners of the internet and all of a sudden ether becomes the native currency of the internet and the eth stake rate is like the native bond of the internet that's like the fundamental bulk case for ethereum and like the reason why this always works for ethereum and lesser so for any other proof-of-stake smart contract system because those also exist is that the ethereum is the only one that prioritizes security above all and so it actually has the abundant security to actually extend security into all corners of the internet and

what is security other than settlement assurances that your asset is yours maybe you don't need strong settlement assurances if we're talking about like a reddit avatar but the fact but that's actually a choice by a choice that the arbitrary layer two can make and and eventually you can actually if you do want to because for some reason you're read at avatar and empty become super valuable you can also go all the way back down to the ethereum layer one and that only works in a system that is designed for strong secure settlement uh that offers any sort of settlement guarantees and you just don't get that same thing with any other proof of stake uh smart contract platform that we know of today because solana and avalanche have not optimized for security they optimize for speed uh and so like you just lose the

monetary premium nature and then the other the other thing you said is that like you know ether is trying to do all the things and versus like just trying to become a money and i think this is like a core philosophy that i see i see being debated in the world of crypto space like do you become money because you add a bunch of utility to your asset or are you bitcoin and you just have like the supply schedule and that's the money and like i'm firmly in the camp that the way that you make an inject monetary premium is that you you fill all three asset super classes to the best of your ability you got consumable uh consumable assets like energy gasoline and gas as ether to make a transaction on ethereum you have store value assets

like a house or gold or bitcoin or ether as collateral inside of defy and then you also have capital assets which are yield bearing instruments like a bond or a house or a dividend paying stock those are the three asset super classes ether is the only asset in all time to fit inside of all three asset super classes so like it goes as follows is that like the monetary premium behind this asset is also going to be the strongest monetary premium that the world has ever seen because we've never seen an asset fit into all three super classes before this uh i'll let it go there guys this has been uh a really fun debate and it's getting a little bit long um jordy all right do you have a burning desire to respond to that or

should we talk about short term and then close it out um i don't need to respond though you know it's like a nice bull kind of like argument okay um i i will just say a couple things like one we should just remember you know behind everything else what matters is incentives you know people are ultimately i don't know what will determine the future and you have to follow incentives and you know for example with bitcoin one of the problems that it has had is once it got too big people could just pump something smaller get like a 5x return rather than get like a 10 return in bitcoin that was an incentive issue that started to kind of plague that you know it stalled progress let's say like it stalled a lot of the progress so

we have to be cognizant of like human incentives and so like for my next article like i will be trying to think for myself because like nobody's answering these things but think about you know what what do what do human incentives point us towards what kind of equilibriums do we reach and i'm not sure that you know once eve is very big if somebody new is coming in as an entrepreneur or like trying to do something new that they will be incentivized to use it maybe they'll be incentivized to create something new so like incentives ultimately will will determine who wins the ultimate debate and um i'm going to try to help kind of push the ball forward in terms of our thinking about um incentives that's really cool we're

definitely going to be looking forward to that argument so um full circle last question for both of our debaters uh let's let's bring it back to the short run so a jordi i think i heard you say earlier in the episode that in this macro environment you can't see anything pre or post merge uh from a price perspective of ether exceeding two thousand dollars uh is that the case and and tell us why tell us kind of your range price prediction for what happens in the short to medium run after the merge yeah i mean you know in crypto as we know everything is really fuzzy so we kind of latch on to the round numbers things like one thousand

ten thousand two thousand and uh you know once we kind of got to 2000 recently it was like the dog catching up to the car i kind of felt like okay now you caught the car what did you do now like you caught up to the car and and so like we just kind of bounced back off i i see like there's a lot of resistance there we eventually of course break it just as you know i think um bitcoin will break upwards as well at some point but i would say given the macro environment and the resistance level and the psychological resistance that's the point at which i'm not right now comfortable kind of pressing forward past that point in in the you know next months until until the macro environment clears

so price cap of 2000 until the macro environment um clears out david what do you think about that what are your kind of price predictions if you're just to take a crystal ball out right yeah the macro is scary right now um and i it's just like you know energy crisis bad like you got revolts blah blah like there's actual war going on but also like in a way there's a way for that to also be like bullish for assets uh and that's just like if if macro gets actually bad that we actually just like have to turn on the money printer then like it's actually bullish so in my mind i'm like macros confusing there's bear scenarios there's both scenarios i kind of just like it just washes out the bull the

bull scenarios wash out the bear scenarios it kind of i think those those things cancel each other out to the best of my knowledge because i can't really reason about it too much and so i kind of don't really consider macro um again and it mostly goes to my focus on like comparing ether to other crypto assets but i will say that two things there's the execution rate that we haven't talked about so far there's the execution risk that goes away post merge if we merge correctly so i guess that also begs the question like there might be a catastrophic event i don't know how to uh calculate the likelihood of that thing um but there's like there are people who are waiting for ether to de-risk and they'll perhaps buy ether once we post-merge because the risk is gone

and then there's also people who just fundamentally don't think that the merge is happening or they're just not staying up to date with ethereum and they're like bitcoin they're bitcoiners bitcoin maxies who are doing this like uh and and so there's all these people and like the reason why i actually think there's enough of those people out there is like various twitter polls from somebody like eric wall who is a relatively neutral observer who has a very diverse group of twitter followers it was something like 60 said the merge was gonna go totally according to plan and 35 to 40 that the merge is going to be delayed or kicked back or something is going to go wrong and like all the ethereum core devs are like 95 plus likelihood of success and honestly 95 is low uh and so like i think that is

like the crypto market itself the crypto community the people that that move their money around inside of crypto assets are actually not priced in on the merge because you know proof of stake has been coming for six years now like the fact that it's all actually like arrived is probably falling on deaf ears because like we've been having this like yeah proof of stake has been coming for like six seven years now the fact that it's actually here i think is going to blindside a lot of people and that's and that is capital that is undeployed into ether that i think will become deployed into ether as a result of the emerge and i think that is a bullish catalyst the actual us dollar numbers if i gave out a number i would just set up myself up for being wrong in the future that's okay you've done that

before i have learned not to do you have a do you have above above two thousand dollars uh and i do think that ether hits point one btc by the end of q1 2022. 23 23. what is it now point zero eight five point zero eight eight zero it was point zero eight five yesterday it's like point zero eight two today and you are more comfortable with your ratio bet than your us dollar price bet because who knows what's gonna happen with macro correct there we have it guys this has been a lot of fun um i just want to thank jordy for for coming on and speaking to you uh uh to david agreeing to to debate on

this topic i'd also like to thank our fantastic moderator [Laughter] you were extremely moderate as a moderator you did not take any strong sides and that that's very well done oh good uh i'm glad i mean these are lots these are really fun and honestly this is it's some of our favorite content to produce at bank list because we always want to double check our thought bubble and um you've given all of us the entire bankless community a lot to think about so jordy appreciate you and david of course as always appreciate you coming on the podcast and for everything you do um guys we'll end it there but you know what we will include a link to both jordy's article which was on bankless a few weeks ago and then david couldn't help himself he wrote a rebuttal to that

article so we'll link in the interest of fairness to that article as well and it's my time to remind you as i close wrists and disclaimers of course eth is risky the merge is risky fam all right david's 95 certain but like you know you never know and of course so is all of d5 you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot