How to value blockchains: fees, MEV and investment frameworks

Transcript

blockchains have been around for more than 15 years and yet no one seems to know how to Value them is there a standard formula that we can use to start valuing crypto assets what metrics even matter is it fee revenue is it me or is it something else that's what we discussed in today's episode with Michael NATO founder of defi report someone who has been creating Frameworks for investing in crypto for many many years now Michael also shares his favorite assets he's investing in this cycle so make sure to listen in for that welcome to Milk radio the easiest path to get smarter about crypto I'm k reead your host for today's show and we believe that onchain is the next online this is the opportunity and we're here to help you capitalize on it crypto will go up more than 100x in both users and

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Hot Tips and live amas with our team now if you're looking a level up up as an investor then click the link in the show notes below and sign up to Pro today don't let this bull market opportunity slip through your fingers Mike welcome to milk Road radio it's great to have you here man excited for this conversation great to be here Kyle cool well you've been writing some pretty incredible content with the D5 report and I figured uh we get you on because well there's a lot to talk about one the market has been a little bit crazy over the last few weeks so I want to get your thoughts on that but a big topic going on right now in in the crypto space is how do we value blockchains right they've been around for long enough we should have some sort of valuations but

I feel like everyone's opinions on this tend to be different so I want to get sort of your thesis because you've been writing a lot about this and then just your overall thesis around the market and what's going on in this cycle but before we get into that let's just start with a bit of background of yourself walk us through kind of who you are and and how you got to this point yeah man uh excited excited to be here excited to chat with you so yeah real high level got into the space officially in 21 was fortunate to be working at mit's endowment back in 2017 to 2019 was not smart enough to go to MIT but I was there managing their helping to manage their commercial real estate portfolio for the endowment and we had a few Bitcoin people in the office we were on

campus we were exposed to a lot of like cool research and Innovation the digital currency initiative our friend Gary jener was teaching about blockchain at MIT at that time so I was learning a lot at that time and then basically got obsessed with the space fell into the rabbit hole like a lot of people and then when a lot of these data providers started to come out in really kind of 2020 2021 that was when my interest really started to Peak and I started writing so we started writing the defi report I started working for a firm called inveni which is in the um tokenization of real world asset space so as a startup and just kind of had this little side hustle with the defi report just doing my research and it was really like the foundation of that is is me as an

investor with skin in the game doing research and then sharing my research with the market and kind of started to build a brand around that and it kind of just turned into a business almost accidentally because I was just doing it as a side hustle and writing on LinkedIn and I've been full-time with the defi report now for about a year and we do Market insights onchain data fundamental analysis and we partner with with the data companies so we've kind of monetized that way ultimately looking to build media and turn it into more of like a subscription business so yeah excited to talk about the markets and you know I do I I live and breathe this stuff so yeah no doubt I mean your guys reports are great so it's um you know great job on what you're doing with the defire report let's talk about the

markets before we get into valuations because that is the meat of this conversation I think I want to get to but a lot is going on in markets right now woke up this morning things weren't so great we're recording on on May 1 for those that are wondering I think this will come out about a week after but we're about 47 days into a pullback which has been I think I mean it's not massive we're now like 20% or 22% I think pullback in Bitcoin it's not that big compar like if you were here last cycle we had way way way bigger but walk me through just your analysis what's happening right now in terms of this pullback but then also maybe a little bit broader of where are we in the cycle what does this all mean and like where do you think we're going from here yeah

I think that's the big question we've seen a little little pull back here recently after a sustained period of strong price action for for about six months so to me this is this is mostly expected as you mentioned it's like a 20% or so pullback right now we may go to to 30% or so here if you look at past Cycles that's pretty much you know you're not just going to have a straight line all the way to a blowoff top so we expect to see some Vol volatility here my view is that you have a combination of the markets being spooked a little bit by inflation coming back slightly we had a 3.5% print in the in the US so interest rates the expectations were that we would be potentially be cutting rates at this point in the year those are being pushed out to to later in the

year so I think that's roiling the markets a little bit you've got stuff you know geopolitically going on we've got some turmoil with the Japanese again devaluing we'll see see how that plays out so there's sort of like you know there's a wall of worry out there I would say right now I don't think that this is like disruptive to the overall bull market cycle if you look at various Traders and stuff that will sort of identify sort of support zones out there you know we sort of just broke through a support Zone at around 62,000 or so I think the next ones in the 50 to 55 range I think that may be where we're heading and you know alts alts are down 60 80% so I I view this is sort of a

little like a shopping spree potentially for stuff that you have high conviction on for for the rest of this cycle so yeah I very much see it the same I think one it is expected and I think if you are aware of cycl go and how this works like this is pretty normal and then I also think we're just sort of in the middle of the bull market right now in my opinion which generally we sort of lag out and there's like this like stagnation you get pullbacks but they're sort of long- winded ones Y and then the next part of the cycle which is I would say the like the final part of the bull market is where things get a bit crazy you have these very fast aggressive pullbacks um but price goes up nuts and I think we It generally takes a while to

work through the price action until you get to that point but I think that is coming but I think I don't know could be weeks could be months until I think we get there what is your sort of thesis around this bull market is it a typical cycle like we've had in the past and are you thinking you know maybe this thing pops out somewhere in 2025 or is this something different I would agree with you I think my view is that we're early to mid cycle here you know we look at a ton of data points on this and I'm happy to share sort of what those data points look like but yeah I believe we're sort of like midcycle I agree with you that the aggressive price action will likely come in the second half of the cycle after we sort of chop people up uh a

little bit here to get there but as far as like are we you know is this going to be a super cycle is it going to be like a a shorter quicker cycle because we we did see Bitcoin bit Bitcoin all-time highs prior to the having which is the first time we've seen that my view is that this is going to be a longer cycle like we may see Bitcoin breach 100k this year that wasn't my prediction at the beginning of the year I thought we might get close but maybe breach that next year and that the actually aggressive price action would probably be in 2025 so unclear to me if that's going to be October of 2025 which is sort of line up with the past few Cycles or if it's going to be potentially a little bit

shorter a little bit more aggressive this cycle I don't believe in like the super cycle I don't see that happening I just don't think it fits with my world viiew of just like human behavior fear and greed Market Cycles monetary policy fiscal Pol like just the way the world works I don't think we're going to have like a super cycle I do expect there to be somewhat of a blowoff top and then a significant correction again so yeah I I mean I would say we're already in a super cycle it's just not up only you know what I mean like it's like the internet has been a super cycle for decades but it has not been up only we've had many big pullbacks along the way and I think that just continues to happen in crypto but we're in a secular Trend that's for sure when it comes to

crypto all right let me ask you this question eth Bitcoin Soul what are you most bullish on for I guess this cycle it's a great question this is a great question right now and I I historically have been mostly Bitcoin and eth and and personally in my portfolio what I did was I essentially rotated out of Bitcoin into salana we we were bullish on salana basically when the right after FTX went down last year we wrote a post about it um people can check that out but that's been you know the trade of this cycle so far the question from here is is that going to continue is is soul going to continue to outperform e ether Bitcoin that's sort of how I'm approaching it ethereum is hated right now uh which

makes me like ethereum the way I'm at eth right now is it's hated the challenge with eth is you have all these l2s coming out and it's sort of like deluding where potential value can ACR and I think that's hurting eth a little bit but at the same time we are going to get an ETF I believe for ethereum at some point and my sort of thesis here is that Wall Street doesn't really invest in gold they don't care about gold because it doesn't produce a yield we're seeing interest in Bitcoin despite Bitcoin not producing a yield but when you have two options to get crypto exposure for these institutions one of them produces a yield and one doesn't I just have a hard time thinking that people are still going to be opting

for the Bitcoin ETF if there's an eth ETF so when what we've typically seen in these Cycles is Bitcoin leads the market early on you you have pretty significant price action with Bitcoin and Bitcoin strengthens against the rest of the market which we've sort of seen early in this cycle as well and then bitcoin's dominance Falls later in the cycle and you get the rotation to e and and to alts what does that potential rotation look like if there's an ethereum ETF that may be a much bigger rotation than people are anticipating right now and I think most of the market thinks it's actually going to be stronger a stronger bull cycle for Bitcoin so this is what I'm trying to process myself I'm just sort of hedging it I it still holds a

lot of eth I'm very bullish on eth question is is it going to outperform Soul I think the market perception also is like always looking for the next new thing right so typically the new thing will outperform it might not even be Soul it might be something like festia or some other Ian layer or something else that you know last cycle we had stuff like terraluna collaps but like that thing got up to what 80 to 100 billion valuation same thing for salana so there's probably going to be something new that comes in that has I don't know maybe a two to 10 billion valuation right now that that goes to those levels but you can't go wrong in my view you can't really go wrong just you know sort of hedging yourself with those three assets if new and you're

coming into the game so yeah I agreed I forgot that taluna got that big which is crazy because that's bigger than what salana is right now like salana is a way more important technology and has done so much more than what Tara ever did last cycle and salana is currently valued less than what Tara made it to last cycle that is actually a little bit wild okay speaking of valuations obviously in this space we have no idea how to Value anything because worldcoin was valued at like 150 billion in terms of fdv just like a month ago uh which makes zero sense and I think a lot of things in crypto make little sense but we're beginning to make some sense of it all so let's just talk about blockchain specifically and for the listener remember not everything in crypto is the same we call it cryptocurrency but most

of these things are actually not currencies I would say blockchain tokens like native blockchain tokens like eth for ethereum or BTC for Bitcoin soul for salana these are currenc these are native currencies of their blockchain but something like maker or whatever else any application token this is not it is something completely different you could think of it more like a equity token or a governance token or something so specifically blockchains and their native tokens how do you value those or what do you maybe there is no way to completely value them but like how do you think through this when you're investing in something like e Soul Bitcoin or even the smaller ones as you mentioned maybe Celestia Etc yeah it's something I've thought you know think a lot about we work with these data providers everyone's trying to create standards fundamental analysis my thesis

is that we are going to come to some sort of consensus on this and like if you go back in history and you look at the way the stock market's formed and like Securities analysis and this idea of like intrinsic value that is a social construct right it's I think people forget that like somebody just sort of came up with that and then the market coalesced around it and everyone said that's the right idea that's what we're going to do and we're going to apply that for relative valuation so I believe same thing's going to happen for crypto assets the question is like what is that framework and I put together a document called the ethereum investment framework it's got ethereum in the name but it sort of is pretty Broad in the way that we approach just like the whole public

blockchain space and we go through different valuation methodologies in there and we sort of proposed like four different ways to potentially do this I don't think there's necessarily a writer or wrong way to do it but I think you have to have some sort of framework the first one that we that we go through in in the ethereum investor framework is total adustable market analysis which is pretty standard and in finance you know you look at sort of an industry or or a new technology and you look at basically what percentage of other Industries could this thing potentially capture so we kind of go through and we map out growth the growth of various Industries and then you kind of get to like a take rate for ethereum you apply uh a

discount rate to that we run like different analysis different scenario analysis on what the capture of the market that ethereum would would get you can run the same analysis for salana or other L1 networks that's one one way to do it you can do a GCF I don't think that's super useful with like an L1 just because the thing that you're trying to value is like priced in the native asset right so there's sort of like a circular logic explain what a DCF is real quick discount cash flow analysis so basically what you're doing is you're projecting out your forecast the revenues of ethereum because there's a cash flow there you're forecasting out what the growth rate of that could look like over a 10 20 year period applying a discount rate to those cash flows to get to like

a present value of what that that Network could look like so we run through that analysis also in the ethereum investment framework not super useful like I tend to think like if you're doing you're trying to compare anything with blockchains related to valuation and using analogies to existing Frameworks it's not the best way to do it but you should still have that have that analysis the other way to do it is we look at Price action through through the cycles and then we're comparing that to actual fundamental drivers of the price action so active users and number of non-zero wallets and developer activity and like the the basically operating metrics of okay through the cycles so we sort of map that forward to get to like a potential price for this cycle and then you can

just kind of do like a very high level extrapolation so the crypto Market got to about A3 trillion valuation last last cycle you could start to look at that and say okay how much of that went to bitcoin how much of it went to like smart contract networks how much of it went to other sectors you could sort of forecast out what you think that growth rate could be for the next cycle and kind of back into some numbers there just a way to sort of get an idea of where things are going but there's not consensus in the market I would say on what is the way to actually value these things and like in some respects all four of those things are probably wrong and like the thing that really just matters is like is there demand for eth

sort of like is there demand for dollars when I think of like an L1 it comes back to the moneyness of the Native asset why did the dollar just have this massive Network effect it I believe it's because we priced like oil and dollars and there's like geopolitical reasons for this but there's a constant bid on the dollar for these reasons and if there's a constant bid on eth you have to sort of map forward like what's going to be the reason that people want to hold eth so when you see like l2s not you know pricing their transactions in their asset but pricing them in eth when you see like the reaking and you need to hold eth to access the yield from reaing Solutions you're creating demand for eth and

that's the key thing to me so I think other networks need to be thinking about that as well and eth is probably the strongest Network in that regard and we continue to see more and e making its way into the ecosystem so Less on exchanges more in the ecosystem which means it's becoming more Capital efficient which to me that's the probably the proper way to think about this and not so much and then maybe the yield on it and not so much trying to come up with a valuation like just look at the yields and then that's like your PE basically or whatever it's paying you so I want to go back into those demand drivers I think that is really important we also just released a pro report I can't remember the title of it actually comes out this um this week so for those

listening it will have just came out and it is basically all about the demand of eth and why that is sort of the bull case for eth and it sort of throws out all these different valuation models which is interesting you're like we did all four of these different valuation models and like the thing we realize is probably none of them are right right right great when you did those for though was there any that were close or that seemed like this is probably tracking the best so I mean my view is like it's useful to do this you have to do the exercise to have a feel for like where we're going my view is like probably the most accurate way to do it is is with like either the cycle and kind of kpi comparisons and then the high level extrapolation the total

adjustable Market yes useful but like there's a lot of examples of people trying to do this for past Technologies and just completely getting this wrong like there's a famous example of like uber and people were trying to Value Uber like VC's were like laughing at the the founders of uber at what their valuation was early on and they were like you you guys aren't worth more than the entire tax industry that was the totally the wrong way to think about like the potential value of something like uber so when you introduce a new technology and it has massive Network effects like comparing it to to something else is is probably not useful I think it was Yahoo or AOL or someone did this with mobile phones too they thought like a couple hundred thousand people or whatever were gonna own phones

Mackenzie report or something yeah yeah yeah yeah so quite interesting yeah one of the things that's gained a some serious I guess wind on Twitter was token terminal putting out a bunch of these like income statement reports and comparing I'm not sure you tell these but comparing like eth Soul sold to bitcoin base to soul and looking at revenues and expenses from blockchains revenues being fees and then expenses expenses being inflation and I think Revenue was actually more specific to burn as far as I remember you said you know looking at revenue is probably not super impactful is this helpful does this like help at all in your investment framework for example for ether for others and does do this matter for you for like when you chose what's going to

be a better investment Bitcoin e Soul like obviously Soul High inflation not burning much so Bitcoin not high inflation but burning nothing yeah and probably leaky value because it goes to miners who need to sell it ethereum well they seem to have solved that but like does that even matter I feel like that's a big debate now what are your thoughts around that yeah I mean I I think what token terminal is doing is is trying to like create a standard for for relative valuation right the market can decide if token incentives or consensus rewards are expenses like I've seen this sort of getting debated I think it's kind of a like misnomer to even like try to debate that like they're not traditional expenses we know that they're right their expenses I think the way I think

of token incentives is at an expense I think of it as like if you are staking the asset it's not an expense to you because those are being paid that's actually yields to you similar to like if you were holding dollars versus somebody holding a treasury bond and the government's printing money the treasury bond holder is capturing that the person holding cash is is basically losing it's it's kind of the same concept it's an expense if you're not staking and it's potentially diluting you with ethereum that's being offset potentially by burn and so you're not actually even being diluted if you're just holding eth but I mean in general I want to look at those things I do want to look at it I don't care what we call it but I want to look at what is the token incentives or

expenses whatever we want to call it and then compare ethereum to salana to bitcoin you mentioned like worldcoin and stuff these networks that have just a ton of you know future issuance coming like if you're an investor definitely need to be paying attention to this if you're uh a long-term investor especially in as you go through it like the cycle like people that are holding that asset are going to be selling into selling into it that's not necessarily the token incentives but yeah that's my view we need something for relative comparison what we call it doesn't really matter that's kind of my view okay okay interesting I mean fees I feel like it definitely plays a role on the demand side as well right like obviously Supply matters for eth because it's burning but it's not the biggest amount

it's not going to make like a massive difference in like in that very moment but I think the burning of eth and the ability for eth to drive like basically to create yield from activity is a driver for demand because people want to hold something that that has yield as you said at the beginning and so I think Sal obviously has that too my one question or my the thing I'm sure of when it comes to blockchains is like what happens with fees long term like probably they all go very like not zero but they go down and it becomes sort of commoditized or do you think what are your thoughts around the fee structure of blockchains great question and this is be going to become more of a topic of discussion I think with ethereum as as it's continues to build out in this like

modular format because you could look at ethereum I'm saying ethereum but you could apply this to salana as well when you look at it it's like well how should you think about ethereum one way to think about this is you have all these applications all these l2s other applications on top they're all paying for Block space and to to settle down to ethereum today so you can almost look at ethereum as like you're buying an index fund that has a high growth index fund and like we're rotating new l2s new apps and stuff into it just like if you were buying S&P 500 or something that's like one sort of I guess framework here the challenge is that now we have data availability Network coming in and some of these l2s like Celestia for example

that's just making the the most of that cost and and the value capture ethereum is data availability cost and so when you introduce something like Celestia and the L2 is using Celestia for data availability there's much less value that's going down to ethereum at the base layer so how what does that look like as if that continues to sort of scale out does ethereum just start to sort of Wither away like all the value starts going to the data availability layer or the l2s my like I guess mental model for this is that if Celestia and these other data availability networks do get adopted and they they essentially are making it way more efficient for l2s to scale block space I believe that that

you're basically opening up a ton of supply of block space and what should happen and what has happened in past technology movements is that Supply is met by new demand for new use cases so you should see like Web Two Builders come in and be like oh wow I can build something on an L2 that I used to not be able to because it's really cheap to do it now and so does that end up driving enough transactions over time that it actually replaces it sort of backfills what you lost at ethereum because the volume is just going so much higher that's kind of my mental model so in the interim I do think you may see like ethereum sort of start to lose a little bit of its Revenue capture how does the market perceive that is the question

right if the market starts to say oh wait a minute ethereum is a commodity let's invest in the l2s and data availability that could start to get interesting I do think like these things are Commodities at the end of the day and so that could play out that's sort of my I guess my my framework for that right now that makesense interesting I completely agree I mean it's kind of like what happened with the Internet is before we got Broadband we built up all this like fiber and there was just no demand for it didn't get used it just kind of sitting there and then all of a sudden you know a bunch of big things happened on the internet and everyone started using it and that we like that's not even enough now now we need to build more and we need you know forg

we need this we need that and we keep kind of hitting these limits and you gota and I think the same thing I mean does it makes sense that the same thing will happen with blockchains the question is how does that value then come back to the that native token and and does it grow as a result of that I think it's pretty clear that on blockchains like I would assume if there's more activity on a blockchain over time then that native token is going to get demand because you either want to hold it to help secure the network and get yield or you need to hold it to spend gas with it or to deploy contracts or to do whatever right so it it does make sense that as those ecosystems grow the token should grow along with it now is that because of

fees or something else I'm not sure the other one that is kind of like uncertainty right now is well what about meev and I think a lot of people don't really talk about this one unless you're really in the weeds so I'm not sure if this is an area that you've looked in as well but I've seen some people like Kyle Sani from multi chain Capital saying hey fees don't actually matter it's all about me and this is real revenue for a blockchain do you have a a thought on that as well I'm curious what is what is he saying basically what is maybe if you could articulate what his stance is on this I could respond to it I I'm not sure what his take is on on I mean me is certainly like a major part of value capture of of these l1s but I'm curious

like what he's where he's going with that on on terms of valuation I think he's basically saying like fees will be commoditized and basically go down to like kind of zero type thing as we as we scale but me continues and that is a way for validators and stuff to to make revenue and if you look ethereum's has kind of remained the same but Sal is just absolutely going nuts over the last few months and so he sees that as the real growth Revenue factor and fees is probably not so much okay that makes sense I mean if you think about me too like what is Google like Google's basically me like me is just you're in a POS powerful position and somebody wants to essentially pay you to get into that position or or get access to something

that that you have basically Google is you know Google advertising is is essentially me and like I could see that happening yeah I could see that happening like where fees us user fees just end up at zero there's so much richness to all the data and everything that's happening on these public blockchains especially for finance that you know there's just an incredible amount of value within all of that data and people pay for to get in front of a trade or to you know what that's basically how how it plays out I I think that makes sense that was a great way to explain me by the way I haven't heard it explained that way but it's a good it's a good analogy actually I really like that is there anything more you want to add on the sort of valuation side of of l1s or did we sort of cover most of the

bases I think that is I mean the high level people can check out the ethereum investor we put some price Targets in there I won't I won't give them out right now so hope people download the report but people can check it out we did put price targets using these methodologies you know my view is that I try to take a humble humble approach to it that like nobody knows the answer and we're doing the analysis but nobody has the answer in that over time we'll get consensus over time it might not it might be after regulation that that actually plays out so yeah okay cool yeah definitely check that out if you want to see his his recommendations there okay let's go to l2s so obviously this has been a massive narrative and there's tons of activity going on in l2s and lots of lots of l2s and l3s even now

launching and it seems like it's going to be an important design space and it's where a lot of the ethereum Mind share is moving to and whether that takes away value to the eth Token is kind of we're not really sure we'll see but what are your thoughts around L2 tokens and maybe also your thoughts around the L2 landscape are we going to have millions of these things are they all going to ACR value is it going to be just a few or just like these tokens are kind of useless and all the value goes back to to eth what's your sort of thoughts around how this all plays out so not super bullish on the L I mean I I like the way at the is scaling we're doing with l2s you've got basically a couple like General purpose l2s that are the larger ones arbitrum optimism you've got

like ZK sync and Stark net and a few others and there's a million of these things and there's probably going to be many many many more the mental model I take with like l2s is like they could sort of take the form of specific use cases potentially geographic regions like if we do end up with like a massive Network effect around etherum and and it really takes hold like you could have an L2 that just services like the APAC region or you know there's different reasons for this different laws jurisdictions that's kind of my framework for l2s like I think if you as an investor you're probably better off buying eth and this is sort of how I've done this in my I do own a little bit of a couple of the general purpose l2s from

but most of it is in eth and the reason for this is like just from a risk adjusted perspective I view it as like you can buy eth and you're buying basically like to me it's kind of like buying the S&P 500 but it's a growth thing it's not like you're just going to capture 10% it's it's got growth to it and you can stake the asset you can do that or you can try to pick amongst a number of l2s that's sort of like stock picking to me yeah so I do think there's going to be value there the token is basically you know a governance token today for these things does that change um in the future that's I don't have a strong take on that right now but as far as like for my my portfolio personally I think from a risk adjusted perspective

you're better off just just buying eth and capturing the fees from that are coming from l2s so yeah I agree I mean I hold a few L2 tokens but it's actually just because I was aird drop them and I've sold like half of it and then I kind of leave the rest and see what happens but it's kind of hard to figure out what's going to happen with those there's just so many and I mean it's obvious right now optimism and arbitrum have the big lead but do they keep that like I don't know there's definitely not necessarily a moat there except for these ones that are building kind of the super chains which you would have polygon arbitr and optimism or the the three kind of ones doing that but again how does value acrew we're not really sure and so it feels like it's priced by

narrative not really anything else it could be a bull cycle play but I don't see it as like necessarily a long-term hold at least that's that's my thought do you think then that most of the value either cruits the L1 token or to the applications that are actually bringing in all the users and generating Revenue like a maker for example or do you think even application tokens don't acre a lot of value um good question well maybe just one more point on on ethereum and like the L2 stuff if you want to try to cap one way I think you could potentially capture some of the L2 trade is coinbase and basically what they're doing with that you could buy coinbase stock and capture because Bas I actually think what they're doing with Bas is like a winning strategy and like they don't even have a token on Bas but

obviously coinbase is capturing capturing those fees and I just like what coinbase is doing there but going back back to to the question on what was the the next question so I call them application tokens probably yeah so value Co for for the applications of the use cases that exist on chain are they going to acrew any value obviously there's like you can turn on a fe switch for like Unis Swap and that but like where's the value really going to go is it to these application tokens is it l2s which you seem to be bearish on or is it just all go to the L1 in the end it's great I mean the defi sector I've been writing a little bit about this like has probably the best product Market F when you look at the defi like OG's maker you mentioned Unis swap Lio like especially

in the ethereum area ecosystem like there's product Market fit there when you look at fundamentals there's probably a couple protocols that could do a billion dollars in in Revenue you right that's not market cap that's billion dollars in Revenue in the next year so there's there's real value there the the challenge is that their governance tokens there's no way to capture that in the same way that you can just by holding eth and staking eth and so to me this is potentially like a problem with regulation that's like sort of like throttling the ability for these things to capture value it's kind of sad it's in my view like this is pushing people to mem coins and like other like scams potentially because we don't we don't have regulation around the things

that actually matter and instead we're suing these companies so it's it's pretty disappointing my view on like I guess just general value cruel is sort of this is kind of like the fat protocol the like most of the Valu is going to l1s I think that you know has held true over time is it going to hold true in the real really long Arc I think value is going to move up up the stack and ultimately at the end of the day this stuff does sort of get commoditized it doesn't mean it's worthless it does start to get commoditized and the growth starts to tail off and most of that value does ACR to the applications that have the relationship with the user stuff like Unis swap that does have that they have fundamental economics under underneath with the protocol and they

also have a relationship with the user via the wallet via their interface which is pretty popular I am looking at like I think Unis swap because it's so hated right now and it produces quite a bit of volume and cash flow these things are interesting at these levels maker has made a big move already this cycle there's there's a lot going there so I think it's worthwhile to be looking at the like that space right now do you think it needs the fee switch though for them to really make it to the big leagues let's call it yeah yes I do I do I just think people are better you're you're better off going with something like eth and and capturing you're you know those things are driving value back to eth so you can capture the value there and yeah maybe post regulation these things ultimately see their their

true potential yeah I I can't see any of these tokens really gaining sustainably large valuations until there is revenue coming back to them because like right now like you said they're basically all governance tokens doesn't matter how you spend that's basically what they are and like not enough people really care to govern protocol and even if they do care they're probably not going to want to hold hundreds of millions of dollars worth just a governed protocol but in some point when these protocols that are completely decentralized like you said lower down on the tech stack something like a maker or Unis swap that eventually becomes completely decentralized and they're just generating a ton of cash and they can find a way to get that back to the Token holders I don't know why anyone would ever hold an equity when that

exists you know what I mean like you hold an equity because you're hoping that this is that company's going to do well but you've got to rely on on a board and you got to rely on people Etc and if I can just rely on a protocol and I can watch it all live on chain I'm never touching inequity ever again so I always say I think the super cycle happens when we figure out how to ACR value to the tokens of applications that are generating like real large sums of Revenue yeah and we're not quite there and like you said it's probably because of Regulation we'll see if that happens or changes from this cycle and if not then I think once again we have another cycle where it's just the all ones major L ones that sort of hold any meaningful type of value yep yeah and that flashy

new things will will ACR value but it'll be sort of up and down and yeah that's kind of I I would agree with that interesting okay let's um maybe move away from the more fundamental valuation stuff and let's just have a little bit more fun because that's what crypto's all about and let's talk about the cycle do you play or invest I know you said you're more of a long-term Trader so maybe not but do you care much about the narratives and the like hot use cases like I know Ai and crypto or I don't know reaking like all these things that kind of drive a big narrative and people kind of fomo into a bunch of these tokens and maybe at some point they they build something great from it but they're obviously super super early in it making any difference in the world

today yeah do you play around on this do you care about this and if so what are the use cases or the narratives that you that you're really eyeing right now so I think the AI stuff is pretty over overhyped and like we tend to do this like usually my view on the stuff that gets a lot of attention a lot of hype is that it will always the market will always overshoot it and it'll be a bubble but just because something's a bubble doesn't mean it's there isn't something real there so like I I think the my Approach when you see these like mini bubbles something like AI coins and stuff is to just watch don't fomo I try not to fomo into these things but I I will watch it and then maybe in the bear you do real deep fundamental analysis and you maybe you make some bets there

so I'm not in any of that stuff I do think in is super interesting and in some ways you could say like all of these networks are dpin if you really kind of get into it but I really like the way that what Hive mapper is doing we wrote a piece on hive mapper recently some people check that out if they're interested what they're building and it has a token like it just makes sense like everything that they're doing they're using the token to bootstrap a Global Network of drivers to essentially map the world and they're doing it at a much faster Pace than what Google was able to do there's a a flywheel you know with the token and value acrel back to that token with this project so I think that's interesting you we'll see if that catches a narrative it does have a lot

of token unlocks you know coming so that's one concern with with a project like this that's still pretty early and the float is still pretty low out there right about H mapper though before you continue is it's not just a faster way to bootstrap versus Google it actually creates a better product because they can have like live updates of the map which Google cannot do in their with their fleet of cars it actually then results in a much better product which probably unlocks new use cases and new apps that can't exist with the maps that Google or Apple Etc provide that to me is where I was like oh Hive mapper is doing something really really cool and that's not possible without a token to actually drive the incentives for people to make that product better but I agree in terms of float and like is this

investable now I don't know but I see the future of like oh this thing is actually a way better product and that's the thing that excites me yeah 100% 100% great point there yeah and I think I'm not a M coin I bought my first mem coin Bonk like in Q4 yeah just because I saw like I saw somebody talking about it I just like that just kind of makes sense it's culture like maybe it maybe it ends up getting repriced similar to the big meme coins on ethereum so I I own some Bonk I I also think we're in an election cycle and I don't want to get too like over an analytical with this but like we are in an election cycle and I think that there's a chance that these meme coins that are tied to like politics like Bowden coin or the Trump coin is

potentially interesting here especially at like these levels where it's you know sold off pretty significantly so those are maybe hopefully a little Alpha potentially for people I think I could see that sort of catching on in an election cycle and then bridging is one area that's a little maybe a little more boring for people but as these ecosystems continue to build out we're seeing more like Bridges were a major problem in the last cycle that's where all the hacks were that's where a lot of the issues were I think that ecosystems maturing and if we do end up I believe we're going to have a multi-chain future here bridges are going to be a pretty big player in that and so I'm looking at the bridging area looking for Value potentially in there there's one called

the cross that I've been looking into we're probably going to cover it on the defi report so those are a couple couple areas and then maybe not like a token or anything but like I just think an area that's just super interesting to me is the way that Bitcoin mining and energy like the collision between Bitcoin mining and energy is just like a super fascinating space just to study maybe not for for like investing but just to study so interesting really cool it's funny there's um when you bring up the political meme coins you can go into this fundamentals of like oh these products are going to change the world and then you can go into these like look this thing's really stupid but it's probably gonna do really well because we're an election year you know don't overthink it yeah don't overthink it like you know people love

sort of politics like there's a reason that like SNL is constantly making fun of Poli policians and everything like I just see that kind of playing out with a token potentially so we'll see we'll see funny yeah I completely agree too okay as we wrap up here I just want to ask one more question which is we sort of talked about your timelines around this cycle you said maybe even a little bit longer than 2025 what are the things you look for where you're like okay you know we we mentioned already we're probably early to the middle part of this bull market what do you look for when you're like okay it's probably time to get out of the market like things are getting a bit toppy here what are your signals yeah so typically I'm looking at glass node has a lot of good signals here and

it's mostly Bitcoin so I mostly and we do a lot of like cycle awareness updates we use Bitcoin data for this because Bitcoin tends to drive the market and everything kind of falls off of that so what I'm looking for is like certain metrics like mvrv ratio I'm looking at long-term behaviors are they selling are you seeing like the the percentage of the network that's held by long-term holders like significantly dropping it's basically the smart money starting to exit that's a sign Bitcoin dominance is another like factor that I tend tend to look at I'm looking at funding rates open interest just to see like if the things are just getting like way over out over at skis and then you have like the retail stuff that you can look at like what's happening with coinbase you

know last cycle the coinbase app everyone kind of knows this went to number one so you can track that I think there's a Twitter account that's at tracking that so I put on notifications for that what else there's you could kind of get a for things by observing popular YouTube channels and how many views like is it you're looking for like a wave of new people coming into crypto and usually at the peak of that is sort of the peak of the Mania so those are a few indicators for me yeah super helpful love it we're very in line with a lot of our analysis so it was great to have you on it was great to learn from you and and confirm a lot of things that I think I've been hypothesizing as well so this is really good if others want to learn

from you and keep up with you where can they where can they find you yeah yeah so so I'm on LinkedIn every day we're on Twitter as well you can follow just Google Michael N LinkedIn justdoit on Twitter and um the defi report you can just Google the defi report we do a lot of free all the research is free so we have a lot of research up on up there and then we have the podcast the signal podcast as well so aw we'll put the yeah we'll put the links to those in the show notes listeners thanks so much for for joining us today Michael thank you for coming on and sharing your wisdom it was uh very helpful and we'll have to get you back on again in the future yeah we love to thanks man cool all right take care and have a good one

everyone we'll see you in the next episode thank you for listening to milk Road radio the easiest path to get smarter about crypto if you like this episode share it and hit subscribe or follow so you don't miss out on the next one there's also a link in the description to our free 5minute daily newsletter where we simplify crypto for you while making you laugh and if you're willing to step up your crypto investing game then we'll leave a link to milk Road Pro as well your number one resource to help you invest successfully in crypto one final note this podcast is for educational purposes only and nothing we say is financial advice crypto is risky so you should never invest more than you're willing to lose thank you friends and we'll see you in the next one