Jon Charbonneau on The Future of Staking Yield, Onchain Revenues, and CLOBs

Transcript

Because in practice, that's also where validators have been able to make a lot of money is when all the numbers are just they're just complicated. Do you think that there is a specific infrastructure architecture that is ideal for clubs? I think there's like four options more or less. >> It may be implementing more of like a ZK bridge kind of thing. If that tech just becomes commoditized, then Hyperlink would just like slap it on there. Um, that's what they should use. >> Welcome back to the Rowup. We are your hosts. I'm Andy. I'm Robbie and this is your home to learn from the biggest guest, the brightest minds at the tip of innovation. Our goal is to help spread the collective knowledge of everyone in our community. We are breaking crypto out of its echo chamber and taking it to

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[Music] Introducing asset runes. The future of decentralized finance. Stable coins natively on Bitcoin. Hedge against volatility. Diversify your portfolio. All directly from your Bitcoin wallet secured by ZK Technology. This is asset runes available now exclusively on Starknet. >> What's going on, man? How are you? >> Good, man. >> Day three. Yeah, I'm enjoying the handle was uh was pretty funny. We had a we had some some funny people on on our uh on our channel, that's for sure.

Doing anything with Max and Tun is always gonna be fun for me. That that's always sure to be a good time or it was fun. >> You know that like um Soul Eve debate that we had in Bangkok together with Tun at the studio. >> Yeah. Yeah. Yeah. >> That was a good one. >> Yeah. Yeah. It's stuff. Well, okay. So, I've been talking to uh Hib and then um Alton earlier today about this uh state of the proof ofstake uh landscape with these L1s and um I I had I had Tarun yesterday say that he thinks that staking businesses that the top is behind us for staking businesses. Do you agree with that?

>> Uh yes, I do. Uh I'm I'm curious validators. >> Well, so I I'm curious what the other guys takes on this were. Uh cuz I was at a dinner with a team the other day too. Um and he was like sort of on the same side that I've talked about before. Like most of this economic security stuff is like a lot of this is a meme. >> Yeah. >> Um so I I mean I I think a lot of it is topped a lot of the staking businesses at least in some sense where >> I I I mean I think a lot of it is just unsustainably profitable right now. Like if you look at the breakdown of particularly on Salana, the amount of money that validators in the past year have made on Salana is just like absolutely ridiculous. So there in particular, I would say just as like

margins business, I would say it's probably topped. Um because it's it's just been like a super inefficient market where for example, it was just like the norm for a super long time that the validators have just been like keeping all the priority fees on Salana. >> Yeah. >> Which was a thing that like no one paid attention to early on when this was a small market and people weren't making money. Um, but as these markets have gotten really big, um, and just the options for you to stake with different providers has gotten so much easier to move capital around like you you just start negotiating with people. I mean, like we we did that with our stake where early on with our soul stake, we didn't really care where it was staked as much.

Yeah. >> Because it didn't make a difference. The provider that we were staking with did not give priority fees, so we moved our stakes once it started moving. >> And so, and then you start negotiating with people, margins compress. Um, so that's going to happen industrywide. Yeah. Um just as the I mean the industry will get bigger, proof of stake assets will get bigger, the dollars amount stake will get bigger. >> Yeah. >> Um but a lot of the businesses today are definitely going to get squeezed on margins where I mean Coinbase taking what you know I don't know 20 25% on like retail staking and stuff like that. Like you you just can't keep doing that long term. It's not sustainable as you get better options and you lose your moat. even even on um you know like on like the Kepler dashboard for uh

tenderman chains on you know you had validators that would take 10 15% some would five and some would have zero yeah and I guess for some perceived uptime or some perceived lack of slashing or security reasons but it always baffled me how much capital would be parked into like these these validators are taking 10% commission exact I was like why like like how like they're all running the same hardware ware and software like it's there's no difference here. >> Yeah. Yeah. We're seeing we're going to see compression from both sides where just from a user perspective as just staking options get better in general where there's more options to stake there's more competitive market >> and more people will get rational over

time. I think as the field institutionalizes more people will just you know actually care about what are the margins and stake elsewhere. Yeah. Um, and then we're also going to see pressure, I think, from the chain side where this is in practice part of why chains are starting to make an aggressive push finally of, hey, we don't need 10% staking rewards. Like, this doesn't make any sense. Yeah. >> Um, you know, Hyperlid has I think it's like% >> Yeah. It's like a 2% staking yield. It's like 1% inflation. Like, >> I've been staking for like seven months. I'm like, dude, I I barely heard anything. >> Exactly. Like, it works fine. No one No one's going to like attack the chain. You don't need 100% staking. Like, most of that stuff is a meme. So, people are just going to keep bringing their staking rewards down. Yeah, I mean you

saw the push on Salana for the same reason. There is the push there. That didn't pass in part because I think they tried to get a little too cute and complicated with the mechanism, but there's very clear appetite for hey, what if we just like cut the issuance rate in half? >> Yeah. Um, and then Celestio's like proposal now >> for the extreme version of what I had talked about a couple years ago of maybe just get rid of this thing and do I mean just proof of governance to slash the the staking issuance all the way down to effectively what is a 100% commission of we need to pay enough to the validators to service the chain and just like make it very transparent that these are the economics. Um because in practice that's also where validators have been able to make a lot of money is when all the

numbers are just they're just complicated. Yeah. >> To users, there's a bunch of issuance, there's a bunch of priority fees, there's >> MEV. >> Yeah. >> You when the more complicated things are, usually the easier it is as one of these businesses to sort of skim off pieces. When you make it really transparent of, hey, here's the amount of issuance that we are coming out of the chain and this is exactly what's going to pay for validities. It's very transparent. You negotiate that very clearly. Um, and you're not going to get these crazy margins anymore because most chains are realizing like this is just a waste of money. like we're paying out a bunch of inflation where valid it makes it easier for validators to take an unduly large cut.

>> Yeah. >> Um and then most of the rest is inflation. We don't actually need to send back to stakers. It's excessive. It's inefficient on like all the tax inefficiencies and stuff like that. So I definitely think we're going to see this push going forward of like a compression of margins there and a a lot of reduction in staking rates. >> So hypothetical if you were to part and you were like running the salana foundation Lily tolly etc. What would you do immediately to address the application versus validator profit maximization imbalance from the with regard to the actual me situation and and applications really giving a lot of value back to the chain? What would

you immediately do? So part I mean yeah so part of the validator profitability thing is is separate from the app profitability of like a lot of currently most of the value that the validators are taking now at least the way that things are currently constructed today should be going to validators in that like a lot of these priority fees where they're taking crazy margins those should be going to uh sorry those should be going to stakers today um as opposed to like you know P2P or whoever or Coinbase like taking those that should be going to me as like a soul staker right so I think that's the first step is improving that and that's a lot of just you know reduce the inflation just make better options for people to stake make it easier for people to stake and like the margins won't compress there

what you really need to do though is also start to squeeze out the soul stakers u to that point of helping the applications where okay but these you know a lot of these excessive fees uh the me and stuff like that you know we don't even want that to leak to the soul holders or the validators we want that to go return uh to the applications um and that's part of what we were talking about on the panel yesterday like with Max and this is where a lot of the application specific sequencing type of sort of talk comes in because I I do think that is going to matter a lot. Um that that's the more probably like existential risk of if applications are saying you know hey half of the value that I create as an application is just leaking out to the the soul stakers and

validators because there's just like an inefficient market structure here and I can't capture it well. Yeah. >> Um like I'm going to leave at some point like why run a 50% margin business on Salana if I can go make my own app chain and get 100%. um that obviously won't make sense for small ones but at a at a certain point I mean this is the conversation that everyone has always with Paul for example where I don't think it makes sense for them today but is there a breaking point in the future >> where if they're saying like hey we're you know leaking out making up a number 30 40% whatever of the value is um if we own the users at a certain point it does become rational to go do your own thing um I don't think it makes sense today there's a lot of value to the

distribution and the infrastructure it's expensive to build it >> um but yeah at a certain point you're going to need a better, you're going to need to expose better mechanisms for these applications to re internalize that value. And so that's where the application specific sequencing comes from, which is kind of at least the way that they want to implement it downstream of multiple concurrent leaders. Yes. So that that's concretely the thing at a protocol level >> that people like Max and to have obviously been talking about for a long time because that is particularly now really a path to getting that >> um which would be super super helpful. me. >> So, okay. So, that's Salana. That's kind of this entire staking ecosystem. The other phenomenon that's been happening is that over the last 18 months, there's been an abundance of new chains. Um, and

we we've had a ton of different specialized chains. Um, you know, Hyperlquid obviously is dominating in a lot of ways in that specific use case. New general purpose L1s, but like what's what's happening more than ever is like a consolidation process kind of like monolithic modular. Oh, maybe we got to go back closer to like just a couple chains. How are you like how are you seeing the the multi-chain, let's just put it that way, landscape now. like how are you seeing the power law play out from a uh mind share transactions uh users etc. And I'm like how do you think that that's going to keep playing out in the future? Are we going to have this continue to kind of like crunch and and just have a couple big winners? Um are

the you know the breakout chains not yet launched? Like we've seen this kind of go and kind of eb and flow. Where are we at now? I think what we're seeing right now is probably going to hold for at least quite a while where you have this power law of general purpose chains. Yeah. Where I I think the vast majority of applications that are launching today are best served by launching on top of some existing general purpose chain. >> And then depending on what your need is, that will depend that will tell you which chain it is. So, a lot of simple old school DeFi protocols that aren't like super trading oriented and low latency trading and just need access to a lot of capital. Some of them do still make sense to launch first on Ethereum.

Like I was talking to a protocol today that was like their early stage. They're going to launch on Ethereum first because it's not a trading oriented thing. They just need access to a certain large pool of capital. Same thing with like like Athena was a perfect example the last cycle. Makes sense if you're building something like that. You're going to go launch out Ethereum. You don't need your own chain at least to start. you just want access to a lot of capital and infrastructure that works for most trading and consumer oriented stuff again where you don't really need your own chain for the vast majority of it just go launch it on Salana um and that's where in practice we're seeing most of that stuff today so like most interesting new consumer oriented applications early stage just go launch on Salana it works yeah um

>> and then you're going to get a tail that will disperse to other places for a variety of needs whether that's monad like if you want you know EVM compatibility um if you So certain will complete on like even lower latency for like certain niche use cases. The the vast majority just don't need their own chain though at least to start. Um there are like obvious exceptions with hyperlquid and stuff like that. Um but most applications just starting off. It's a high lift to to make and run your own chain that's just like usually unnecessary where you lose out on the distribution. It's I think for most of them that will be like a later stage conversation for most of the really successful ones unless you like really need certain customizations to start.

like Hyperlid obviously benefited from having their own chain from the start. Um, but I I don't think that's indicative of most things that we're seeing at least. >> All right, last one for you. I put out a tweet several weeks back uh kind of a meme and I got absolutely just clobbered for it which was how long do you think the revenue meta is going to last and and I actually had on like the two people prior and he he was actually like look man I I think you got clobbered but unfairly so here's why because um >> I think your point was right >> the people that were >> depending on how you meant that >> yeah the people who are focusing right now on revenue revenue revenue everything are effectively saying that the current amount of adoption that we have today is the the end and that you

have you need to be fully maximizing for what that is now and that you're not even thinking about projecting into the future. And so that's all that matters. >> And so and so that the people that were angry were kind of too were thinking too too closely into like the here and now and and and not forward. Now I may or may not have meant that. It may have just been pure troll rage mate, but >> it was very good. I'd be curious what you you think like do you agree with Hib? Do you think that like he has a point? What's your thoughts? Like there's been such an emphasis on revenue over the last like month or two. Uh where do we go from here into the future?

>> Yeah. So I like I guess I would broadly bucket it as like three camps where people are right now. uh one is I would say there's a group of people who don't think that you need to make money for a lot of projects in a long-term state where they will make the argument that for assets particularly large L1 platforms like ETH soul whatever that you don't need to be you know charging a bunch of fees rev like it's totally fine the value of this thing will come as it's a commodity money like thing that's like one camp and that's one that I've like largely argued against I think there's like rare exceptions to that like bitcoin obviously because I don't think that applies to most other assets.

Um, so that's like one camp that I would say is anti the revenue meta in the sense that a lot of people like me will say, "Hey, this is important like for soul to generate a bunch of rev." Um, so that's like one to argue against. And then yeah, that middle camp is where I think most people actually are today, which is like what I describe as really the revenue meta. Yeah. of it's just now an overfixation on like go to DeFi Llama and sort by like what what is the revenue number today and like okay so we put like a multiple on this >> and that's just completely wrong agree >> um like that that literally just doesn't make any sense um >> for multiple reasons one one being uh that simple fact of most people just aren't like doing the like even one step

further analysis of okay but like literally a snapshot today doesn't mean anything what actually matters is is in any kind of like DCF valuation. It's like what money am I going to make in the future? And so if you just have revenue quality, it's just going to go down. >> Well, that is not a better thing to hold than the thing which has zero revenants today, but I think it's going to thousand x tomorrow. Well, then the thing that's actually has no revenue today is the better like cash flow bet. Yeah. Um and so people like just have a really hard time grasping I think particularly these kind of just exponential leaps in crypto. Yes. where it can be very rational as a cash flow and based investor to prefer an asset which has absolutely no cash flow today because I think that it's going to,000

10,000x in the amount of cash flows that it's going to get in the future. >> Um and that's how like all early stage investing works. >> How all equity investing works. >> Exactly. And like people just have a really hard time getting their heads around that I think particularly because crypto people just we haven't thought about revenue and cash flows for a long time. Um but I mean the the very simple once you dig one level deeper onto it is like most of the tokens that people are valuing as like oh this is value because of cash flow is revenue today like look at the numbers they don't actually like make sense on any reasonable valuation basis.

>> I know >> like like one of the one of the like I would say one of the most emblematic ones of it today is like syrup >> uh maple which I think is like a great protocol. All right. I think it's like a really cool idea. I think there's like future growth, but everyone is basing it off of like, you know, everyone was like, "Oh, they're like they're making so much revenue today, like compared to all these other applications, that's why it should be valuable." If you just like look at what the multiple valuations on these things are today, it's like, "All right, the thing is making like 10 mil in revenue and spending like a little under 10 mil a year. It's like maybe like making a million dollars a year in profit." So like a 600 PE multiple is like not it's not a reasonable

valuation. even there you're doing this you know like okay the bet is that we think this thing is going to grow 100x in the future like sure it makes sense >> um but yeah way too many people are just taking this simplistic look of like what is the number today and then project this forward >> yeah it's it's it's really like looking backwards instead of looking forwards which all investing is really always looking forward >> exactly and so that's what I think is going to die out at some point as the like revenue meta right now agree >> where we're going to just get past this overfixation where >> it's like crypto people just discovered revenue >> and they're like, "Wow, this is like an amazing thing. How do we like not look at this before?" And they're like, "This is this is all we need to look at now."

And then we're going to go back to this middle ground where it's like, "No, a lot of the infrastructure stuff will, for example, make sense. It just for some of it, it may not generate cash flows today." What you need to be making a reasonable argument for all these is what are the cash flows that it's going to generate in the future. Uh because like that's what's actually going to matter. And for a lot of it, it won't matter. Uh for a lot, sorry, for a lot of it like it won't capture value. Like I I think the future that we're going to head towards is 95% or whatever the value is going to go to applications. Um like I I do think that is going to be the general trend, but that doesn't mean that you can't have like any infrastructure whereas for example like

if Salana is the platform that just most stuff is built on top of even if it's just squeezing out 5% margins at the end of the day on a huge FI like that could be many billions of dollars per year ex um and that could be a super valuable thing. So >> innovating finance global institutional and onchain deep liquidity to drive capital efficiency. Now maximize yields on institutionalgrade liquid staking with me. Unlock trillion dollars of capital via Fitbitcoin.

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less. You got like a hyperl liquid like a L1 basically that's an app chain L1 app L1. You got a general purpose L1 like a mon with like a kuru or something. Um you've got like a general purpose L2 like a mega ETH super high throughput. Um you know again these kind of all kind of converge in some ways and then like a custom specific L2 app chain for a club like is there a infrastructure that you find to be ideal somewhere in the middle like kind of what's your thoughts there? I I don't think there's any ideal one. I do think there are tradeoffs to all of them. I I think a lot of it comes down to what is the best in practice today. Yeah. Um because I think there's a good argument

that if you take the Salana end vision which is we're doing a million TPS and we have like effectively instant blocks instep finality we have multiple current leaders we have app specific sequencing we have like all these you know fancy things there's no reason for you to need their your own chain >> that like might be true in the ideal state >> but we just like we just obvious we obviously don't live there today and that's like probably years away so in practice in the real world if you want to launch the best thing today >> you need your own chain to do it. >> Um and right now that's Hyperlquid. I'd say like without a doubt that is obviously just like the best application uh and just implementation of this today that people just like love using. It works really well.

>> Yeah. >> In general the way that it is easiest to launch a thing is going to be just what's the most centralized version of it. >> Yeah. Exactly. >> Like like what's the fastest most centralized version? >> Exactly. And so I mean Hyperlid basically just went max centralized. >> It looked at Salana was like no you man. I'm going to do way better than that. Exactly. And like they basically just went max centralized particularly at the start. Um and they're like progressively decentralizing now. I mean when they started it was four nodes all ran by the team. Yeah. >> Um obviously and like now it's you know it's 16 but they're all colloccated one you know still each region right.

>> Yeah. Still the foundation has super majority stake but like okay like this will hopefully broaden out over time. >> In general the easiest way to do things today is just start super centralized. And so in practice like usually the easiest way to do that today is just by launching some sort of L2. There's like a lot of frameworks and stuff to build that. Um and I mean the other part of it is that obviously just like with launching some sort if you actually have real decentralization of proofs along with the thing that allows you to keep the thing super centralized while having actual like security fallbacks. >> Exactly. >> Um where I like >> people handwave it away but I I I do think the bridge security risks on Hyperlid like actually matter today. I like I would put a different amount of money on the chain if I had zero

security risks with it. >> Um like I I >> like they can clearly overcome it because it's the best product that there is today. But I I I don't think it's reasonable to say that like this wouldn't be a better product if people had like zero security risks about the bridge. I had 100% certainty that like hey I could just withdraw my money. There's nothing that they could do to censor or shut down the bridge or like anything like that. Like I would put more money on it. Um and I I think that like on the margin that does matter and >> 100% that's >> and so it like that that is the way that if you're going to have like completely centralized operations um with a rollup that's the way you're going to get that the tough the tough part is that >> this again is like what exists in

practice versus today. In practice most of the roll-ups today don't actually give you those guarantees that I described >> and they're slower or whatever it is. Right. Exactly. Or and less efficient. And so I I think Hyperlid took the correct route of saying like, "Hey, in practice, most of this rollup stuff is also an ideal end state that's going to give you perfect security guarantees." Today in practice, most of them are still it's a security council. You're taking security questions with them. You know, you're taking some trust. And so they said, "All right, we're just like we're just going to ship an O1 with a few validators and like it'll work." Yeah. >> Um I think that was the right trade-off today. But I think that what the right trade-off is just it will evolve over time. um it may be implementing more of like a ZK bridge kind of thing. If that

tech just becomes commoditized, then Hyperl should just like slap it on there. Um that's what they should use. Um if it becomes a general purpose chain and Salana is like the thing in 5 years once it's an ideal end state, I'm like sure you should just launch there. >> Uh so the infrastructure is just going to keep evolving and applications just need to at any given time to say like what what's the infrastructure that's going to give me the best experience for my users right now. Um right now it's hyperlquid. Tomorrow it might be something else. John, I appreciate you time. I know it's been a busy week for you. Um, thanks for the chat and uh, we'll see you soon. Yeah, I'm out, buddy.