Fighting Ethereum FUD, ETH value accrual and more - The Daily Gwei Refuel #281 - Ethereum Updates

Transcript

hello everyone and welcome to another episode of the delight refuel where recap the latest news in your theorem ecosystem i'm your host anthony sessano and today's the 28th of december 2021 all right everyone let's get into it so as you can see actually on my screen i only have four tabs open for today's refuel it has actually been very very quiet on twitter only natural given it's the holiday period so i figured today i'm going to go on a little bit of a rant about a tweet that i saw and it's going to be an educational rant it's just going to be me i'm saying whatever i'm kind of like expecting you guys to listen but i think it's important because what i aim to do with the reef here at least one of my goals is to arm you guys with the knowledge you need to

fight back against fudd um around ethereum to learn more about ethereum what it's actually trying to do you know things like why the the um layer one phase are high why it's not an overnight fix how this is all going to work long term just so you kind of like know on a fundamental level all of that good stuff around ethereum so uh you know as i said i'm going to go on a little bit of a rant here we're going to talk about this tweet here from tasha um so yeah i'll read out the tweet so you guys know what i'm talking about so she put out a tweet today and actually before i read out the tweet i just want to say that this person i don't consider to be a good actor within the crypto ecosystem they are very clearly putting tweets out like this as a kind of form

of growth hacking or kind of like engagement farming where they know that this will cause outrage and outrage is the easiest way to get engagement on your tweet because everyone quote tweets it dunks on you replies to it correcting the misinformation and it's just a surefire way to grow a following and it's worked for her i mean i remember a few months ago she only had like maybe a few tens thousands of followers when i first saw her now she has over 100 000 followers so it works right um uh and it works wonders because that's just what twitter and all these social platforms reward and that's what humans are kind of like pre-programmed to pay attention to i mean i even replied to a tweet that i was tagged in about this which just gave it more attention and you know like even if you

are conscious of what's happening it's still uh you know you can still end up doing it so i just wanted to profess it by saying that i don't consider tasha to be a good actor within the ethereum ecosystem they are just doing kind of like engagement farming tactics which i honestly you know i mean i've used them before myself but like not in the sense of spreading misinformation to do it it's more in the sense of i know if i say something a certain way it might like you know kick the hornet's nest a little bit but there's a difference between that and just spreading outright misinformation to cause outrage and to cause people to give your tweet engagement so given that context i'll read out what she put what her tweet was today so she said a layer two without a token will find it hard to get traction a layer two

with a token will be bearish for each as users sell either for el the layer two coin to chase growth alternative always don't have such a dilemma yet and thus remain more attractive if you think l2s are the cure to declining east dominance wake up okay so let's let's go through this line by line the first line an l2 without a token will find it hard to get traction i agree with this i actually agree with this and this is the only part that i agree with because as i've been saying for a few months now i believe that pretty much anything l1 l2 sidechain whatever if it doesn't have token incentives on it it's not going to go very far i mean ethereum had token incentives just not in the form of each like during d5 summer there were plenty of projects that did their own token

incentives and it was just being done on ethereum so ethereum kind of like got all the traction because of that uh and you know we've seen other ecosystems copy the playbook and it works there is obviously some form of liquidity that ends up being sticky it's like a very powerful marketing tool and all that good stuff there and you know i do agree that with an l2 without a token will find it hard to get traction so that that's the only part i agree with now on to the next uh line here tasha says and an l2 with the token will be bearish for eth as users sell eight f for uh layer two coin to chase growth now this is a prevalent kind of narrative that i've seen kind of play out over the last you know maybe a few weeks coming to fruition because every

time a bad narrative gets debunked and and that narrative no longer is the consensus view of you know many participants within the market they have to shift the goal price if they're trying to paint another narrative you know first of all layer twos will never work then it would let was layer twos we'll never get traction now it's um layer two coins are gonna be parasitic to eat and and and you know take value from each as an asset there's a fundamental reason why this is just outright wrong and that's because l2s have to pay ethereum for security and they have to pay that in eth and most of that eth gets burned right you all know this like this is not anything new to you a second kind of like reason is that ethe is the unit of account for a lot of these uh or at least one of the top

assets in a lot of these uh you know alternative l ones or side chains or um or l twos right eighth is used as trustless collateral or a kind of like a trustless asset across all these all of these networks here right so you've got that aspect to it the other aspect is of course staking right there's a great graphic from domothy i don't have up here now but it basically showed i've showed it on the refill before a flow chart of how ether crews value no matter what's happening on the network and how that actually contributes to the security of the network and the decentralization of it the most basic example of this is that the higher the eth value the more activity on the ethereum network the more fees that are being paid to validators post-merge the more validators will come online because

the apy will be high and the more validators that come online the more shards that we get the more decentralization we get for ethereum and also uh we get more capacity for l2s to scale as well so we get more scaling you know you guys have heard me talk about kind of like um inverting the scalability triangle before and and how basically the ethereum is the only platform aiming to do that right now at least the only one that's live i know there's a few other projects trying to do that as well so it's just outright wrong what she's saying here for those kind of reasons and then there's a bunch of other reasons as well that are kind of i guess like you could say uh reasons that uh that kind of like bolt on uh and kind of uh uh bolt on to the other reasons that

or like the fundamental reasons just hang off the side of it and you know you guys will probably know the ones i would i would come up with at this point but the fundamental one is the fact that l2s will always have to pay ethereum for security if they are ethereum based l2s of course other chains can have l2s on them you know that's that's all well and dandy but i've explained before how it doesn't actually make sense at all for another l2 sorry for an l2 to uh settle to another a layer one you always want to settle to the most secure and decentralized base layer which is ethereum by miles and there's nothing that even comes close and it's not just about security and decentralization it's also about long-term health you want to make you want to be sure that you can pull

and liveness as well so as an l2 operator or as an l2 network you want to be sure that the security that you're purchasing that's essentially what you're doing if you're an l2 that's kind of like putting your transactions on an l1 like ethereum you're purchasing security you're purchasing guarantees that that data that transaction proof is going to be there at all times you know it's going to the network is going to be live now would you do that for a network that has gone offline multiple times like solana would you take that risk probably not right maybe in the future sometime if the platform proves itself but right now as an l2 operator you'd be crazy to do that would you do that on one of the newer chains that uh maybe i haven't experienced any kind of like uh hardships and have like much lower

security because their token price is much lower you wouldn't do that either so you know perfect example of this is something like dydx there's a reason they're still on ethereum even though the founder said that they would go to somewhere else if it made sense it doesn't make sense that's the thing like i think polynomial put out a tweet which i'm going to go over where they actually quoted what dydx is paying actually i'll i'll talk about this now paulina said that a dydx earned 67 million dollars in october and paid 1.5 million dollars in gas space for verifying and 0.5 million dollars for data availability so they paid 2 million to outsource their security and then they profited 65 million now obviously there are other costs involved in that such as running the um the off chain stuff and paying you know people and whatever but like that

wouldn't be that wouldn't make much of a dent here so let's just say those costs are like five million dollars a month and they're not like i don't believe that that they'd be that high um that's still 60 million dollars a clear profit in october for the idx after paying for their security so people who say oh it's so expensive for these l2s to pay for their security now one it really isn't because when you put in the context of how much money they're making it makes a lot of sense and that's just diy dx as um a single kind of like app on a an app alt or app based l2 it is not the generalized one so you have that example there um and then uh tasha goes on to say you know alternative l ones don't have this dilemma of l two tokens uh

or r2 tokens built on top of them uh draining value from their base token so for example on avalanche doesn't have l2s so the avex token isn't being uh the value isn't actually being extracted to some l2 token i don't think this logic makes any sense at all in the crypto markets the or any any market capital is always uh sorry assets are always competing for capital against every other asset yes there are there are categories like there are out there's the l1 there's the l2s there's d5 there's nfts there's daos but a lot of the capital overflows like if you were to kind of like make a venn diagram out of this it would probably be a circle you know a lot of people who put money into d5 also put money into nfts also put money into l2s and l1s and all this sort of stuff and it's just the

rotation game right i mean kobe had a good blog post about this the other day about the metagame and how it's always changing and people will rotate from one thing to the other and if you catch the metagame early you can profit really well from that that's exactly what happened with a lot of these l1s people caught them early they profited from them when they were a much lower market cap they wrote it up and then they probably going to rotate or take profits into what they actually want to hold for for me you know if i was writing it i would take profits into eth other people may take them into you know bitcoin or some other asset or maybe they'll just keep them in that l1 token that you know that that's an option as well but the point i'm trying to make is that capital uh

sorry the assets are always fighting for basically um much of the same capital and then it's hard to quantify of course because a lot of things are fungible and it's it's just very hard to get an accurate mapping there but from my experience i would say that uh just because an l2 token exists doesn't mean that it's directly pulling value from e doesn't mean that someone says kind of like okay well i'm just going to buy this al-2 turken and i'm not i'm not going to buy eighth i would actually argue that if you're buying an l2 token you probably have an eighth bag as well because you know that it's good for eth that if if the l2 takes off let's take an example of you know if albert trim has a token uh would you just go 100 in um to arbitrary and that's it like

albertus token you probably wouldn't you'd be like okay well arbitrary is on ethereum it's paying ethereum for its security so and it's only one thing paying ethereum for its security and eth has all these other value accrual properties so i'm gonna buy eighth as well and you know the specific sophisticated investor is actually probably not even going to compare the two because they're from different categories like eighth value accrual is very very different to an l2 token's value acre and there's different reasons for each one to accrue or not accrue value so i just think these comparisons are just really weird right and i think that the relative trade works maybe short to medium term but long term it doesn't really work that well and by relative trade i mean that when you kind of look at these uh alt l1s they are definitely trading as a

kind of percentage of ethereum people say okay well theorem is worth half a trillion dollars um this l1 is worth 10 billion dollars that means that if this l1 becomes 10 of the value of of um of ethereum it can go to 50 billion dollars which means it's a 5x from here these things are done are being done right but the thing is is that that's that's kind of like being done for every single asset uh within crypto and outside of crypto every single category and as i said i believe that everything is always fighting for capital and um also finding for attention and i've covered this in a video that i put out a few months or maybe a couple months ago now where basically said attention is the scarcest resource in crypto and if you get the attention you get the the capital and you get the you know the

price performance like look at um all the alt l1 they've gotten all the attention over the last few months and that's why they've performed so well and it's kind of like a feedback loop where the more attention they get the um uh the better they perform and the better they perform the more attention they get and it becomes kind of like this self-fulfilling thing or this kind of like really nice flywheel effect there but the same is going to be true for anything like obviously we have like we had like d5 mania then we had nft mania and then we had an ftm again and it seems that right now nft seems to be making a little bit of a move i'm sure we're going to have an l2 mania so when you kind of like look at it in that context uh it doesn't matter if it's an

alt l1 or l1 or an l2 or a side chain or whatever doesn't matter about it's kind of like like category what matters is uh is basically where the capital is allocating what it's allocating for and the reason someone is going to buy something over another thing like for example uh i don't think most people are actually buying the alt l1 tokens because they believe that they're fundamentally sound and are going to accrue a lot of value i believe a big reason that they're buying it is narrative right everyone's been like oh you know ethereum has high gas fees i'm going to play these l1s because they have lower gas fees and they have a good narrative behind them and also they're doing it because they they're kind of pushing a narrative that okay well there's a relative trade to be had here this plays out time and time

again in every category you can think of so i don't think that uh um the ulta ones don't have uh such a dilemma because dilemma doesn't even exist the the real dilemma is basically the investor's choice of what to put their money into regardless of what category it is and obviously within the category you can compare things but you when you when you start doing that you go beyond narratives and you go into kind of like the fundamental analysis so so yeah that's that point there and then just to wrap this up uh her last kind of sentence was if you think l2s are the cure to declining eth dominance wake up this is just like pure bait i think it's just really really um there to kind of like engagement farm to cause outrage i don't think eath dominance is something that needs to be cured or needs to be

fixed or anything like that i think that uh dominance is a flawed metric because if you're measuring dominance in terms of tvl well we all know that tvl is a flawed metric to begin with and also as kind of like um as as crypto grows as the pie gets bigger uh and as more kind of like incentives come into play ethan was never going to remain at 100 dominant or near 100 dominant it doesn't matter if he had five feet high fees or not i actually have a theory that the high fees um on ethereum is not what caused these is not the main reason why these l1 kind of like took off the main reason these l1s took off is because of the fact that they had token incentive programs i can guarantee you that if eth had low fees and these other chains

you know say it had near zero fees if these other chains still had their token incentive programs they would still have gotten similar attraction to what they have today because people just want to make money like you just go back to the fundamental thing of why most people are in this industry they want to make money a lot of them want to make quick money and a lot of them want to ride narratives and that's how they invest because of the fact that it's so hard to invest in crypto uh that writing the narrative is the easiest kind of decision for a lot of people so from that perspective i believe that uh that would have played out the same way regardless of high fees or not so eith dominance is not really a metric i look at what i basically look at is you know if

anything evm dominance like how dominant is ethereum's technology across the ecosystem because that is the real network effect the evm seems to be the moat right now like these other ecosystems that are trying to do something other than evm are having a very hard time getting traction like for all the narratives spun about um you know as an example solana which doesn't use the evm uh natively it has a different kind of like a setup there for all the narratives spun there and all the people kind of going on about how much usage it has if you actually look under the hood it has way way way less usage than the evm side chains or other evm chains out there so i think that uh building an ecosystem is tough building a narrative is easy and that's why you see lots of these things kind of

like playing out there so anyway i'm going to leave it there for tasha's tweet there's a follow-up tweet here from pioneer that basically uh uh he he they started the tweet by saying i've gotten a few questions about value accrual on layers and they say hey to breaker 2 execution layer highly competitive type margins erase to the bottom we can see this from alt l1 where the soul gimmick is accruing as little value as possible and they go on in this thread to explain basically what they mean by this but the tldr here is basically that people are asking the question of like where is the value going to accrue is it going to occur at the sediment layer is it going to accrue in these l2 tokens is it going to accrue somewhere else and the question the the real kind of like um answer to this is no one knows but i

i also think that uh as as pioneer points out here in the execution layer which uh which which um includes the l2s and these highly perform highly scalable l1s uh that they're trying to do everything at l1 um it's extremely competitive uh it's tight margins because if you're offering low fees you have to basically undercut the competition but by doing that you're not really accruing much value to your native token because the fees are so low so it really is a race to the bottom whereas as a settlement layer you keep fees high because you're offering strong decentralization security and liveness guarantees so you can afford to do that that's exactly what ethereum l1 is optimizing to do so i would argue that the settlement layer regardless of if people directly invest in it or not over the long term is going to have the best

value accrual and when it comes to ethereum for uh for an example here i mean one for arp1559 is that key because it basically leads to everything else falling into place and i've gone through the value of pillars plenty of times but with one five five nine it doesn't matter if people are investing in eth and they're aware of the eth bull case or whatever or anything like that it doesn't matter if all people are doing is using l2s they're paying each for security regardless of what they're doing if the ethereum settlement layer is still being used it is still being like it's block space is still being purchased it is still leading leading to burnt eath it is still leading to fees going to validate the unburned fees going to validators which is leading to a higher apy which is leading to more heat being

staked which means moit gets taken off the market which naturally leads to ethic value acrual over time so i strongly believe that most of the value will accrue in two places one at the settlement layer and two at the uh at the application layer because applications are distinct from uh from the l1 and l2s because you can bet on just like with the application itself without having to kind of think about all the generalized things and you can basically benchmark them and do p e ratio stuff and price of sales ratios and they're not trying to money or anything like that or store values they're very easy to to kind of like um to evaluate um but like in saying that i don't think that the l2 tokens are going to be worth nothing i just think that a lot of them are going to have um you

know difficult time accruing lots and lots of value over something like uh like a settlement layout so for example if ethereum's market cap goes to 10 trillion dollars where does that put one of the top performing l2 market caps i don't know i honestly have no idea like i couldn't tell you is it going to be a one percent of each value at 100 billion dollars or is it going to be 10 and a trillion dollars i couldn't tell you i would actually err on the side that it would be a lot less than than the settlement layer so maybe in the one to five percent area so 100 to 500 billion which is nothing to scoff at by the way that's huge right that would basically mean it's as successful as a really as a big tech company which uh which is fine but i think it's too early

to tell we don't know for sure but i i do strongly believe that the settlement layer is where most of the value will accrue over the long term and i'm you know the funny thing is is that you can point to other kind of um tokens that have outperformed eight this year plenty plenty have but it's all about kind of i i guess the extra risk you're taking on the um market cap difference like at a half trillion market cap is not going to pump like something that starts at 100 million market cap it's just wildly different uh for a number of different reasons liquidity profile investor profile narratives all that sort of stuff there but over the long term i'm talking long long term like 5 10 20 30 years um this is the question that's being posed like where does that value accrue and i strongly believe it

accrues to the settlement layer in the very long term so you know that's the way i play it with my portfolio i position myself mostly eat but i make other plays as well knowing that you know eight is a solid long-term bet uh and you know i could have more validators and stack more validators but if you want higher raw you have to take on more risk and you go play in other things and that's not to say that nothing else is a good long-term investment either but as we've seen play out in the market most things aren't actually like good long-term investments especially when benchmarked against eth so that's where you have to kind of like um make your own decisions and make your own investment thesises about that but anyway give this thread from i read it goes into a bit more detail about this but that's just my

view on things and you you guys know that i believe like ethy's going to that 10 trillion market cap over the long term regardless of what the narrative say regardless of if people hate ethereum or not it's always funny when i see that because ethereum i think is the most polarizing chain or polarizing ecosystem within crypto for for for many many different reasons i think that uh it has just as many people who like it as as hate it and i think the people who hate it don't exactly hate it they basically want to use it but they can't because they're priced out so that's why you know the l2 ecosystem we have a chance to get them back because at the end of the day as i said before most people just want to make money so if they can make money from these l2s when

they do tokens and do token incentive programs they're going to migrate so fast they're not going to care if they hate ethereum or not they're going to come and use it because they want to earn that money like you know being emotional about things and hating something and not investing in it just because you hate it is definitely a way to miss out on gains and i think most people realize that and most people are very finicky with their views on things and as i mentioned before as soon as these l2 start doing tokens you're going to notice a very rapid narrative shift it's going to be oh you know i love ethereum ethereum's great like this is awesome why am i going to use one of these other l1s when ethereum scales at l2 it's got this you know all these opportunities for me to make money i'm

just going to stay here and there's going to be like ebbs and flows there you know i'm sure the l1 that stick around will do something to kind of like try and take market share back but obviously i am you know a lot super long term bullish on the l1 uh the l2s and ethereum as that settlement layout but uh yeah i'll link this uh thread in the youtube description for you to have a read of it so um i guess like in a related tweet here from superv super fears and i wrote a newsletter about this today uh he put out a tweet where he said what if investing in ethereum doesn't mean buying coins and turning a profit what if it means collaborating to build a highly decentralized network that benefits everyone in the world for hundreds of years ethereum can be less

about money and more about humanity so i want to just talk briefly about this but what i think this tweet perfectly encapsulates is the two main parties we have in crypto we have the prophet maximalist aka the people who are here really only for money and the technology easier the secondary a a second like learning about the technology and getting involved with it is a secondary objective for them or is really not in their kind of like realm of things they care about at all and then you have the people that are in you know mostly in it for the technology and the money is kind of like a nice a nice bonus for them and they're investing in it with their money because they want to share in the upside but really they fundamentally care about the technology and making a you know technology that can actually be better

for humanity now i i personally fall into the ladder camp of course you guys know that but i think most people fall into the former camp and that's why there's always this tug of war going on where you see a lot of you know ethereums a lot of ethereum ogs kind of like bestow the virtues of why we care about decentralization why we care about building ethereum the right way or at least what we believe to be the right way and why we won't compromise on our values and our principles just for short-term kind of relief such as you know compromising on decentralization for short-term scale at layer one that angus a lot of people that gives opportunity to competitors that means that bad narratives flow and we've seen it all play out this year in 2021 it's been the year of bad narratives for ethereum based on this

but i'm pretty happy that the ethereum ecosystem hasn't caved to this even though we may have lost you know users in the short to medium term because our fees were too high even though we may have been losing the narrative war for a little bit i do believe that the uh that the pendulum is going to swing back once we have these uh you know more scalable sorry these l2s kind of like more more developed and more integrated with different things and also that they have tokens um and that's why i think this this tweet from superfoods where he says ethereum can be less about money and more about humanity is so important because without those people who actually care about building this technology the right way we would never get to experience something like ethereum because what would happen is ethereum would give up on its decentralization just say okay

well no one cares about it let's just centralize everything we'll just become this data center chain and it'll be you know it'll be fine it will have low fees users will be able to enjoy it and all the narratives will go away and everyone would love ethereum but that would be giving up so much like so so much i would personally leave the ethereum ecosystem if that happened and there are many other people out there who would as well i literally like i i would not even um think twice about if ethereum gave up on its uh values and its mission and and what it's trying to build i'd be out and i you know i'd look for something else but i haven't seen anything else that kind of like is trying to do what ethereum is trying to do um and i think that is lost on a lot of

people i think those kind of like um those uh nuances those things that that people like me are around uh that they're in this ecosystem for are completely lost on the newer people because they just are here for the money which is fine there's nothing wrong with that but that's why there's always these kind of like holy wars going on these narrative wars going on because you have two conflicting interests you have the prophet maximalist and then you have the ideologist and they don't see eye to eye on many things the proper maximalists don't care about this sort of stuff at least not as a primary objective whereas the ideologists don't care about being a profit maximalist at least not as a primary objective maybe their secondary objective is money which i think it is like i'm not saying that there aren't people who care about the technology and

can also be a profit maximalist or can also make a lot of money investing in these ecosystems but i think that the the people that create or work on the infrastructure work on ethereum work on everything or to do with ethereum basically make a theorem what it is like it's all humans guys like literally it doesn't matter if these things can run autonomously like as daos it's still humans at the end of the day humans decide what happens humans decide what code goes into ethereum humans decide what full notes to iran humans decide what rules to follow it is not an ai that decides this for us we are not at the mercy of the ethereum network the ethereum network is at the mercy of its its constitu not maybe not its constituents maybe that's the wrong word but of the people involved with it

so and if those people turn out to be all profit maximalist well the chain is going to reflect that the chain is not going to be what what the people uh the ideologies wanted to be so yeah anyway i thought this was a great tweet from from superfiz just wanted to expand in a little bit there and there's one more tweet from sandeep that i wanted to talk about and it's a very basic one he said eth equals web 3 web 3 is greater than bitcoin hence hence 8 is greater than bitcoin this basically talks to something that i've spoken about before where i've said that ethereum's total addressable market or the total adjustable market of web 3 is much much bigger than bitcoin i actually find it so hilarious how bitcoin isn't even in the conversation anymore no one i know talks about

bitcoin anymore uh and maybe that's because i don't really follow any bitcoiners but i think that even the people that i follow who are not uh you know hardcore ethereums or anything like that they're kind of like neutral they don't even talk about bitcoin anymore and that's because there's not anything going on in bitcoin like their biggest upgrade in like four years was taproot and that wasn't even anything important like it didn't actually do much and they tried to oversell it they tried to sell it as something that it wasn't and a lot of people caught on a lot of people said well this doesn't actually bring any benefit so why would i care about this um and whereas aetherium like it's always being talked about good or bad it's always being talked about every single day obviously like my f you know people i'm following on twitter are

going to talk about ethereum but even outside of that people hating on ethereum are still talking about it uh so i just find that funny but i think that was you know from this is just a great tweet from sunday because web3 is basically you know the biggest total adjustable market ethereum has you know very large presence within web 3 you know the largest presence out of anything going on right now uh and you know that means that ethereum is going to be what's being talked about and bitcoin really isn't it's going to be the niche asset digital goal that they wanted it to be is definitely not going to be the thing that most people even know about i believe long term in terms of like paying attention to so yeah great tweet from sandeep here but i think that's going to be it for today i'm you know i

think i made it to almost half an hour here even though i only had four tabs open there we'll see how the rest of the week goes i'll keep doing the refuels but it may turn into me just ranting about things or doing educational rants because i don't expect there to be any major news this week as i mentioned i think everyone's waiting for the january period to start for q1 to do those major releases because i know most people are just kind of like offline right now i've actually been spending a lot less time on my computer lately with the move and everything but also because i don't have proper home internet i'm using my uh phone's hotspot which is so unreliable i actually i don't like using my computer at the moment because i can't do what i usually do um but anyway enough about my

life story there i think that's going to be it so thank you everyone for listening and watching be sure to subscribe to the youtube channel if you haven't yet give it a thumbs up subscribe to the newsletter join the discord channel and i'll catch you all tomorrow thanks everyone