Ethereum's Endgame: Why Credible Neutrality Beats Speed

Transcript

Welcome to another episode with 51 Insights today with William Mugayar, author of the book business of blockchain and founder at the Ethereum Market Research Center. William, welcome to the show. >> Hi Mark. >> William, it's great to have you here. I know that you've been very early in the crypto industry. you've done some pioneering work. You have very interesting thoughts on what's happening today among layer 1 chains, what's happening on Ethereum, and we're going to unpack all of that today. And before we jump in, I would love to know a little bit about your background, where you all started. I know you've been an

early internet pioneer. How did that all come about and how did you get into blockchain? Yeah. So, first of all, I've been in the technology business for uh almost four decades. Um, so that gives you an idea about my background. Uh, started in the early 80s. Uh, my first employer was Hillet Packard and I stayed there for 14 years and moved on to become very involved with the internet. uh as far as the uh blockchain is concerned, I was lucky enough to have met Vitalik uh at the end of 13 early 14 because we both lived in Toronto and at the time I was attending what was called the Bitcoin meetups and uh Ethereum and

Vitalic was used to be present at those meetups initially and at the time he had just barely finished or he was just putting the final touches on the white paper and that's when I met him. There was that first meetup that was changing focus from Bitcoin to Ethereum. And the highlight uh of that meetup, it was actually January the 1st, 2014, uh was Vitalic talking to us about what uh uh he had been uh thinking about and um I I met him for the for the first time and I spent a good amount of time asking him about Ethereum and trying to understand it. I was quite impressed. uh he didn't have all the answers. Uh he was very

positive. He was very uh uh happy about it. He he was very optimistic although a bit naive at the time I would admit. And his impetus for starting Ethereum was that he saw the limitations of Bitcoin specifically. It's a well-known story that he had been involved with Bitcoin previously and played with colored coins and wanted to do more and saw the limitations and he said, "Well, what we need is more of a general purpose programmable blockchain and not something that had some limitations like Bitcoin." So, that was really the impetus that started Ethereum. From my side, having been involved in technology for a number of of years and and having

seen peer-to-peer technologies at least a decade before before I kind of put two and two together and I it dawned on me that this was going to be very important because that technology was going to be enabling some changes ahead. It was really about another wave of re-engineering, another wave of disrupting specific industries. And I felt there was a human element to the technology and um that uh had a big promise and I I became a big student of Ethereum and for the 3 years following that Vitalik and I became almost reverse mentors. He taught me he taught me a lot about the blockchain and I was there as an adviser to him uh in the early days of the Ethereum Foundation when they had

some growing pains and uh we were close in touch at that at that period. Yeah, I love that, William. It almost feels like going back in history and that's what we're also going to do today in that podcast because you've seen so many things across technology and I would actually want to take a step back and look at blockchain and Bitcoin in general even before that peer-to-peer technologies. I know you've been involved in that and you also talked about digital cash in the '9s. So what was that big leap when Bitcoin came along and how did digital cash that already existed before became Bitcoin that was suddenly so much better?

>> Yeah, that there there were two other data points that kind of helped me connect all the dots together. And in the in the early internet days at the end of the '9s, and I wrote about this in my other book called Opening Digital Markets, the concept of digital cash was put forth by David Ch. And these early versions of digital cash called cyber at the time. They never took off, but the concept was there. They never took off for for several reasons. One of them being that they had not solved the double spend problem and also is because they they tried to integrate it within e-commerce as a form of payment and the integration was not so easy. Uh it was still a central kind of technology and

the deployments was not as as fluid as it uh uh could have been. But we learned a lot from cyber crash and it had some very minor minor effect in the early days of um of uh the and then the internet crashed in 1999. At that time there was a bit of a something new that was a spark at the time and that was peer-to-peer technologies and uh the first generation of peer-to-peer which as you know peer-to-peer is also a a good factor in the blockchain today. The first generation of peer-to-peer was sparked by Napster. Napster was in the music a protocol for sharing music but it was squashed by the government because it was illegal. It was used by

for illegal purposes to rip music and to share it ignoring the copyrights. So the government did a good job at killing Napster and killing the first version of peer-to-peer. At that time I was running a a website called peer intelligence and it was chronicling all of the activities in peer-to-peer. So we didn't just do music sharing. We all it also got into file sharing. So there was a little bit closer to what we have today. But again at that time there was there were maybe 70 different technologies but none of them took off because when when Napstero died, peer-to-peer died with it. And it wasn't until Satoshi revived this peer-to-peer uh technology but then added the double spend uh um solution uh

that we got to blockchain. And uh when I saw all of these pieces coming together, uh that's when I was able to get really really excited and and dived completely into it in in 2013. I had heard about it in 2012 or 11 at the time. Uh but I was too busy with my own startup uh at the time and I didn't really devote too much time for it, but I was reading about it. But then later it became a full-time activity. And you're speaking about the double spend problem or the double spend solution. And in very simple terms, that basically means that or maybe William, why don't you explain it?

>> I'm sure you can explain it better than me. >> That's the example that that we've used and and it's been used many times is that take the concept of sending a photo. So when you when you take a a picture on your iPhone on your phone and you send it suppose that is a digital digital um copy of the it's a digital representation of the image right so when you send a photo um you still have a copy of it uh in in your phone uh but if if that photo was was money uh that can't be because if I'm giving you $20 you own it you want to own it I can't be owning that same $20 after I gave it to you. And and that's that's called the

double spend problem that's been solved with uh the advent of the blockchain technology, meaning that if I'm going to send you $20, I don't have it anymore. >> Yeah. And and it's been solved in a way where no central institution needs to keep track of those accounts, but that all happens decentralized on a blockchain. >> Correct. The second important factor is that this could be done now peer-to-peer meaning that nobody in the middle is necessary because the argument could be that well yeah the banks can do that of course I can send you money by taking it out of my account and it will appear in your account but there's a bank in the middle and this is now possible now without a bank without any intermediary it just gets done via the blockchain

>> and you mentioned at the beginning that in 2015 Ethereum came along and Ethereum upgraded that system that Bitcoin pioneered. Can you help us understand also for people not familiar with blockchain technology, what was that Ethereum did that made it so much better and how does that translate into today's context? How we need to look at Ethereum as a digital asset and infrastructure in the blockchain economy?

Yeah, I mean the main nugget there was the advent of what is now called smart contract the language behind smart contracts and and smart contracts should kind of dumb it down. Uh they are a bunch of if this then that. So it's logic. It's really codifying logic and and putting a language behind the logic. But the novelty is now money is attached to that logic. So it's not just if this happens then this will happen but it's this can happen with money attached to it. So if this if the weather turns to 12° tomorrow and you and I have a bet that I

bet on 12° and you bet on 14° automatically the money will move from one person to the other person that won that bet. As a very simple example, it's smart techn contract languages. They're the language behind making this possible, making it programmable. That was the the key nugget that Ethereum understood very well. And Ballik was very keen on making this very general purpose, meaning that he didn't want Ethereum to be tied down to a particular use case. rather he he wanted anybody to use this technology and use the capabilities to apply it to any use case whether it's in the finance aspect or whether it's

with content or whether with it's with decisions and the whole gamut basically of what we see today so it's kind of opening this up and making it a platform at the time we were calling Ethereum as a platform for decentralized applications so that still applies today so he really believed in decentralized applications and making Ethereum as the best platform where you could develop if you're a a developer because the first users of Ethereums were not end users the way we see them today. They were developers that was really the intent and that was the target market for Ethereum was developers.

>> Mhm. So since the foundation of Ethereum or the launch of the Ethereum chain in 2016, many different layer ones came along. uh nowadays we have hundreds if not thousands of competitive layer ones. Ethereum also pioneered the EVM technology on which now a lot of other blockchains run as well. William, what made you so intrigued about this blockchain? >> Sure. I mean, Ethereum is not the only blockchain that I've had experience with. Early on, we were not sure that Ethereum was going to be dominant necessarily.

uh I do have a lot of depth and perspective uh and insights um and context into Ethereum maybe long more than most other blockchains. Um but at the time I was involved with uh Blockstack with Filecoin uh and even more recently with Salana in 2018. I was on the board of the Kin Foundation. Um and uh and and Kin was initially an Ethereum project then moved to Stellar and then became the third project to to choose Solana in 2018 and implemented it in 19. At the time Solana had was at 35 cents and it was still an unproven technology and then I

became the chairman of the Ken Foundation. So I've had firsthand experience in in Solana as well and we'll come back to that later. Today uh Ethereum has has more than 10 years of experience in in the blockchain specific and that's very important. It's it's not to be understated and they are at the point where the network effects are becoming very real right now. And when we talk about L1's I mean not all L1's are equal. Yeah, we can say Ethereum is an L1 at the base level, but it's a lot more than an L1. Ethereum is is now basic infrastructure and uh at the base of it, yeah, there is

an L1, but Ethereum has given birth to almost two 200 L2s. Uh L2s, it's becoming a layered technology. So uh these L2s think of them as subnets or attachments to the L1 and and they are part and parcels of the Ethereum ecosystem. A lot of the uh Ethereum competitors like to pigeon hole Ethereum as just an L1 and compare themselves to the base layer, but that's misleading because Ethereum is not anymore a base layer.

It's a multi-layered infrastructure and it is very general purpose. In my opinion, the game is over in terms of competing as a general purpose blockchain. Bitcoin is a very special thing, but Ethereum has a leadership as a general purpose blockchain. Most other blockchains, some of them will disappear, some of them will not be as significant as we think. Some will become L2s and many others will become specialized or doing a very narrow number of things like some of these corporate L1s that we've heard about. In my opinion, these are yeah they can call themselves L1 but they are alternative L1s. They are not going to be a general purpose base layer technologies

infrastructure layers at the scale that Ethereum is at today. They will be doing I'm sure specific things well but they they will not be the same as Ethereum. >> So in your view William I think a common framing that crypto people use is we had the first generation of blockchain which was Bitcoin. Then we had the second generation of blockchains. Most of them use proof of stake which includes now Ethereum as well. And then we had the third generation of blockchain which are the more performant chains optimized for for speed and and transactions per

second. I would probably count Solana into it. How do you think about that framing and what would be a more nuanced perspective on that? >> Yes, I mean speed is is not the number one uh feature of uh of the blockchain. So, uh, that that's one of the things that, uh, some other blockchains come up with is they say, "Well, we're faster." But in reality, speed is is is a feature is a feature, but it's not the most important feature. If you want to go for speed, you might be better off choosing a very fast database. And they do very

well. And these databases run the NASDAQ and they run the New York Stock Exchange and and other very high frequency types of systems. It turns out that the most important decisions and many of the most more important actions are more lower to medium frequency types of decisions. So when you're moving assets, when you're making decisions on investing, when you're trying to tokenize, let's say, specific assets, speed is is not really a big factor. You want to do this on a more paced manner. So I don't think that speed is going to be the reason why you would choose one blockchain over

another. Also some of those that have speed will say well we have speed but it it is certainly not and and should not be used as really the most important factor. >> What is the most important factor in your view? >> Okay. So what what's what's more important than than speed is is trust for example. I mean we have to go back to the first principles of the blockchain and and and the first principles of the blockchain are about trust are about decentralization are about being credibly neutral and about being censorship resistant meaning that you cannot uh change the outcome of

a particular transaction. And and this trust is very important. Trust must be earned. Trust is not a promise. Henry Ford once said that you cannot build a reputation based on what you are going to do. And a lot of these some of these upcoming blockchains are promising things and are saying well we promise that we can be trusted but it is not a declaration trust. It must be earned over time and the track record matters and and the fact is that Ethereum has a big advantage. They have more than 10 10 years of track record of never having gone down day in day out since the

beginning uh over 18 and now the 19th upgrade is coming the blockchain kept ticking block after block. So, Ethereum has earned its trust with institutions. And when you when you ask institutions, they they they don't really necessarily want flashy speed kills, by the way, whether it's on the road or anywhere. Speed kills. Institutions want a platform that that behaves consistently, that can uphold fair access, that can execute orders orderly as they are submitted. and and and when when they enter the blockchain environment, they they require this guarantee of fairness.

It means no preferential treatment, no hidden actors, no manipulation of transaction ordering, no subsidies and a dedication to censorship resistance and true neutrality and the true sense of of the word and they want continuity and and that's what Ethereum offers. Among all the programmable blockchains, probably Ethereum and and Bitcoin are the only ones today that can talk from the track record perspective, not from promises. Promises are easy to to talk about, but the track record is immutable. You cannot change the track record because it's there. You can point to it and and and that's important.

>> Yeah. And then William, you mentioned now credible neutrality a couple of times and and we heard that hear that word often when it comes to blockchains and now also recently in the context of Ethereum and also new corporate layer ones that are launching people are talking about credible neutrality. What does cred credible neutrality mean? How do we define this? >> You have to think that blockchains are are systems. when when you've really when you've uh ingrained neutrality in the system, no single person or no single entity can make changes that are not good for the system. So the system is like the constitution.

You can't win against the system and you should not be able to win against the system. So this is all baked in and and this should be the test of blockchains. Who can make changes? to what extent can changes be made? Can you trust the system? That's that's really the essence of it. And Ethereum has this this base base philosophy about being neutral and about being trustworthy uh at the core and and it's it's not just a technological architectural construct. It's also philosophical and it's also ingrained in in the financial aspect. So it's it's very important and it means that no any no actor

can can behave unethically or unfairly and no actor is advantaged by being subsidized or by being put in a in a position of uh priority by any central actor. So the Ethereum Foundation for example was very very sensitive about making sure that they were not perceived to be at the center of anything. They are just a part of it. And I can give you an anecdote when I was working with the Ethereum foundation very early on and the ecosystem was starting to develop around them and I'm talking 2015 16 I was sitting with Vitalik and the executive director at the time and I I drew this new diagram for them. uh and I

put the Ethereum Foundation at the center and and around it there was like some arrows of the ecosystem around it that was developing the exchanges, the developers, the different layers of technologies around them and they looked at they they they liked it but they didn't like the fact that the foundation was at the center. They said to me, "We like your diagram but remove the foundation. It's not at the center. The foundation is one of the elements." So I changed the diagram and I put the foundation as one of the nodes. It's it just and that was that dawned on me.

Yeah, I'm I'm sorry. I mean I didn't mean it to be that way but I mean they started it. They were the nucleus but they never want to be seen at the center >> and that's very important. You see other foundations today they're at the center of their ecosystem and the the the the key test is if you took the foundation away what would happen? I would challenge some other foundations to to turn themselves off or if something happened to them, what would happen to the found to the and with Ethereum, you can be sure that God forbid even if the foundation was not there, the system will continue to thrive over time. Yeah, the foundation was quite important early on. Over time, the role of the foundation and its its criticality was

decreasing over time. It's still important. It does very important work. Uh but it's not as primord primordial as before and it doesn't push the buttons. It's part of of the whole system. It's very difficult to put a proposal together and to get it voted on. Yeah, they have researchers, they have scientists, they come up with ideas, but so does the other the ecosystem around them. >> Yeah, I I agree. A lot of other foundations are much more commercially oriented than the Ethereum Foundation ever was. And at the same time, that was also some of the criticism that Ethereum Foundation received in the last couple of months and I think beginning of this

year that they need to do more to push Ethereum adoption particularly among institutions, right? How do you see that balance or what's your view on that? Yeah, I mean and I I was one of those uh critics early on in the year and I've been a critic of Ethereum in a constructive manner for more than 5 years or so, which is fine. The issue was that because of this philosophy they had which was to be dimminitive and and not leading.

Maybe they took too much of a backseat and and and wanted to see the ecosystem thrive. But one blind blind spot they did not have is that the the competition be became very fierce. So in a in a perfect world you you you do what you do and then you you hope that people will adopt it because you're doing some good stuff. You're doing some good things but you you don't have to you shouldn't ignore the competition. And that's what happened in the last four years. the competition became more fierce and became um uh a little bit more eager to uh to attack Ethereum. And that comes

with the territory by the way. You take any leadership position in any industry and any industry has leaders. The leader is always going to be attacked. The number two, the number three, the number four and whoever wants to be uh in in that category are are going to attack the leader leader. And usually they try to attack on a on a weakness or on a perceived weakness. It could be a small something that is not perfect and they go and they attack it. And all this Ethereum has to do was to defend itself. And what the Ethereum foundation was not doing enough of is defending itself. And uh the ecosystem was depending on the foundation more than they should have perhaps in that period. But this was a

bit of a wakeup call. And now you see the ecosystem is just very vibrant. A lot of uh marketing is being done not just by the foundation although they've made some changes but they they have a desire to win more than before and they realize that you have to be competitive. It means you have to be defending. If somebody says things that are not true about you, you just don't sit there and assume that the truth will come out because truth doesn't come out on its own. You have to help it. You have to have spokespeople that go and shout the truth and and me included and others.

I'm not the only one. There are dozens of us now and there are hundreds of organizations that are very vocal and that will defend Ethereum vigorously uh especially if the competition wants to stretch the truth if they don't tell you exactly uh what the reality is. >> Yeah. So, let's do a little bit of that defending here on the show as well. William, I know that you're very vocal on Twitter and you've recently defended Ethereum against claims from Salana. Um, let's dive a little bit deeper into that because that's a very common comparison people make in that industry, Salana versus Ethereum and and who's better and who's faster and what are some of the

claims that that you see nowadays that you think are not justified and need correction? >> Sure. It's become one of my favorite things to do in the last month especially. Um and and we I mean let's talk about it. Solana they are the elephant in the room that attacks Ethereum in more ways than one and more frequently than any other uh blockchain. Uh unfortunately uh the Solana that we have today is not the same Solana that I knew uh 3 years ago. Uh I think they were a little bit more humble before. Uh they were a bit more scrappy. Doana I see today is a bit more elitist uh unfortunately and a little bit more

arrogant, more on the attack. They are more unhinged, more unshackled and more emboldened by what they say. Uh and and I don't appreciate that too much. So it was more my responsibility to pinpoint some of those claims they make. And the list uh is the following. They they talk about their DEX volumes being higher, that they have more app revenue, that the L2s have nothing to do with the L1. They really want to push the the revenue metric as being so important. And they talk about capital turnover being more than Ethereum. And they talk about speed, but let's debunk one of them at a time. And I'll give you the executive summary because I've written at length about this both on the blogs at the

Ethereum market research center and on X on the DEX volumes that that's not true. You look at the coin geko numbers, you look at the block works numbers and if you add the L2 activity, which you should because uh Ethereum is no longer just the L1. Ethereum is an ecosystem and they everybody likes to single out the L1 because they like to do that because that makes Ethereum to look a bit weaker. But Ethereum intentionally shifted some of the activity to the L2s on purpose. It was by design that the L2s were going to do more so that the ecosystem could grow. So you should look at the whole ecosystem. And when you apply the L2s and all of that, Ethereum does almost twice as much on the DEX

volumes as Solana, 8.4 billion versus 5 billion. And uh 20% of Solana's activity is memecoins. uh only 10% of Ethereum is memecoins. So small transactions on Solana, higher value transactions on Ethereum. We'll talk about that in a bit more. App revenues. Solana's top 10 apps do about $2 billion per year in revenues. Ethereum's top 10 apps do 4 billion and these are just the top 10 apps. App capital. Ethereum is 700 billion app capital. Solana 50 billion. Orders of magnitude more. Solana like to say they like to say that L2s are not part of Ethereum and and that they suck all of

the value. That's not true. It's it it's like saying that the it's like the internet without websites. L2 extend the reach of Ethereum. Ethereum is a is a foundation and that's where everything settles. The the relationship between the L1's between L1 Ethereum and the L2s is very symbiotic. The L2s depend on the L1. the the value capture is at the at the settlement layer and at the asset level this ETH is the asset and it's more than $500 billion at this point. So there is value capture there. So it's not true. You have to look at the whole spectrum. And yeah, as I said, L1 had to sacrifice a little bit to allow the L2s to thrive.

But L1 is also scaling. And we wait until the next Fusaka upgrade to see how it's going to scale in addition to allowing the L2s to also scale. The revenue metric is one that they also like to to talk about and we'll we can talk about that more in a minute hopefully. My point is is revenue is only one metric. It's too simplistic and I'm going to explain that why in in a few minutes. Blockchains should not be very extractive. Blockchains are not SAS businesses. They are not software as a as a service business. And if you only want to see them as based on the revenue, then you might as well count them as a as a private SAS business. But they are not that. So revenue is one is one factor, but it's not the only

factor. Capital turnover. That term is very vague by the way. It can mean multiple things. The frequency in which the assets move or trade. It could mean the mean the velocity of capital, the transaction activity, the amount of capital locked, the volume of DEX activity. Some of it, yeah, Solana might lead in transaction counts, but they are low value transactions. A lot of meme coins, a lot of microtransactions, but Ethereum leads in higher value transactions and and with institutional capital. So the turnover is with real capital. There's a big difference between microtransactions and moving billions of dollars in DeFi and instit institutional flows. And the final one I'll debunk is the speed. Speed speed again talked about it initially. Speed

is is not an issue. And now when you count all of the L2s together and you can go on the the dashboards, Ethereum as a ecosystem can average 500 transactions per second with peaks of almost 3,000. Uh so long as true TPS maybe is a thousand. They count a lot of transactions that are voting transaction. We should not count those. But definitely speed is not a defining value of blockchains. The blockchains were not designed to compete against Visa or NASDAQ or raw on raw throughput. The real power is decentralization and neutrality and programmability and enabling trustless collaboration between strangers around the world. And again, we talked about

it. So if you want really speed, you might as well go with a database that are really really good in speed. So I think in my opinion, Solana is kind of caught between a rock and a hard stone. as a general purpose blockchain, uh, Ethereum beats it many times over if you remove the speed factor because that doesn't matter too much. Uh, as a special purpose blockchain, which is what they want to be because they aspired to be the NASDAQ, they want to go after the NASDAQ. They want to be the internet markets blockchain. Even there, they are getting challenged by look at hyperlquid. They already almost there.

They are doing what Solana wants to do. So, you can be both at the same time. Are you a general purpose blockchain or are you a high-speed high frequency high frequency trade blockchain? Uh so they are kind of in the middle. Uh so maybe they'll end up being great for microtransactions for memecoins. uh and even there um the Ethereum L2s can give them competition any time and you pick pick any metric any segment that matter matters any sector that matters like DeFi NFTTS stable coin issuances real world assets tokenization Solana has 5 to 10% of the market share that Ethereum has and and that's really

what caps >> and then one thing that you didn't mention now is that Solon also has a much higher inflation than Ethereum. Um, >> absolutely. >> Maybe can you untangle that a little bit? How how how that inflation model works? I mean, on Solana, it's clear just issuance of new tokens and people can stake their Solana, they get some yield back. But how how does it actually work on Ethereum? >> Correct. So, Ethereum right now in the last 3 years has had a deflationary philosophy. It doesn't mean that it's deflationary every year, but it has very very very low inflation, especially compared to Solana. Solana keeps depending on minting new tokens. I'm not

sure exactly, but it's in the 7% range more or less. So, uh, and and that that appears to be the carrot that they dangle and saying that Solana has a higher staking yield than Ethereum, but that's that's really funded by inflation. So at some point it's going to catch up with them and you you can't kind of keep being funding this inflation forever. Uh and and it's kind of artificial. It's artificial. Uh it's like a race against the clock. They they depend on the value of of Solana to go keep going up for it to make sense. And it's it's it's it's not advisable in the long term. It it could be interesting in the short term, but uh it's it's it's

really artificial. And Ethereum has a more sound monetary policy at this point where a lot of the ETH is burnt and uh and the fees are very low right now. So I think it's a more sound model going forward. >> Yeah. And I think I I saw yesterday a tweet that Solana has double of its market cap um then in 2021, but the price is still the same. >> Exactly. Exactly. And and some will tell you that they'll say, well, yeah, Ethereum started at 65 um million ETH and and and now it's about 120. So, yeah, it had inflation, but this is this was over a number of years, but it stopped 3 years ago. Uh compare Ethereum

3 years ago to now uh and and that was changed. So, it's possible that in the future Solana's inflation will slow down. I think they've said that in their defense that they will slow down if they have to. They have no choice. The sky is not the limit on inflation. Otherwise, you uh you're setting yourself up for a much bigger failure from much higher heights. They will have to tame down that inflation. >> But in in the meantime, it's like a drug. So, you have to be careful. >> So, uh let's say Ethereum is sound money. Ethereum is or will be the preferred infrastructure for institutions because it's trustworthy.

It's credibly neutral. it's stable. Let's assume all that for a moment. Um, and let's focus a little bit on the investor perspective. So, I'm I'm going to ask myself now, how does that value acrude to Ethereum when all those activities will happen on the layer 1 Ethereum itself or on layer 2s? If we have all those institutions coming in those tokenized assets, how does that really acrude to the Ethereum network itself and eventually to token holders and investors?

>> Yeah, I mean we we like to say that say that Ethereum is a very productive asset and and that was coined by Ethereum. some of the other blockchains coming now with the digital asset treasury strategies are using the same term but defy decentralized finance was really started on Ethereum. So, Ethereum is still the big kahuna in the realm of of DeFi. And the and the idea is is that you can employ the ETH the asset via multiple finance related strategies, staking restaking lending borrowing and leveraging positions. The the variety is is there. Basically,

currently the total volume to total value locked on Ethereum is close to $80 billion. if I recall and growing and it's it dwarf the other blockchains in that space. So when when institutions enter that realm they will see a lot of variety. They will see a lot of ways that they can make ETH work for them and generate yields that are way beyond the initial 2 or 3% staking yields. And uh what I'm most excited about is the fact that now traditional finance is going to take a to get a taste of that.

Traditional finance is much much bigger than than DeFi specifically decentralized finance and and they they are coming they they are coming to and to DeFi because uh they have the balance sheets they have the balance sheet but Ethereum has the blueprint for doing it and and it's only the beginning. And we're seeing this with a lot a lot of the digital asset treasury companies like the Ether machine and others. They are going to start to to deploy ETH specifically as a productive asset that can return multiples uh based on on the investment and that's where the activity is basically. So it it becomes a new currency that is preferred um and and that's where the upside is going to come

from. >> And I I know that there are different valuations of Ethereum out there. I think some are saying ETH is going to be at around 50 60 70K in 5 years. We also looked at different valuation models. You can use top down models. You can use bottom up models. What is your approach to that? How how do you value ETH? And and what do you think is a fair way or a practical way of valuing ETH? The point is that traditional metrics fail to to capture what blockchain's values are today. And we we need a new paradigm and and I'm not sure what that paradigm is today. But to give you the blockchain the internet analogy, the internet went

through four different phases to kind of where we are today. And the first phase of the the internet, the valuations in the 1990s up to 2000 was about eyeballs, not earnings. it it was just about page views, banner ads, unique visitors, monthly active users and and that was kind of the beginning and that's where things failed. there was a crash because these these were meaningless or almost um vanity metrics. After the po after the crash then we started to focus on revenues 2001 2005 um they wanted to see revenues uh not just vision and and what you could do.

Uh then eBay became profitable. Uh Amazon started to become profitable at that time. Uh and the topline growth became important. uh and the and uh then then we went into the SAS model. This was the third phase in 2005 till 2015. SAS emerged as a new language in internet valuations. So we couldn't just rely on advertising uh or uh different like retail margins and and SAS became more predictable as a revenue stream and uh we started to come up with metrics like annual recurring revenues or monthly recurring revenues MR or ARR and then customer acquisition

costs CAC lifetime value of customers and the churn rate like the how how fast you you lose customers how quickly you how much how many of them you retain and that became a unit of uh in of economics and that evolved and then lately in 2015 the advent of social media till now it was the advent of network effects and ecosystem value and you have companies like Facebook uh Google Uber Airbnb and they kind of redefined was value what value was like in in the internet so they they became platforms So we value them now on network effects on ecosystem depth on the the number of third party

relationships developer activity marketplaces plugins they had they have into their platform user engagement data lock in. So the companies were not just on revenue but also on infrastructure on the infrastructure that they were building and that others depend on others depend on the on that infrastructure. So they were it became more strategic and and now we have these internet giants. It's about efficiency and about growing the moes. So in in short evaluation became started very very narrow and became more specialized and and more kind of encompassing. And what this means for the blockchain is that we we are still in a valuation limbo. We're not sure exactly how to put

a number and a multiple on on on blockchain valuations. And maybe it's a number of metrics, but it's certainly not one metric. It is certainly not just revenues. It is certainly not discounted cash flows. It is certainly not just the fees that a protocol generates. It is not just validator revenues. They are part of it. it. I mean, if you just fall in that rabbit hole, it would be like valuing uh Amazon on shipping costs in 1999, which is just a factor, but not the whole thing. Uh blockchains are really public infrastructures. They are not private companies. Uh so, so you you have to to uh be able to value the whole

ecosystem. uh and it could be a number a number of of these uh metrics. Um it could be the flow of money. I like to I've been developing some metrics around the flow of money. It's it's it's how how much velocity there is in the in the asset in the digital asset. So money in this case is ETH. if you take ETH or any any digital asset is the the velocity and the frequency of the flow of that money across the different ecosystem whether it's stable coin is issuances or real real world assets or trading. So it's really the activity out there and that's why in my opinion Ethereum is so important because it it has already won the network effects game. Look at

Tether. 80 billion of Tethers have been issued on the Ethereum blockchain. That's more than half of the all of the Tether that has been issued which is about 150 or so billion. So no matter what you do on the blockchain, the chances are one out of two you're gonna touch Ethereum. That is really the network effect. No matter what you do, even if these Tether and and and Circle and No matter what you do, you cannot escape not touching Ethereum because Ethereum is where everything settles and it's there. The analogy is like the highway.

Ethereum is like the main highway and the number of lanes are roaming on that highway. And yes, you're gonna have more on ramps and more off-ramps, but at the end of the day, you're going to end up getting on that highway no matter what to get from point A to point B. So, you're going to touch Ethereum in the same way that you're going to touch Bitcoin no matter what you do. If you're on the blockchain, you're going to touch Ethereum, you're going to touch blockchain, touch Bitcoin. There's no avoiding those two. And that's really the reality.

>> Yeah, William, that was a great ending word. We're not not at the end yet, but almost. I want to ask you a last question on how you see the future. And what are some things that you have on the agenda or priorities that you have that you think are going to be important in the next one, two, three years? I'd like to see I I think in terms of DeFi and and finance that's already doing well. It's doing well, but I'd like to see more traditional finance come into it. Finance is in the trillion dollar types of industries. DeFi, no matter how you cut it, we're still at a quarter of a trillion. Whether it's TVL or or activities, we're still in 200

billion best case. So, it's still a drop in the bucket uh of the trillion dollars in the traditional fin. I want to see more tra traditional finance coming into DeFi. That's number one. Number two, I want to see more consumer uh apps coming into play. Uh that was a big thesis of mine back in 171 18. Uh but there are some u some small experiments. Uh I want to see more wallets where the consumers are able to earn uh digital assets or earn tokens in a productive way and be able to spend them in a specific marketplace like a particular vertical

space. There's a company I like called Blackbird. They offer a loyalty point system but in tokens when you visit restaurants. But as you visit these restaurants and they give you those tokens, you can use those same tokens to pay for your next meal. So I like to see these closed economies where you earn a token and you spend the token in a way that is meaningful. Seen too much of that. I still believe in the creator economy being able to be paid for what you do or uh the data that you own. We haven't seen that m that much there, but think of it that we we are all data emitting machines. I'd love to sell my data on an anonymized kind of version and earn some tokens for in in return

for something else. We haven't seen that too much of it yet. So, these are some of the some of the u uh sectors. I'd love to see the dig the digital asset treasury companies start to now show us the the returns and we have to wait a few quarters for that. But overall, I'm I'm an optimist in terms of blockchain obviously. Uh I think there's still a lot of education. I think the corporate world has to get educated more about the blockchain. So, I'd like to see more of the blockchain being discussed in boardrooms, seeing bigger companies uh taking the blockchain more seriously because we we need them. Yes, we can grow bottoms up, but it's not enough to grow bottoms up. You have to grow bottoms up and you have to also grow top

down. >> And maybe your book, The Business of Blockchain, is a good start for that. William, thank you for coming on the show. We used to like to do a short lightning round before we end the show. A couple of very short questions with very brief answers. The first one is the first cryptocurrency that you bought >> Bitcoin. >> What's a book or encounter that has shaped the way you think about blockchain or technology in general? >> Alvin Tooffler Powers Shift before the blockchain. I met him obviously and uh he had a profound impact on my thinking. Almost annually I reread powers shift.

>> What's one contrarian belief you hold about crypto that most people in the industry would probably disagree with? >> H that's a tough one that we're not going to have thousands of blockchains. Initially I thought we were going to have thousands of blockchains. In terms of general purpose there's going to be just a handful. There will be maybe hundreds of specialized blockchains but not thousands of general purpose ones. >> And last one. What's one message that you would give away to business leaders, builders in the space?

>> Get educated. Go back to first principles and uh don't get distracted by very loud marketing messages. The blockchain is a very bottoms up technology that's going to creep even further. It has crept on us. It's going to keep creeping on us. Stay tuned for my next book. >> Great. William Mugayar, author of The Business of Blockchain, founder of the Ethereum Market Research Center. Thank you for coming on the show. Where can people learn more about you? Sure. Three places. First on X, it's Mug R. M O U G A Y A R. My blog is wa mug.xyz or zed if you're in Canada. And the

Ethereum Market Research Center is ethmc.com. It's a place focused on creating and developing market research specifically focused on the institutional market. >> William, thanks for coming on the show and all the best. >> Thanks, Mark.