Lightspeed Cross-Post: Can Ethereum Scale The L1? | Weekly Roundup

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are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed. Hey everyone, this week's episode is a crossost from Lightseed. We discuss Salana's bug fix, Ethereum's pivot, Salana's Dex landscape, and more. Enjoy. Hello and welcome back to another episode of Lightseed. I'm your host Jack Cuban alongside Mertm Taz for a uh weekly news roundup. Mert, how's it going? Going great. How you doing, sir? Doing pretty well myself. Good to be good to be back behind the mic with you. It's been a busy week. Um lots of lots of interesting stuff to dive into here. So

earlier this week or I guess at the end of last week, we learned that uh there was a bug relating to zero knowledge proofs that uh Salana, Jetto, Anza kind of reached out privately to validators and worked together to patch in midappril and they released a post-mortem of that bug. So uh and it this led to uh predictably some online controversy and centralization criticisms. So Mert uh maybe just walk us through what what was the bug um on from a validator perspective? What like how was it patched? What was that process like? And um what were just kind of the general takeaways there? The bug

was around the confidential transfers/balances future on Salana, which is relatively new. It's been around for a while, but it got some new upgrades. And basically, there was a bug where you can mint more tokens on token 22 type tokens on Salana that use this plug-in. Now, to be clear, there's not tokens that use this today. uh not that I'm aware of at least it's a very new unused type of thing and so there was a bug in it and so what happened was you know foundation jetto and just even other people in the ecosystem once this issue was

found then it's a it's a it's a security well it's it's certainly people's funds aren't at risk because this wasn't used but like they could have been at risk if this was used. Um, and so you can so like the the proper way to do this in any software system ever is to disclose it privately and then take the proper measures to to patch the issue. And so that's what happened. And I think this happened throughout a few days. I mean, we found out about it a while ago and then by the time it went live, it had been a few days, I think. And yeah, you just you look at the patch, you verify that it

works, you verify that it's not doing anything else, and you see the verified hashes and all this stuff on on Twitter or like whatever channel that people use. And then you just you just uh release the patch. And so that's pretty standard practice. This happens in all ecosystems. It it's happened in Ethereum as well several times. Now, Ethereum does have the saving grace that it has multiple clients. So, a bug in one client is not as important as let's say a Salana because Salana has roughly one client. Maybe you can squint and say two with Frank and Dancer.

Um, and then yeah, of course, the criticism was pretty expected from people who don't actually understand anything. Uh, which is oh well, this is centralized. Um, keep in mind this is the people who were also criticizing Salana for not being able to pass 228, which I don't know how that didn't pass and Salana is extremely centralized. Um, but um, I think it brings out a good point of discussion in that people conflate disorganization with decentralization or or not being able to execute or just having different incentives with decentralization.

uh which is just as wrong as thinking that just because you're centralized you can move fast, right? These things are you can certainly say they're related in in in some form and they they certainly can be but to imply to say that one implies the other is a very weak claim that doesn't make sense. Right? So if somebody if you have a thousand node operators and they all have an issue that they're aligned on fixing which is if we don't fix this we're all going to lose money. Okay something like this then yes they are going to coordinate to fix that issue right uh because they have the same alignment uh same incentives uh and they it's it's it's

it's there's no real debate about this. It's not a controversial take. It doesn't require diversity of opinions or thoughts. It's just fixing a problem which is the network will be hacked or something like this. Um, and so that's that's just aligned incentives and it's just the the communication is, you know, like some of the criticisms I saw was like, well, you know, if this was a theory, it would have taken more days and like the communication channels would have been different things. And I don't really understand those criticisms. Like first of all, uh, I'm not sure why the medium matters. Like people can coordinate on whatever medium they prefer. It wasn't

just on Discord. People were on Signal, uh, Telegram, all sorts of different things. So, that's just that's just not correct. Uh, but then more importantly, um, that being slower to patch is not a good thing, right? If you have a critical issue and you take 5 days to fix it because you're disorganized, but you rebrand this as decentralization, well, you just got wrecked. Um, right? Like, now, of course, Ethereum is more decentralized than Salana. Nobody's debating this. That is correct. Uh the the issue is when you say that well they coordinated efficiently on a security flaw and as a result they must be centralized. Well that's not what that means. Centralized means single point of failure right? Um and then people predictably started

saying things like well if they can do this imagine what they can do they can just confiscate your funds with like a letter from tolli or something. And it's like, okay, again, one totally couldn't even push 228 live, right? And I was even pushing that live. And same with multicoin, right? And that somehow didn't pass. And so that's objectively incorrect just by evidence. Um, and that's also not how a blockchain works. Like you can't just confiscate somebody's funds, right? Like you just need one person, one node to detect that, hey, this is not correct. this is not how the state transition is supposed to work as a result then what happens is a social fork or or or something along

these lines which has happened in all other ecosystems multiple times before by the way so um the TLDDR on my end it was a bug uh it got patched it being patched fast led to people thinking by the way it wasn't that fast I mean it was still two days um it being patched that fast apparently makes people think it's decentral uh centralized Um but really what that shows is um that the node operators are super active and involved in the network right it's the same thing as what happens or what used to happen in 2022 when the network would go down you need fundamentally the people to be actively monitoring their nodes and being like okay this node is down I need to restart it right and

that's this actually would took much longer than that um so I think just my problem with it is people conflate ating efficiency with centralization. That's just not how it works. Mhm. Yeah. I mean, continuing with the this is a precedented response to a bug. Even Bitcoin bit the immutable Bitcoin in 2018 had to patch a bug by, you know, privately reaching out to mining pools. So, like this is sort of a common way to deal with bugs in even blockchain systems. Um, it's important to note I think as well like talking to I I talked to a couple people who are involved in the patch process and it's a little

messy like to my understanding you know JTO the foundation they have like DMs, emails, Discord, all these different platforms and ways that they can reach out to known validators and send them this patch and then a bunch of people will tweet out like a hack hash uh which I guess is like a a hash of the binary of the patch to prove that um it's it's the correct one or something like that. But that to me is actually like if you look at Salana as the future rails of the financial system, that's actually a pretty messy way to deal with a bug that would let you mint unlimited tokens or uh I don't know what the other potential

outcomes were, but like there was this argument that Salana is centralized, but I actually think that like response uh like protocol is a little uh too decentralized. like maybe there needs to be a better um more standardized way to like privately contact validators than hey we're just going to DM you however we can and then every like I think uh Lucas from JTO his bio for a long time was like a hash that was related to this bug so everyone kind of knew that there was some kind of patch going on um so so maybe it's not maybe it's not centralized enough even uh for for what Salana wants to be in the financial services world.

Yeah, I think and I made this argument after 228 too. I think the much more real concern is perhaps that the network decentralized a little too fast for where we need to be. Like there's still a lot of things that need to be going into the network to improve it and fear of idiot comments from people who absolutely have no idea how this works is just not very useful. And uh to their credit, I think there was a lot of people who actually work on the protocol in Ethereum who were like, "Yeah, this would also happen to us." Um but it's generally the you know the typical types who don't really know anything except seeing the charts. Uh those types and um I mean I think oh and then Dan who who's

not here today, but he he made the post where it's like okay well what's the equivalent number of entities that you would need to get a hold of on Ethereum? And it was actually quite comparable. I think it was something like 60 or 57 or something like this on Ethereum. On Salana, it's probably less than that. Um, but it's not like much less. Uh, you know, it's not like a 5x difference. Uh, so you're I mean, you know, Binance, Kraken, Coinbase, etc. alone on Ethereum goes a long way to fixing something like that. But so the the biggest interesting technical point is this is the point of client diversity on Ethereum where if they're all there's

four different clients and a bug that's let's say uh something like this on Ethereum would not affect the entire network it affect that client. This has happened on GU uh a few months ago actually. There was a DOS uh bug on GU where they need to coordinate with the L2 teams privately to roll out this update. Now obviously that's a different thing but like this happens all the time. Uh Ethereum saving grace is just a diversity thing where Salana obviously doesn't have that today. Um but who knows maybe with fire dancer um and then as more activity goes on chain this could be something that also comes to Salana. Um the point is the the the

discourse should be around client diversity not centralization or decentralization. Arkham was created to make blockchains human readable and simplify blockchain data so that it is meaningful and useful to the average crypto user. With their new exchange, users can see what the top traders are buying and selling with Arkham Intel and then trade on that information with Arkham Exchange. To get started, follow the link in the show notes below. Today's episode is brought to you by Ledger, the global leader in digital asset security. Celebrating 10 years of innovation, Ledger is trusted by 7 million users, secures 20% of the world's digital assets, and remains the most secure hardware wallet for your crypto and login. Follow the link in this episode's show notes to grab your ledger today. Look at you, Mer being

very kind to Ethereum. That's growth right there. But uh since we've said nice things about Ethereum, now let's say less nice things. Uh I want to get into Ethereum's alleged turnaround, which seems to be or the pivot, I guess, is the word people are using, which seems to be the talk of the uh feed this week. It's a little strange to me just because a lot of this stuff has been a long time coming, but it just seems like there's a lot of interest right now in um the new co-executive directors of the Ethereum Foundation, which why do you have co-executives? Um claim like promises to scale the L1. Um Etherealize, which is this maybe more

institutionally focused entity, I think being led by Danny Ryan and some others. Um and and just this general um sense in the Ethereum world that it's time to pivot, it's time to make ETH the asset useful again um make Ethereum uh learn to scale the L1. Here's the overarching question, M. Can ETH make this pivot? like is an ETH pivot to being a performant L1 and getting back lots of the app activity and revenue that it's basically lost over the past couple years with the rollup ccentric roadmap like can ETH uh pull this off in your in your view? Well, there's a few things. One is

I find it fascinating that they were actually reluctant to call it even a pivot. They were like, "Well, that's a rep prioritiz prioritization." Which like, "Okay, dude. Um, sure." Um, can can they pull it off? Well, I think depends what exactly we were referring to. If if we mean that they can actually scale the L1 more than it is scale today, then yes, they can certainly do that. Although I do think the discourse around this severely underestimates how hard that is because you know we know a thing or two about scaling L1's and uh it's not going to be as easy as a nice road map. It's it gets pretty messy when you scale

things. So I think it'll probably take longer than they expect and so then the question is well is this enough to turn around ETH the asset? Okay, because there people do refer to different things here. They can mean just the price action. They can mean the actual usability of the protocol and actually the revenue capture of the L1 or they can mean something like you know more institutions more whatever. Um so it really depends on the the the preferred outcome. If the if the outcome is price action, I think the narrative of we will scale the L1 is probably enough because obvious reasons in crypto what

you actually get done doesn't matter too much as opposed to the narrative, right? If XRP can get the price action by just telling the story, Ethereum can certainly get better price action by just telling the story of well, we actually will scale the L1's or something like this. So, that part seems to me obvious. The the second consideration is will it be enough for the L1 to actually support activity? And I don't think that's going to be the case because that's not enough to just increase the limits. You also need to take B markets and and state contention and the types of those

different applications that would deploy on it into account, right? So for example, maybe instead of $50 or like $200 extreme congestion fees, you now get5 to$10. And it's like, is that enough? Well, it's maybe enough for some things, but it's certainly not going to be able to compete with anything like Salana even at that case because you must also remember that Salana is also scaling the L1 while Ethereum is just pivoting to it now, right? Uh I mean the Anza 2. Agave 2.2 which just went live and will activate this feature soon, we're increasing the block space by 20%.

Right? And the goal is to double it by end of year. So it's it's not this isolated environment anymore where ETH is the only player in town. You now have to compete with the L1's. But you also have to compete against your own L2s, right? Because as an app developer, you just got to look at the math, right? If you can just extend the asset from the L1 to the L2 and then save, you know, uh an order of magnitude on fees depending on the app. I don't think that all apps kind of need this, but depending on the app, that's a very attractive proposition. And so I don't think it's really possible to tell this if this will work for uh getting

activity and hence revenue on ETHL1 back again. Um but I think like it depends on who you talk to. I'm not even sure if that's the intention. It seems like people are just upset at the price uh and they think this will help it, which I think this actually would help it. But I don't think when you come down to the physics of it and you actually have a world where there's activity on chain, I don't think it's going to be enough for that part specifically. There's a lot there. I I think one piece Mert is I I understand what you mean that narrative is almost more important than what you do in c certain senses.

Ripple being a a great example of this, but it also like the amount of revenue that you're able to generate um from people using the blockchain also does matter because like ETH just the price has not meaningfully pumped in this whole cycle really. Um especially compared to Salana which has gained you know the the sole ETH ratio is at all-time highs and continues to set all-time highs. I think partly because Salana is just a more useful network right now and there's no real underlying fees to justify the price of ETH and the the market cap of ETH. So, like the narrative matters, but I think there's also I I would think that some of the

poor Ethereum price action you're seeing is like an admission from the market that hey, we need to see actual fees and if you just uh offboard all the usage to L2s and only charge them this like very small price to per kind of dollar of value in terms of like the blob fee they have to pay. um we can't justify ETH at $4,000 or something like that, which uh I I don't even know if it ever crossed 4,000 again this cycle. If it did, it was certainly brief. So, I I think that the meme is is only going to last you so long. Um my skepticism about Ethereum's ability to pull off this pivot is that uh they're not going back on the rollup

road map, which seems to be like that. That was where these conversations began was people started saying, "Hey, I think these L2s are parasitic to Ethereum. The L2s take a lot of value. They capture value in terms of sequencer fees and then they they pay this very small amount in blob fees. Um, and if you don't start taxing the L2s or I think uh Max Resnick went on um Unchained and was talking about like um just just like kicking the kicking the L2s out completely uh saying, "Hey, like thank you for your services, but we're we're good."

Um short of really extreme moves like that, I don't see how Ethereum turns things around at this point. That that's where a lot of my skepticism starts. I think this also gets misunderstood somewhat, but for an L2 road map to work, you actually do need the L1 to be useful. So when people say, well, if you're scaling the L1 now, you're giving up on L2s. That's actually not technically correct because the point of an L2 is that you have valuable assets on the L1 and then you can extend those assets trustlessly or in a trust minimized way to the L2. Right?

Otherwise, why would you build an L2 on top of that L1, right? Now, you might say something like security. Uh but that's just a very vague concept that also doesn't hold in reality because these are all in stage zero, stage one. So the the the most important reason is to extend the assets of the L1. This is also why I think Bitcoin L2s could be very interesting because Bitcoin the asset is a strong asset in many regards. And so if you're an L2 that can actually extend that such that people can do things with their Bitcoin. That's interesting. So with Ethereum it's the same because Ethereum does have the most liquidity and the highest TVL and all these things and RWA stables, all this

stuff. So it does make sense to build on top of it as an L2. But if the L1 sucks so much that either the L2s are the asset issuers themselves or the L1 just loses all the assets, well then you have no real purpose to be on top of that L1 and so then you know the roll of centric road map let's say also has another hole in it. And so and and I said this and people were like oh well you know Salana L2s that's a sin or something. I also think this is why it and we'll get to my other comments about decentralization and performance, but I think the L1 that's the most performant will also be the best host for L2s because assuming

it's the most performant presumably you then have the most activity on it which means you have the most assets on it in some regard and for the use cases that you cannot do on the L1 with those assets that's when you would extend them to the L2. Now the alternative is you can bridge them to another L1 but like now you're just playing semantic games on bridging but so like magic block is a good example of this where you can use the fast block times of the L1 to do things that are not really possible on the L1 on an L2 but then just keep the execution back on the L1 and the benefit is you still get all the let's say memecoin liquidity that's already on the L1. Um, so I think that actually is the correct way to do

it. Um, but I think it's just going to be a little too late for them to meaningfully scale the L1. Now the only way that I think this works is if the existing network effects are strong enough, the liquidity effects are strong enough such that it just does not migrate over in a period of let's say four years. If that does not happen, then I think they have a real shot. I I do wonder well as well like scaling the L1 sounds nice and as you explained M there's real reasons you would want to do it. It's not just entirely like a narrative game of hey,

you know, we have Salana at home. Um like it it it does meaningfully benefit the usability of the network, but um if you look at the new Ethereum co-executive directors, first of all, the fact that it's co-executive directors did not inspire a lot of confidence for me. Um companies don't appoint co-CEOs, it's not a good way to do business in general. Um Ryan Connor from uh from research here tweeted out like in all of the public coms from the Ethereum world, you'll never hear the word revenue. It's just not a not a thing that they like to talk about. Um but at the end of the day, it's like the Ethereum community, so to speak, is upset because ETH the asset has not meaningfully increased in

price. That's because the L2s are making all of the money because people are not paying nearly as much money as they used to to transact on Ethereum L1. like go go go to go to Blockworks, look at the REV chart for Ethereum. It's like shocking. It's, you know, down 90% from the highs and it never really recovered. Salana is uh captures most of the app revenue, most of the rev in crypto right now. And it's the same people that got Ethereum to this point are the ones still, you know, steering the ship. Obviously, Vitalik has taken more of like a researchy role and maybe is less involved operationally, but like you still have this very academic um cipher punk ideals above all else type of pedigree um rather than maybe you could

say the Salana like pragmatism uh tech background type of of folks. So, um it's all the same people like it's and this the same kind of uh matter that that's going into this pivot. So, it's it's not like you can say the different things and say that we want to scale the L1, but it doesn't seem like there's drastic enough changes in uh the the types of folks involved and the types of folks building this thing to do that. Um maybe you're right, Mer like the the saving grace could be network effects, but I have my doubts there as well.

Yeah, we'll see. But they do have that going for them which I think would be unwise to ignore because I mean there's the EVM is also just easier to build on just historical reasons. It's just been around for a little longer and it's just less intimidating. So if I were them and by the way what I find interesting is the point of a foundation or these types of entities is to just not exist over time. And it seems to be the complete opposite in this regard where it's like how can we make the foundation more of a central figure that makes more decisions and all this stuff. And it's I find that fascinating for a network that really

claims to care too much or or very much about decentralization because if that was happening on Salana, I would not be very happy. Uh and that would seriously make me uh question things. So um if okay so if I were them actually I'll give them some hints here. Um I would focus on the EVM the liquidity network effects and the developer network effects. Developers are what matter and I don't think the developers have a first class experience on EVM as much as they used to because the tooling used to be just much better but that gap is closing and I think that gap is the most important thing right now because once the developers start leaving if they do well then you're just

not going to be able to have any luck. uh uh in in any price, any revenue, any of these things. Um and so that's I mean it seems like that's somewhat prioritized due to like the hackathons and all this stuff, but that is really what you need to focus on in my view if you're Ethereum. Over the years, we have seen a multitude of hacks, rugs, and bundled launches. The number one way that crypto traders can protect themselves and the wider community is through onchain analysis. knowing who is moving funds and where those funds are going. Paired with their new exchange, users can see what the top traders are buying and selling with Arkham Intel and then trade on that information with Arkham Exchange.

Arkham's exchange provides traders with the tooling and liquidity to take action in crypto markets based upon their onchain observations, bringing them the world's first exchange powered by crypto intelligence. To get started, follow the link in the show notes below. Ledger is the global leader in digital asset security, trusted by 7 million users and securing 20% of the world's digital assets. In recent years, Ledger has built a comprehensive ecosystem of products and services, making digital ownership more secure and accessible for everyone. Ledger's newest devices, Ledger Stacks and Ledger Flex, introduced the world's first secure touchcreens, making it easier and safer to manage your assets. Alongside Ledger Stacks and Ledger Flex, they have also launched the Ledger Security Key app,

offering a safer alternative to traditional password management. Follow the link in today's show notes to get started with Ledger today. I want to talk about the Salana Dex landscape a little bit. That's just been a really interesting sector this year. I think if you go back 6 8 months, you had Jupiter that was the DEX aggregator. No one could really compete with them. you had a number of dexes that had been around for a little bit of time and and no real new entrance. That's all starting to shift. We've seen multiple new aggregators uh come to Salana in recent months. So, Jupiter has more competition. And the interesting announcement from last week that I want to get into is uh among Salana blockchain watchers over the past number of months, there was this interesting

question of these uh shadow dexes that had spun up and were getting incredibly good prices. Um, one in particular called Sulfi became, you know, one one of the most used sorts of dexes for Jupiter's routing algorithm, I believe. Um, there's other ones called like Oric. Um, another one that's uh escaping me right now. But last week we learned that Sulfi was developed by Ellipsus Labs uh some Salana DeFi OGs who developed uh an exchange called Phoenix and are working on an L2 called Atlas. Um I guess I'll just start generally mer you have a take

on the uh public dis I don't know what you knew behind the scenes but the public disclosure at least that uh Ellipsus Labs is behind Sulfi. Yeah, I saw that. Um I I don't think I mean, I I don't think I was aware. I had a pretty good guess as in like it was certainly these two teams, one of these two teams. Uh I wasn't sure which one. Um but like who cares? It doesn't matter. Um but it actually it's a it's a really sweet demonstration of why Bashians are cool because they just got that just by being better and without like they have a name. Jerry and Eugene

are well known for being extremely intelligent and and actually knowing what they're talking about and being good at finance and all this stuff, but they didn't even have to announce that. They just did it purely on meritocracy, which is I mean fundamentally that's really cool property of blockchains, which is if you just build a protocol that works and in this case it's better for some sort of price execution, you can just get market share. It doesn't matter where you're from, who you are, what your name is. if if it just works better, then you can just do it. So that I think that was pretty sweet. Um, and certainly Salana Dex or let's say DeFi in general in my view needs to get much more competitive.

Like there's a lot of things that are I think unal. Um, Jupiter having such a large market share is great for them. It's obviously not great for anybody else. Um it's the dexes of you know you know you have radium and orca I mean that's great but there needs to be more the lending protocols chamino again is great and margin is good but there just again needs to be more especially if your plan is to be NASDAQ you just need to have the strongest DeFi talent in the world you know coming on these chains um like a is still probably the best borrow protocol so like you know why aren't they on Salana Um um and you know there's a lot

of political reasons and all this stuff for that but like I mean a good sign from last week was like 1 in for example came to Salana um matcha and ox uh also came to Salana and then you know doodles not a D5 project but still um these types of guys are coming more and more to Salana and like you just re you really need that for the NASDAQ thing to make sense. I tweeted about one of the other broken pieces of Salana which is well I think crypto but Salana too which is the onchain capital formation is just severely destroyed like it just doesn't work like no serious team is going to be like I'm going to use this onchain

launchpad to launch my token right cuz their options are memecoins memecoin launchpad types where you'll just get bundled and sniped and sandwiched to death which like for those people is generally an okay trade because they're looking for 100,000x uh on like 1% of all tokens ever launched versus this is more like okay the price action needs to hold up. There needs to be deep liquidity. There needs to be some long-term conviction and all this and um you should you should be able to do this in such a way where you don't have to give Binance 18% of your supply and and market makers 20% of your supply. Right. Yeah. I was going to say doing that. Is there a way for you to

get rid of uh secret market maker deals? Because I think that's the other piece here. Well, yeah, I mean AMMs, right? Like um a well-designed AMM with a good good mechanism design like AMM, you know, uh not to say the obvious, but like the MM in AMM is for market making, right? So like there is a solution for this in some regard. Um I think what needs to happen is like probably a hybrid approach kind of like a hybrid liquid where it's like decentralized in some ways in the back not fully but like there's a team that actually does a lot of the go to market and and and curation um and then provide you find PM because like otherwise you just you can't take

on Binance and but then provide you this over a longer period of time then you will have to decentralize for integrity of network. Um, and so I think that really needs to and anyways I won't reveal too much but uh there are things being worked on to to help with that passive voice things are being worked on by people. Yes. Uh so so if you uh know any teams that are extremely high quality that want to launch a coin um and you think they will let's say pass my uh skepticism bar uh and there's really only going to be like one or two then uh

I would encourage you to get in touch. Yeah. If there's any you know RPC companies that run validators with a bald CEO that want to launch a token uh we know where they can do it. Yeah, probably um for a while. But on the ellipsus lab sulfi question, I think the other thing you could say from it from a uh bird's eye perspective is it marks an interesting shift maybe away from AMMs. So to my very rudimentary understanding, automated market makers, they're cool because they allow for trading and price discovery without sort of like a dedicated market maker. So, it uses a math equation to determine what the price should be. Um, and then

liquidity providers put up their capital. The issue with this is that liquidity providers can get picked off and suff suffer impermanent loss because like a centralized exchange will update the price faster than an AMM will since it's captive to this like math equation. Um, what Sulfi is is basically a proprietary sort of DEX where there's no front end for Sulfi as far as I understand like you can't go personally trade on it. Um, and all the liquidity is protocol owned. So, um, I guess Ellipsus is using its own liquidity to um, market make for like Jupiter um, rather than LPs putting up their capital. And um that probably just

longterm works better because AMMs like are pretty bad for LPS. They're they're just pretty inefficient. Um Carlos from Blockworks has uh talked about this. I think Dan tweeted about it too. like probably longer term what you see is for memecoins and things you still have AMMs because if I'm Ellipsus and I'm running Sulfi I don't want to be quoting prices on Fartcoin or well maybe Fartcoin but you know the the latest uh 1 million market cap coin that's not profitable for me to like quote prices but for more liquid pairs like uh stable coins to Soul which I think is what Soulfi does a lot of that actually is worth it to me to uh to market make for and then I

profit off the spread or um that kind of thing. So, so this probably does mark like a sea change of just a more mature, more trady like um uh ecosystem for Salana um dexes where they're running a lot of stuff inhouse and it's it's sort of like a proprietary algorithm that they run to market make. um which I think is interesting. Uh probably better than what we have cuz cuz AMMs are are riddled with issues as they're currently uh conceived.

Yeah, there's a lot of issues with them. Um I I think they'll always be around of course and I think there's more mechanisms to iterate on for AMMs. Um uh but I think like yeah there there's a lot of just misconceptions around the profit. I mean, I remember I uh I think when I introduced my brother to crypto, he found Orca and he was like, "Oh, man. You can get like 5,000 APY on this." And I'm like, "Oh, fuck." And then like a few weeks after he's like, "Dude, how come I'm not like actually making more money? What am I forgetting the money?

Like where where is it?" I'm like, "Well, I I don't really know how to explain this." Uh but yeah, there's a lot of but I think these problems like I think with more iterations in time they'll mostly they'll mostly go away um over time. I think this is just a super new space. Agreed. Um and I I think it's good that like Jupiter to not to call them out again, but I think it's good that they have competition now. I think it'll encourage Jupiter to quote better prices. Um, and like you know, 1 in being on Salana means users have more options. It's It's funny because it seems like there's more DEX aggregators than actual Dexes now. Um, with like Zerox coming in, 1 in um, uh, Titan is

one that I've written about. Uh, like everyone wants to aggregate the Dexes. No one wants to create a DEX. Maybe because it's like a better user experience to use a DEX aggregator than to just go to a DEX and trade. You get better prices on the aggregator. But I don't know where that goes long term. Like I I wonder if all of these DEX aggregators can actually survive or if one will kind of capture 80 90% of the market share. I would think Jupiter is the the top dog today. But I I wonder if the competition can meaningfully uh cut into their market share. Yeah, I mean certainly it can. I mean we'll see because Jupiter has plans to do their own chain obviously. Um and so you know it remains to be seen how much focus that would require them. I mean

they have acquired a pretty large team. I mean they must be the largest team on Salana for sure but certainly one of the biggest in crypto as well. So we'll see how they manage that. I have no idea. This episode is sponsored by Catria. Catria is the first zero knowledge rollup to enhance the capabilities of Bitcoin block space, enabling Bitcoin applications and unlocking Bitcoin's full potential as a programmable financial platform. With Citria, developers can now tap into Bitcoin's liquidity to build scalable payment systems, privacy solutions, and more. Citria is currently in its testnet phase and is approaching its mainet launch. To learn more about Citria, follow the link in today's show notes.

Maybe to to close out here. Um you tweeted a hot take this week and have alluded to it earlier in this pod that I wanted to talk about where you said the most performant L1 will also be the most decentralized which maybe is typically not how we think about the trade-offs between performance and decentralization. So why is it that you think that this is the case? Right. Well, I actually think it's quite obvious. So perhaps I'm just really stupid, but I mean the incentives, okay, so blockchains, what are they? Or or how are they work or why do they work? Well, they work because of the incentives, right? There's there's incentives.

There's a game theory of well, you if you reward such and such people for such and such behaviors and uh punish them for such and such behaviors, then you don't actually have to trust any single one of them. you can trust some the network. Okay. So that's it's it's an inherently incentive based design. Um it doesn't work without that. Okay. However, for decentralization, people somehow completely forget the incentives. And I think this is largely a historical artifact of the triangle drawn on a blog post many years ago known as the blockchain trillemma which says performance and decentralization for example um are let's say not synonymous

without giving up something else but I actually think it's the opposite. So, man, this would be great if I ever meet Peter Teal and he's like, "What's your one opinion nobody agrees with you on?" Cuz the ideal answer is like everybody thinks this, but it's actually the opposite of this. And I think this is one of them. And okay, so just just do a thought experiment here. if you have a very accessible uh blockchain node requirements to run like let's say you can just run it on your phone um but you get no money from doing it right there's no incentive for you to actually run it there's already a lot of blockchains that do this by the way where a bunch of these L1's uh that are basically all dead the node

requirements are super accessible you can just run them okay so why don't people run those nodes Well, they don't care. Why are they care? Because multiple reasons. One is it's maybe not a good investment for the long term because the chain won't be around for too long. And maybe the reason is because it's not differentiated enough. Um, and two is you don't generate income from doing it because there's no activity on the chain. And why is there no activity on the chain? Because it doesn't scale. Okay? So, the only thing you're left with in that case is running a node based purely on vibes. Okay? you want to run a node just to say you run run the node. Okay. Now on Ethereum's case, well, one, you used to be able to

make a lot of money doing this. Uh but two, you know, uh you can there's assets there to secure. So even if you're not making money from it, but you're an asset issuure, you would run a node regardless to help with security on your own end. So it's like a business line item on your on your on your expense sheet. Okay, so that makes sense. But other than that, it's just like, oh, I just run a node, right? Like even when people run like miners back in the day, why do they do it? Well, one is like it's cool and you can just say you do it, but then two is you earn money from doing it. That's the whole incentive.

Okay. So then how does the most performant lead to the most decentralized? Well, if you have the most performant chain, presumably you will have the most activity. Right? Now that has to hold true by the way, right? So when I say the most performant will have the most decentralization, what that really means is the one with the most activity will have the most decentralization of which performance is a necessary condition. And so okay, so if you have the most performance and therefore the most activity, you then have the most revenue and fees. We're already seeing this today. Okay, we're already seeing this today on the blockchain uh uh the the block works rev charts. So has the most performance, therefore it has the most revenue. Therefore, the validators make

the most amount of income. Um, right. So, for example, with Helas, when we first launched the validator, we didn't think we would make money from it because we just needed to support sending transactions because we're an RC writer. Turns out when priority fees went live, you make a lot of money from doing it. Okay? And then now you can see all these other DeFi teams spinning up validators, right? Like the drifts of the world. uh a and so what what's important is over a long time horizon let's say 5 to 10 years as less activity happens on the non-performant chain more and more nodes will drop off because they just have no incentive to stay or for new entrance to come in on Salana or whatever the poor

man one is it's the opposite where there's just money to be made in activity so why you you have an inherent incentive and so when you say something like well the node cost on Salana is let's say 10 times higher than Ethereum okay but what about the net income right like it doesn't matter if the node costs $1,000 a month if you're making a million dollar a year and it also doesn't matter if the node costs $1 a month and you're making $0 a year. Okay, those things are not nobody's just going to do it based on philanthropy or vibes.

That's just not going to happen. Uh and so that's basically just what that means. The only exception is uh there's a lot of these L1s both in the past and currently that actually get the performance due to capping the validator size, right? like Sweeney for example have roughly a 100 nodes each say had like 2940 something like this basically all in the same data center um you know Binance Smart Chain all these different things they're all very capped in node size what Salana does that's like very very different from everybody else that like not enough people appreciate is that it doesn't cap the node size the

the the the amount of validators. So you can just add more values to the nodes uh values to the network and still get the same performance. And if that's the case, then you're both maxing performance and decentralization at the same time. That's never talked about, but that's arguably the most differentiated design in crypto today, right? Like the traditional wisdom is the more nodes you have, well, the more consensus overhead you have. As a result, the less performant you are. But Salana is designed in such a way where the additional nodes actually don't introduce that much overhead provided you're above a certain threshold.

So does that make sense? That's a really interesting point. You should tell this to Peter Teal. Um this doesn't like like how do you factor in something like Hyperlid though because as you mentioned like that you know it's uh they cap their number of nodes. They're all coll-located in Tokyo. Um, and and like to me, but they call themselves a layer one, which you can dispute, I guess, definitions, but like this argument maybe only applies to blockchains where the nodes aren't coll-located and artificially capped, right? Because otherwise, you probably could sacrifice decentralization for greater performance.

Well, my claim is that the most performant or let's say the most decentralized chain will be the most performant one. It's not that you can't have performance any other way. Like for hyperlquid, you can absolutely get a lot of performance by doing that, but you'll never be the most decentralized, which is fine. Like my claim isn't that you should be the most decentralized or it's good to do this and such. My claim is that from a physics perspective, if you just think about it, the most decentralized one has to be the one that's the most performance or has the most activity. Yeah, flipping the blockchain trillemma on its head, I guess.

Um, I have no further points, M. I think you I think you covered that well, and I'm honestly convinced with some with some caveats, I suppose. Um well uh I think we'll end it there unless you have other roundup items we didn't hit. I don't think so. Um just come to NYC Accelerate next week May 19th to 23rd something like this. So yeah. Yeah. It seems like there's going to be tons of folks there. Live pod is happening. Would love to meet some of you in person. Come to our live podcast. I'm going to show that. Come to Permissionless in uh in June. There will be another live pod I believe there. Um but yeah, thank you everyone for tuning

in. Um please like, subscribe, fivestar rate wherever you get your podcast, whatever the rating system is, give us the top marks because we think we deserve it. Uh if you made it this far, thank you so much for listening. If you enjoyed, please share with a friend and we will see you all again very soon.