The Return of Corporate Blockchains | Roundup

Transcript

Back in 2018, enterprise blockchains failed because it tried to avoid crypto. Today, I might make the argument that it is working because enterprise blockchains are actually bracing crypto. And that's really where we are today. Quick shout out to today's sponsor, Katana. We'll hear more about Katana's 1 billion CAT campaign later today, but for now, let's get into the episode. Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is forformational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds or projects discussed.

Hey, there he is. Beanie Mike. [clears throat] You know why I'm wearing this? Because I haven't gotten a haircut in a while and hair is looking Oh, it's looking long here. Let me see. What do you think? Uh, >> it's luscious, dude. >> [laughter] >> I have also been going like not on purpose like eight weeks between haircuts and it just gets >> nasty. Um, I think it's mainly because I I switched I had to switch to another haircut lady and then uh I only realized this after about we beyond the point where I can't switch like we're we're at hugging level that she charges $125 a haircut.

[laughter] The last person I had was like 55 and I was like yeah I mean that's steep but like I'll do it. And then I was like do you have any other like other person's gone? Do you know other people that do like men's haircuts? Like, yeah, Barbara. Oh, this lady's great. >> What the [ __ ] >> Miles? Do you remember? [laughter] >> Do you remember the hair appointment, the haircut that you took me and Andy to when we were in college, Atlanta? >> Yeah. >> It's [laughter] like, oh, there's this lady coming in really good. And then it was an $80 haircut while we were in college. And then >> and then Andy went up to the front and saw the price and was like, "No, I'm

not." >> No, he just didn't get a haircut. >> Like two weeks to forgive you that haircut song. [laughter] >> I remember it was like off the side of the road in like some industrial park area. I mean, that's like a lot of Atlanta. >> It was It was right by Leon's full service because you guys after and I was like, "Well, that was my budget for two weeks." So, [snorts and laughter] >> [ __ ] you, dude. This is great. >> I don't know what it is with me and over overpriced haircuts.

>> What's up, Dave? >> Hey, Ze. >> Hey, guys. >> We are just talking about overpriced haircuts. >> This week's episode. Um, >> my last haircut was absolutely terrible. Oh, >> you had you had the Jesus locks flowing for a little bit of time at one point. >> Yeah, like that time you didn't remember me. >> Yeah, because you look different. I I met you as Jesus Megan and then uh you know like who is this you know nice >> clean guy. Clean cut. [laughter] >> I started raising a fund and then I went as corporate as possible and >> that is so funny.

>> Um you could have done locks of love with those puppies. That was a To be fair, I always get tempted to bring him back. Like even now, like it starts getting a bit longer and I'm like, "Yeah, maybe maybe one day." >> Don't mind it. >> Mine is I was just selling my I mean, weirdly in Boseman it's like a twomonth lead time for haircuts. Um >> what? >> Yeah, it's crazy. There's weird stuff here where the infrastructure there's been such an influx of population that the local supply has not caught up to the demand. So yeah, it's a crazy time.

I call I called a couple weeks ago like, "Hey, uh, can I get a haircut?" And they were like, "Yeah, yeah, we can book you in on January 19th." Like, it's Thanksgiving. What are you talking about? >> Like a surgery or a haircut? [snorts] >> That's crazy. >> All right, everyone. Welcome back to another episode of Bell Curve. You got me, Miles, Zave, fellas. Welcome. >> Great to be back. >> Uh, good to be back. going to be back. But it was a good inaugural uh roundup last week and I think we we ended up talking about the the subject of our show this week uh before we even formally introduced it which is obviously we talked about ecosystem like comparing platforms in web 2 versus

their web 3 kind of smart contract platform counterparts and we talked a lot about go to market and positioning and we ended we ended that conversations talking about the rebirth of corporate chains because that's a super interesting intersection around uh positioning. It's something that's been around for a long time. Um, this dates back to 2018 when we had our whole blockchain, not Bitcoin craze and maybe we can talk a little bit about that. But we wanted to we wanted to talk about corporate chains uh this week because it's a it's a big wave that's uh that's happening again within crypto and our ecosystem. And we're going to break this talk down into three parts. So, one, we're going to do a little bit of a history, um, which Z, you're going to lead in terms of, you know, why did this topic, why, why were corporate chains

originally a thing and how have they changed over the years? You when we talked about blockchain, not Bitcoin back in 2018, that's actually very different from uh, so IBM's or IBM's strawberries on the blockchain and JP Morgan's Onyx looks a lot different than Tempo looks today. And then we're going to get into what are the different design choices that exist there. So getting very specific about the changes that have been introduced in the intervening seven years uh from when we first introduced this concept and then we're also going to talk about strategy and I think this is something that's been missing from crypto in general when you talk about a value chain. Uh so just because corporates can like Robin Hood could try to own the entire stack doesn't necessarily mean they will and how generally do you think businesses

think about where they should dabble in the value chain and how it might apply to corporate chains and blockchains generally. But maybe Z can hand it over to you here. Rewind the clock back for us. Take us back to 2018. You had your Jesus locks. Um what was what did uh the origin of enterprise blockchain and blockchain not Bitcoin? What did that look like back then? [snorts] >> Yeah, happy to kick things off and thanks for that intro, Mike. Um, funnily enough, this subject hits home for me. I actually started my career in blockchain working at a bank. So, I was working at ING. This is back in 2020. And I was actually part of many of these initiatives that banks had during that time. I think we mentioned sort of around 2017, 2018, this concept of an enterprise blockchain popped up. And so

today I'm sort of here to explain what actually is an enterprise blockchain, what were they in the past and give everyone a sense of sort of the history of this. Ultimately many of these initiatives failed and actually a lot of these initiatives I'm going to mention in a minute. I actually worked on a lot of these whilst I was at the bank and so like I know deeply about sort of like what worked there, what didn't work there, how it's sort of changed today versus what it was back then. But to kick things off, I think it's just like good to define, I guess, what actually is an enterprise blockchain. So yeah, taking us back to sort of circa 2018, enterprise blockchains were described as like private, commissioned, and shared digital ledgers, but they were mainly sort of used to track data and for the

properties that blockchains have like transparency, security, you know, efficient multi-party processes, etc. However, a lot of their use cases were not focused on money like we have in blockchains today, but more focusing on like supply chain, uh, financial settlement, uh, etc. And so, a lot of the big sort of enterprise chains back in the day, which were private and permissioned, uh, some of these names people were familiar with today are like Hyperledger, Arthor, you know, Ethereum, Cororum, and a few others as well. So ultimately what these things really were back in 2018 and what the banks were using back then they were sort of anti-crypto but problockchain. So what that actually means is that they're sort of running these ledgers which are more like shared databases but they're

trusted. They're not trust minimized which is what public blockchains are today. And so there was always a question of like is it actually worth having a shared database which is trusted and do you actually get any utility value prop from that because ultimately all it's doing is making processes a bit slower and there's a lot of conflicts of interest between competing parties trying to move forward the ledger which is of course sort of why we have public blockchains today and why we need incentives and tokens to run those chains and so ultimately these initiatives sort of failed like I mentioned before. So if you think about a private permission blockchain like what we used to have back in the day, there wasn't any token uh that these networks had. And so like today you

might think of like ETH on Ethereum for example. These kinds of tokens are used to pay for gas to incentivize node operators to run the network to actually like settle and move the ledger forward. So with these private permission blockchains that enterprises were using in 2018, there was no token and so there wasn't much point in actually running or maintaining the ledger. And so a lot of these things failed purely because of that. Another reason they failed is because of governance. And so a lot of these chains, private permission chains, enterprise chains, etc., they had quite bad governance because they had to coordinate between competitors. And again here conflicts of interest made it really hard for them to coordinate and actually move forward and settle in ways

that they thought were beneficial for all parties. Another reason I mentioned before they were too slow versus a centralized database and also they weren't openly accessible meaning that they weren't neutral like something like Ethereum is today and ultimately also had very little liquidity versus what a public chain could ultimately have such as Ethereum. >> For example, some other projects that went live back then which I actually worked on some of these as well. You had like trade lens tracking containers, IBM food trust which is like a food provenence kind of ledger. You had we trade which is for trade finance and you had some other things like you know JPMcoin etc. Ultimately you know no one wanted to run the nodes. No one wanted to fund these private blockchains. No one really cared about maintaining it.

No one really captured value from it. And also no one was really incentivized to join or expand the network. So really from the start the growth was somewhat throttled. I would say and bottlenecked by the fact that they were private permissioned and they weren't incentive aligned which is what you get uh in these public chains which you guys will explain shortly. So two things did work back then if you look back at it. One is JPMCoin which actually transitioned to Kexus. What this really is is sort of like an internal sediment thing that they're using at JP Morgan. Now the main change there is that they've evolved with the times and they're now actually settling on public layer 2s not just private permission layer one that they were using back in the day. The second

thing which actually worked quite well from the 2018 sort of enterprise era is actually Paxos. So they got started by tokenizing a bunch of assets in you know 2018 etc. And they've worked very well with regulators to the point now where actually of course many of us know Paxos today and they're tokenizing a lot of different assets and they have a lot of product market fit. Those two teams are really the only teams that survived and all the other names I mentioned so far have pretty much failed at this point and so the question is today like what has actually changed. Okay. So seven eight years later we we see these corp chains coming back for example like strap tempo. So what what is the reason?

So the main things that have changed in 2018, you know, when I was in the bank working on some of these initiatives versus like what we have today is because we have now stable coins, a lot better blockchain infrastructure and actual economic incentives that we can use and a lot of these things exist because of clear regulation. And so, you know, tokens now are really considered pretty acceptable as financial instruments. Enterprises have clear frameworks to follow post genius. And so everyone's much more interested to get involved with blockchain, but this time it's blockchain with crypto and not blockchain without crypto. And I want to really like clearly make that distinction. Right now we know what works in blockchain. You know, stable coins, sermon infra and tokenization and infrastructure regulation, liquidity is

here now. And so for these reasons, basically now is a time enterprises are sort of piling in. You're seeing corporate stable coins, you're seeing visa settling on Salana, you're seeing money market funds, you're seeing base launch and L2, and you're seeing deposits on chain for the first time. So this time is actually different. We're using public chains. We're using tokens. There are stable coins. We have liquidity. There are apps with real users. And we have regulatory clarity. So ultimately what I sort of want to get people to take away from everything I've said so far is that, you know, back in 2018, enterprise blockchains failed because it tried to avoid crypto. Today I might make the argument that it is working because enterprise blockchains are actually bracing crypto. And that's really where we are today. And that's

where like the sort of whole reasoning for this episode today is the fact that it does look so different to what it did look years and years ago. And so yeah, I I think it's a very interesting time right now to be exploring sort of some of the designs of these new enterprise chains and how different they were from back in the day. >> Okay, there's a ton to respond to there, Zave. And one just item that I want to pull out and table for later is how JPMCoin evolved and how it's now settling on public chains instead of something private and internal. I want to connect that to a point I'm going to continue to make about tempo later. But before we get there too, I also want to address the there was a huge optics challenge. I think I think many different uh many different things were

getting rolled up into one and you just did a really good summary of the last frankly seven years around this topic. But there was a huge optics push back then. Um, and the whole blockchain not Bitcoin was because so many Bitcoin was such a toxic word back then. And it was clearly most of the financial world thought that it was, you know, rat poison squared or whatever the word was of the day. And JP M Jamie Diamond said that he was going to fire anyone who traded Bitcoin, which is hilarious, which is just hilar. So there was a genuine optics problem. I also agree that maybe just restating something that I heard you say as well is there was actually a real problem back then and that a lot of the technologies and primitives and things that we've built today even on public ledgers just

straight up didn't exist back then. And so I think a lot of corporates didn't even have the tools to build something that would be useful at that point. And then lastly, I want to I don't think that they were thinking like this, but there is a real element of public blockchains and what we're starting to see with genius and how it's impacting banks that are disruptive. So maybe we can also go back now with hindsight 2020 and say, yeah, it's not surprising that banks didn't see they saw all of the downsides of crypto, but none of the up upsides because it's highly disruptive to their business model. And I I want to pull in a I'm going to pull in maybe we can end this episode with a recent post that Multicoin just put out about uh uh stablecoin enabled fintex and how that

collapses the moat that essentially regulated banks in the United States had. And so I guess also with the benefit of hindsight here, it's not actually really surprising that banks and companies didn't jump in one because the tools didn't exist. But especially for banks, it is really disruptive to their business model. So what's that old saying about you can't pay a man to understand something can't get a man to understand something that his uh salary depends on? I'm butchering this quote, but you know, some old journalist said that. So anyway, that's that's also my retrospective on on that period of time as well. And but but the reason I think it's so timely to do this is because if you've been around crypto for a number of years, you you've watched I think a lot of cynicism and a lot of adults come

in the room and say, "Okay, kids, thanks very much. We'll take it from here." And then promptly got their asses handed to them for seven years and it hasn't worked. But that doesn't mean that it was never going to work. This episode is sponsored by Katana. Katana is a DeFi first chain built for deep liquidity and real yield by redirecting chain revenue back to active DeFi users. The 1 billion KAT campaign is live. Bridge and deposit directly into vaults in one simple click and start earning immediately on your Ether, Bitcoin, [music] USDC, and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk.

Terms and conditions apply. Do your own research. Miles, I I would love to get your opinion on this around, you know, we talked a little bit last week about this strong versus weak technologies argument that Chris Dixon introduced. So essentially when a new technology comes around, there's a weak and a strong version of it. The weak version is hey the you know something that conforms to solving the problems of today's world. You might think of it as the skuorphic uh the skuorphic version of the technology before the stronger more disruptive version gets embraced. So I think a lot of people drew connections between private internets and public internets, between private blockchains and and public blockchains. But I'm wondering is that the right framework that one is just better than another?

Because you had a lot of debates. I actually took part in a debate in 2018 about is private are private blockchains or public blockchains better or are they just did we need to adopt our frameworks to find a way for companies to partake in this space? Is it one is better than the other or different actors have different requirements and some private and public elements are going to mesh into something that makes a lot more sense like >> Yeah. No, I I'm I'm totally with you. I think like um so if you just look at like the arc of of the type of activity that we're talking about um it you know as as Ze went through it definitely did start with being totally private and permissioned almost you know moving part of their back office onto this new you

know type of rail right that could run 247 um and that was largely a failure because uh first of all the infrastructure was not that good at the time and I think more more importantly, just misaligned incentives and and fragmentation, like consortium fragmentation, right? If you're not into the first consortium, then you're going to create a different consortium that, you know, is not led by one of your competitors. Um, and it just broke down. And then we entered a period, I think, of um, you know, these these trady institutions deploying on public blockchains and public blockchains only.

Um, and that's when it was probably the peak of Yep. in retrospect like this is obviously the strong like public blockchains are the strong side uh and private is the weak side but the retrospect today I think is worth it because a lot of the companies that um you know the first deployed on public blockchains over the last like three or four years are now moving more of their you know basically launching their own chains right >> and we're saying okay >> is this a return to private blockchains like does this beg a retrospect on that question or are these entirely different animals? Um, which I think they are. Um, but you know there's it's just not quite as black and white these days. Like

there is uh lots of shades of gray as to what you know you want to call things like tempo or even you know some of the uh corporate deployed uh roll-ups, right? Um so and and extrapolating that forward as to like what the endgame is here and is that actually a failure for public blockchains um you know if they're successful. So yeah I think I think we've entered a a new period where you know we this is retrospect is worth it. So, Miles, can we get into the second part of our discussion here? And can we introduce all of the shades of gray that have emerged since 2018 when we had this very clear definition of a blockchain which was federated, not

everyone could participate, you couldn't even access or read the data, and now all of these different shades of gray have emerged. Miles, you also strike me as a guy who loves a 2x two matrix. So, so I think you've actually might have built one for us this episode. So here I'm going to I'm going to I'm [laughter] going to get this. >> I have to I have to meet my 2 by two quota, you know, at least at least one an episode. Um but yeah, I think this is this is basically a you know, a useful framework to to think about it. Um you know, there's two two main spectrums here. There's um public versus private in terms of who can actually read and verify state. Um so this is just data, right? Who can run a node? Who can, you know, see d pull data from a block

explorer? Um and then you have another spectrum of you know permissionless totally permissionless and totally permissioned. And this one gets even like has many shades of you know in variations within itself because you know permissionless can mean a lot of things or permissioned can mean a lot of things right like base is permissionless to you know deploy smart contracts on anybody can use it right but not anybody can run the sequencer um and so that's maybe one end of the spectrum uh the other end of the spectrum would be like an L1 where um you know the validator set is gated um users are KYC gated and contracts are you know governance gated right and it

can be like any mix or match of these things and so we we now have like a much you know we went from basically in 2018 everything was in the bottom left corner or in the top right corner right and now we've got a really interesting like spectrum to consider um and and these design decisions are you know basically of where you fall on this if you're going to launch one of these things I think is actually going to be very very important in in thinking about like where all this is going and if they'll be successful or if they'll be you know we'll kind of like rerun the failures of of 2018. So I think in a broad sense we have you know again nothing's changed in the top left and top right corners. Um and the top left corner here you know

we're starting to see like Aztec which can offer privacy in a permissionless setting. um which is which is super interesting and it's taken a long time to get there. Um but yeah, I think most of what we see today uh when we're thinking about like the the names I think that that really drove us to to do this episode are falling into the bottom right corner, right? So they are um they look like public chains in a lot of ways, right? um most of them have public state um and then but they pick and choose you know areas where they think they want to exert more control right so if you want to ensure that there's no you know OFAC sanctioned transa or you know users that and transactions going

to those uh users on your chain then you're probably going to want to have a a gated validator set so that you can reject transactions um or or a gated sequencer right so you can reject transactions that are non-compliant that could get like your company in trouble, right? Because the the main point here is regulators have people that they can call um in this in this quadrant for the most part. Um and in the top right, you know, who are you actually going to sue? Like you can go after all of the validators of Ethereum, but so far, you know, that hasn't hasn't really happened and it's like World War III, you know, resistant, right? Um and I would argue that uh there are shades in this bottom right corner that is less like a corp

chain and a lot like a cosmos chain. Um you know I worked on osmosis and dydx work very closely with them. Um, and that's not they weren't considered like a you know permissioned blockchain or like any flavor of enterprise chain, but they did have governance gated contract deployment because they wanted to optimize for a certain use case, right? And they didn't want their block space crowded by all this non-core crap um because that degrades from the core product. So that you know you could argue a few of these things um are very very much so like Cosmos inspired especially in the uh sense of less around control but more around capabilities right so it's like hey we

want to basically implement the you know best uh open-source implementations of like every part of the stack whether that's you know native account abstraction uh maybe that's some enshrined protocols like we saw with tempo stocks yesterday they like an enshrined AMM custom fee structures. Um, and these are just things that, you know, Cosmos kind of showed the world that you could do when you owned your own chain in your own execution environment. Um, and so I think we're seeing a lot of that. And then I would say that like broadly the third flavor are these like network of networks um you know consortiums where and I don't know if it's fair to call them a

consortium but it's more this idea that like like you know canton I would put um in this category as well as uh zk sync as well as avac subnets to some to some extent it's like okay you guys can have full control you know equivalent to having a private blockchain But that's okay because you know you're connected to this broader network that is in itself more decentralized right so like assets you know use a decentralized interop you know network to to move around these networks and you get uh you can allow for like different levels of opinionation of how much you know control each and and how public or

permissionless it is to use each of the individual ledgers within say like the Canton network or within you know ZK asyncs um rollup network. Um I don't know what the the correct term is for that. Um so that's how I would categorize like what we're seeing today. For the most part, it's you know corporate L1s that are like shades of Cosmos but also shades of enterprise, you know, blockchains from from the past. um you have these corporate rollups where um you know I think it's it's borrowing finality right and censorship resistance to some extent from from Ethereum but in other in other senses you could argue these are just even more centralized you know than than the cosmos approach because it is a

single sequencer that controls everything right and decides who can you know they can censor anything they want right um and then you have these like networks of networks uh where you can have you know even more control, you know, in in a uh I guess in um on a on a local level, but be connected to um you know, all these other chains, right? Um so, yeah, I'll I'll pause there. Does that um spectrum make sense to you guys? Are does the Cosmos comparison, you know, resonate at all or um you know, are you are you seeing this differently?

>> It makes sense to me. It makes sense to me. One of the reasons I like to see this visualized in this way is I always uh I push back generally across the morality uh spectrum that gets I think unfairly uh positioned on crypto. I mean these things are ultimately technologies and I mostly reject a lot of the commentary around this is good versus bad versus this is a product or service that the market wants or doesn't want. Generally, when you draw these 2 x2 matrices, the top right is the place you want to be, right? Like just every investment pitch deck you've ever received, you want to be in the top right, and you want everyone else to be in different spectrums here. But I think that Aztec is a really great one where Aztec probably has the

the most cipher punk street cred you could possibly have, and it's not in the top right here. And it's actually private. But the reason it's private, which has historically been a bad word in crypto, is because you actually want some amount of privacy with transactions. And there's a general acceptance in Ethereum land as well that it might be a a crucial design flaw of chains uh the public the Ethereums and the Salanas of the world that everything is default open. And I think that's prevented probably a lot of acceptance from from the corporates of the world.

And I I also think too that it's sometimes it's difficult to the devil's in the details often with these things and sometimes if you are trying to get something like achieve a property that you want like privacy it can infringe on other areas around permission versus permissionless. So, Canton versus maybe Aztec is a good example here because Canton, if we were to describe the architecture in a sort of a naive way, it almost looks I think Miles, you said this last time, a little bit um avalanche-like, you know, in the sense that they have these network of interconnected subnetss, >> although Avalanche calls them L1's now, but the idea is basically the same that

you're going to want your own sort of customizable block space. uh Cantons is also private by nature, but the way that it all works is it relies heavily on a very trusted set of you know subnet operators and kind of this underlying infrastructure where data gets shared and so you know in order to achieve the property that you want of privacy you do have to sacrifice a good amount in terms of the permissionlessness maybe for a certain subset of actors that's okay um or maybe it's more challenging I think there's probably an interesting history that we could do on banking consortiums around Visa And actually comp banks have occasionally banded together to produce really interesting products like uh I think S&P actually comes from a consortium of banks as well at some

point. So >> who knows maybe it's good enough but I think the devil's in the details here too with the different architectures. >> Totally. Um and I think the more interesting question is you know why is this why why are we seeing this um uh why are they deploying like their own chains? Why is this happening? Um and and how much is it increasing you know their potential value capture versus how much um is it attributed to I would say like capability gaps that um of of public chains um basically I want to I want these features and properties um and I can't get that on public chains so you know I'm going to go stand up my own

chain that is customiz like perfect for my for my application which you know could look like a cosmos chain or is like a cosmos chain in spirit I think but also could end with you know the same like consortium fragmentation that we saw that you know led to the the failures of 2018 last time. Um but yeah, things like privacy, things like fast finality, um enshrining enshrining core like you know some nationalized like like services, right? Uh these are just things that you cannot do on uh Ethereum or Salana. Um and you potentially could do it as a rollup, but it's interesting that we're not seeing roll-ups as like the default choice. Um it's if anything, I think we're seeing

like more and more of these become like actual L1s. Um, and so yeah, I I go back and forth between, you know, is this just purely like a value capture play or is this more of like a capability gap and like a reflection of the failures of public chains to be able to, you know, accommodate everybody and everything. >> Maybe just one thing to note which I think we haven't necessarily touch touched on, but I think it's just as critically important. Um, when you look at the top right, there's Salana and Ethereum. There's also maybe something else to be said around like centralized versus decentralized. So another interesting one I think to think about is actually Hyperlquid here on this quadrant. You know, Hyperlquid is permissionless and public, but like somewhat centralized. I'm not saying

it's completely centralized, but you know, they have between 15 to 20 validator nodes. It's quite hard to get into the set. And you look at the things in the bottom right of this quadrant, you have Tempo versus Robin Hood. To the best of my understanding, Robin Hood will be pretty centralized because it'll be a layer two probably with one operator and that's a way of capturing more value as we all know. Then there's Tempo which to the best of my knowledge is going to be decentralized. They have a lot more design partners there and so it's public and it's permission but it's also quite decentralized. So this is like another thing I think is quite interesting in terms of like even though they're already quite separate with public permissionless permission private etc. There's another thing to be said around the centralization versus decentralization and I do think a trend

in crypto right now is that like decentralization is mattering less and the market is somewhat rewarding this and so I think people don't mind for chains to be permission these days as well because there's already a trend that's pushing towards centralization. There's now pretty much a trend that we're seeing that's also pushing more towards permission. You're seeing Salar and Ethereum on the top right. But right now, all those ones on the bottom right, they're all newly sort of like announced chains, let's say. And most of the successful sort of chains is obviously still very, very early. But the big brands that are coming in now, I expect the trend to continue that a lot of these will continue being public permission permissionless uh permission, sorry, and also somewhat centralized. So yeah, it's interesting I think to note

like the different vala sets as well in some of these ledgers. >> Shout out to today's sponsor, Katana. Katana is a DeFi first chain built for deep liquidity and high yield. No empty emissions, just real yield and sequencer fees routed back to DeFi users. Incubated by Polygon Labs and GSR, Katana is launching with notable ecosystem of primitives, [music] assets, and partners like Morpho, Chain Link, and more. Katana's 1 billion KAT campaign is live. Bridge and deposit directly into Vault in one simple click and start earning immediately on your Ether, Bitcoin, USDC, [music] and more. Follow the link in today's show notes to get started. As always, investments in blockchain technology involve risk.

Terms and conditions apply. Do your own research. On that point though, Zave, can I push back a little bit because I have said that as well that blockchains are moving in one direction towards being more permissioned and private and centralized and all that stuff. But is that how value has actually acred if you were to look at it? because there is an obvious arrow of direction here where you know we started with Bitcoin as the most decentralized least performant but most robust and you know oified from a governance standpoint and all that stuff and no one's trying to compete on that vector anymore everyone's going more towards centralization more towards performance more all of those all of that stuff but if we were to look at the market caps and where value has been created I would still say I mean you

know some 70% of the total crypto market is made up of Bitcoin and Ethereum which are the ones which are most uh decentralized on this spectrum. So while I would agree that there's a clear direction of travel in terms of the evolution and what people are trying I'm not actually as clear that it's led to positive results yet. I think actually at this point that's still a very open question as to where value is going to created to be created and I do wonder you know we've we have swung very far in the spectrum of trade-offs in between permissionless and public and private uh but I wonder where the market will ultimately end up rewarding uh these different trade-offs and I think that that's an open question. What would you Yeah, I don't know if you have a

response. >> I think it's a it's a great point. Um, you know, if you look at Hyperlquid, what's happened there and just the success that Hyperlid's seen, you know, one would argue probably has had the most success in crypto in the last 12 months. That is really, I think, kind of following the trend. You know, Salana itself was incredibly successful and more centralized than Ethereum and, you know, still is growing quite fast. I think both will exist like decentralized chains will continue existing. I totally agree with you. This goes back to what we were talking about in the last episode, but I have been thinking about a bit more the last few days. I do think there is some kind of monetary premium for being public, commissionless and decentralized. Like I think we don't know exactly how big this premium is and maybe this premium is compressing in

real time right now. When Tempo launches as a public permission chain which is probably more a lot more centralized. I don't think it's going to have this monetary premium. I think people are going to be valuing this like a real business and you know like a payments business like at pretty much like how Stripe is valued today. And for that reason, I think like it's an interesting thing to think about when these chains start launching like will they be like the multiples be more like Ethereum and Salana or the multiples more be like an equity like their equity businesses. I would make the argument they're going to be like their equity businesses and I think that Ethereum and Bitcoin like you mentioned Mike. I think they'll continue having this monetary premium you know the assets used as collateral which is within the economy etc etc. And so I

think yes, you can also value the mess and the fees and the revenue, the business model of those networks itself, but Bitcoin doesn't really have this at least right now. And that really is just being valued as money. I do think right now Ethereum is being valued as both. And then I also think that Tempo and Robin Hood etc will not have any of that premium like whatsoever. In saying that, another thing I've been thinking about before I hand the mic back to you guys, if you think about like Ethereum as well as like an asset and like how decentralized it is, it kind of has to be because this is like a blockchain that the world needs to use as like almost like a hedge. It's like this thing will never like go down. It has all the financial need. I don't think we're quite there yet in terms of like

what it should actually be. But it is permissionless. We can access it if we need it. Blah blah blah. It's like everything exists basically and we need to trust the fact that this exists. On the flip side, you look at Stripe, the volume they're doing right now, etc., etc. Ethereum is like looking at real world assets, AI, like kind of a lot of different categories, trying to find exactly what it is. And I think we still don't even really know 100% what Ethereum is going to be. Like maybe it's the blockchain for agents or like who knows, but like I think Ethereum's ambition is quite great versus like a stripe tempo. A stripe tempo is really bringing a lot of their volume they already have on chain and then you can pretty much value it straight after that. And so why I'm saying all this is

because I do think that the centralization trend at least for me will continue with corp chains and big brands and stuff like that. But I think that as a result they're going to be very verticalized and specific and bit like the app chains the were talking about in the last episode as well and that one I know that Miles is very fond of. I'd love to hear your take on this as well Miles. But I can see cob chains going quite centralized and not having any monetary premium whatsoever. And then on the flip side, I do think that as these cop chains go live, it'll be even more important to make sure that these actual public permissionless blockchains continue being relevant and mattering because if they lose their monetary premium and they don't fund PMF in some segment and then a vertical corp chain takes that, then I think their

monetary premium goes to zero and potentially stripe and stuff like that will be valued more. Like it might be crazy to think about right now, but I do think that this is all at risk. That's just like some high level thoughts. >> Yeah. Yeah. Yeah. And I I I definitely have some responses like the enterprise the 2018 enterprise chains failed because you know competitors will not like build on your you know competitor owned rails right and the reason that you know Ethereum and Salana have the the market caps that they do today is because we you know they um enable you know 247 any asset like any type of asset you know um settlement and it's owned by nobody.

and it can you know it's hosting compet like fierce competitors on the same rails right that's what we've seen that's why you know the market sees this potential to be like the rails for any sort of asset um and all of you know finance moving on to one or more of them right and I think there's a a question of like okay will I don't think that failure mode from 2018 has changed from you know as if you're thinking about the likes of tempo and and Robin Robin Hood. Um, you know, Fidelity is not going to deploy RWAS on Robin Hood's chain. Um, Tempo has an extremely impressive list of design partners, but not a single one of them are Stripe competitors, right?

And so what we're talking about is like a sector specific, you know, platform, right? That is uh without a doubt, if successful, not going to be the only one in that sector because Audient is not going to just say like, "Okay, yep, we're on tempo now." um like especially if it's controlled by by you know um if there is a token and there is value capture and there is control that is obviously like you know um going to be sitting with like the the deployers of that um so that's that's kind of where I see like the the failure mode not necessarily changing but I do think like if tempo were to try to become like Visa right where there is no native token that they own like you know a massive

amount of there is some sort of distributed governance model that like channels value back to the participants that drive demand. Okay. Now, now that could be a different animal. That's interesting. But yeah, I'll turn it over to you, Mike. >> Yeah. Can we I want to spend some time here talking about the bottom right quadrant of what we're looking at, which is Tempo and ARC and Robin Hood. And I want to address this fear that at least I feel in the room of oh my god, what if the corporates win at all? And here's here's the logic, right, which generally people talk about. There are by best estimates something like 40 million monthly average users of crypto. Robin Hood has actually Robin Hood I think only has about 20 but whatever any and

pick your pick your application right if this were to move on chain we could dwarf by a full order of magnitude number of users in crypto at any given time. And so the fear and the logic is what if one of these applications with a ton of users comes in and just wins it all. Right? They just win. They just vertically integrate the whole chain. So my the reason I I'm just going to skip to ahead to my conclusion. I don't think that that's going to happen. Is just because you can do everything or you have the opportunity doesn't mean that you do. And if you look at virtually any mature value chain in the world, um it's not entirely vertically integrated. And this is where I want to pull back out that example, Zave, that I thought was

super interesting that you started this with was JP Morgan came in and their assumption was we're going to create our own settlement network with JPMCoin and since it has evolved to leveraging public blockchains. So I think that's a super interesting tell and data point and I want to unpack through at least my conception of business logic and how this typically works why I do not think that this is going to be the case. So okay, first um I want to just start with you know what is like I think a good way of framing this is um I'm going to address this by the way entirely from the perspective of a corporate that's looking to build on a blockchain and I think a good heristic first to ask yourself is is there a product does the product use the rails or is are the

rails the product um I think that's a really good question to ask yourself to start with and you know if we were to break down the different layers of the value chain I'm going to go way more in depth later. Um I think there's there's kind of three layers which is one there's the base layer. Historically we say this provides security. Um I'm going to say that this provides counterparty risk or a lack of counterparty risk. Um I think that's essentially what you're getting when you build on the core base layer of settlement. You're like do I have strong assurances that if I submit a transactions it will not be reversed.

Right? That's basically what it is. either for political prejudice or business strategy or sheer incompetence right or technical um you know infeasibility whatever that is that's that's what the base layer I think you're mostly getting um then uh in order to deliver that um there's been a whole network of we call this like infra but this is everything from it's scaling it's helping scale that core property of not taking counterparty risk up to a much greater you know a m a much greater market. And actually, Miles, you and I have talked uh two years ago now about um RAS and L2 frameworks and shared sequencing collapsing onto one. This is a topic for another day. I would say

every infra infra category is going to collapse onto one, right? It's just going to be a bunch of shared services. Everything from running a sequencer, outsourcing, me like block production. Um it's essentially Red Hat. We're going to a bunch of things that we call different names now. We're going to collapse onto this. Let's call it like scaling and middleware layer. And then there's the application layer on top of that. Right? So those are your three layers. Now most corporates are coming in from the application layer, right? And they're deciding where do I want to play in this value chain, right? And okay, one one pretty naive approach I think which is frankly what a lot of these corporates are doing is I'm going to own the whole stack. I'm just I'm I'm gonna come in here. I've got all the leverage. I'm going to own the whole

stack. Um I'm going to outline why I don't think that actually makes sense. And here is the here's kind of like a checklist of what uh what I think is is a good way that that most companies look at this. So there's four different criteria here. One is strategic importance. So core versus non-core. So basically if you know something in my value chain were to fail and my whole business depends on it, it's core to where I want to focus and innovate on then I'm going to vertically integrate that. if it's not core and I don't really care about it, even if there's profit there, maybe I don't want to focus on it. So, a good example for Apple would be, you know, the operating system, silicon hardware, those are core, but they outsource logistics,

modems, that type of stuff. Um, for auto OEMs, what they really care about is more towards the end of the value chain. They care about brand, marketing, dealer networks, distribution. Increasingly, they're moving into software and cloud uh interconnectivity, but those are the areas that they want. virtually everything else that goes into a car, the steel, like they basically they basically buy, I'm over exaggerating here, seven fully manufactured parts and then just finally assemble all of that together. So almost everything that goes into your car today, car manufacturers actually say aren't core and they outsource it, which is pretty wild. Um, okay. So, is it core versus not core?

Uh, differentiation versus commodity. This is just where do we want to play in the value chain here, right? if there's an area which is highly commoditized and there aren't very many profits maybe I don't want to play in that area. Um so you know chips for an iPhone is very differentiated but you know for cloud data centers you know where there's vicious competition and economies of scale that's a pretty commoditized layer and maybe it doesn't make sense for a lot of folks to play there. Um there's coordination and risk. So again in especially some of these uh uh fixed cost heavy value chains uh where there might be high fixed cost but variable demand you might just not want to take the risk right so you via contracts and SLAs's you push that into a different part of the value chain and you isolate the financial risk away from you hotels

do this too with licensing like or um yeah brand licensing so most hotels actually have individual operators or if you're a large restaurant chain you actually don't own you you don't own all of the individual franchise you have franchise owners and that's a way of you know essentially owning the brand um versus warehousing some of the financial risk away cording it off from the core mothership and operation and then finally uh regulation and liability which you know before I even start to unpack this one you can definitely see where that starts to apply within crypto um so I think these are kind of the four levers um these are kind of the four levers that we're going to look at here and also I'm just going to say right off the bat that it's I think an oxymoron to say one that settlement and DA are

commoditized but then also assume that a corporate is going to choose to compete there. Right? You can also see you can start to see the logic violations of what a lot of people I think in this space are saying. Um I want to make this analogy live um just a little bit more and then I promise I'll stop my monologue here. I actually broke this down in terms of I think sometimes it's easier to imagine like a very well understood value chain like an automotive value chain and then I wanted to compare that to crypto and uh see what you guys think. Um, okay. So, this is a BMW. Uh, Zave, you're a resident European, so I want everyone in their mind's eye to picture Z cruising around corners in this little BMW, right? And we're going to unpack what the parts are and how they got made. Uh, but these

are, you have to excuse this is from Chat GBT. So, these are but basically eight different parts of the BMW value chain. So, there's actual raw materials and commodities. So, all the iron ore and coing coal and steel and stuff that gets put in. Um, then all of that moves into different tiers of uh subcomponents and major systems. So that could be like a wheel or something like that, you know, all the way up to a full car door. Um, but the reason a full car door is like there's no real, you know, difficult electronics or anything that goes into that. So, uh, OEMs will almost entirely outsource that. Um, powertrain and highv value system. So anything that's around the engine increasingly e EV motors and electronics uh battery is super interesting and this is a part

where even though it's deep down in the value chain especially Tesla was entirely vertically integrated on their battery supply chain for a really long time although that's starting to change. So this this part a lot of OEMs uh think of as core vehicle platform and body. So again the entire assemb like the entire uh like out exterior of the platform that's all outsourced um although the design isn't final assembly and QA that is owned by the OEM software design and digital systems historically they used to outsource that they're moving it in um sales distribution and brand that's like the relationships with the dealers the brand of the car the marketing the direct connection to the customer all core things that the OEM has decided to to own. Uh, and then aftermarket and

life cycle. This one is aftermarket parts are like, do you sell an individual replacement part to a to a repair shop? Really high margins on that and it's kind of split. But, you know, the reason I'm talking about BMWs on a crypto podcast is because at maturity, the value chain is highly highly specialized. And I just want to contrast that with some of the opinions that you hear in the industry today, which say, "Oh, well BMW has all the leverage. They're going to own the entire value chain." No, they're not going to own the entire value chain. going to run it through this matrix-based decision around where does it ultimately make sense to play. Um, by the way, this is yeah, I'm not even good at this. Chad GPT is great, but man, the visualization has not caught up with the language processing. So, but you can basically

see, you know, this is roughly how they've decided. This is a 2x2 matrix. Miles, I also love a 2x2 matrix uh of supplier maturity. So, are there a bunch of suppliers in the market that I could outsource to? Uh, and strategic importance. Um so I wanted to run this same exercise and this is where um I promise I'll stop monologuing here but uh for for blockchains and if you were to if you were to break down all the different things that have to happen in a blockchain uh consensus and security data availability the actual execution environment so not where the transactions or the data gets posted but where they actually take place um bridging uh bridging and settlement uh the networking layer. So this is anything related to frankly a lot of like MEB related stuff. um development

infrastructure, so RPC providers, uh indexers, honestly a lot of data visualization stuff here, wallet and identity, uh governance and economics, and then finally ecosystem and BD. Um I want to open it up back to you guys here and I'm very curious, you know, through this lens of okay, I'm a corporate and I'm moving into this space in let's just say that they're not going to say I want to own this entire space, although we can debate that. Where do you think it makes sense for them to focus? like if you were the head of Robin Hood crypto or you were running, you know, you're Matt Hong, uh, and you're running Tempo, where are you focusing here?

>> Okay, I think I before getting to Tempo specifically, like maybe take a look at um if if there's like an assumption that every like big, you know, like Tradfi or enterprise that has tons of leverage and as a leader in the market is going to vertically integrate everything, like that's not the status quo today. I think Mike as you point out really well right and then you know I worked at Fidelity for a very long time like we certainly did not the brokerage was in-house asset management of those assets was in-house uh the exchanges that you know we traded on on behalf of customers obviously not in-house right those are neutral venues um and that's why they could become you know the most liquid and and efficient in the world um custody we did in-house

clearing and settlement again that's the DTCC and other like neutral venues, right? Um with crypto it seems like when you deploy a chain you are you are um you are going a much like further I think in terms of vertical integration versus what we see like in the status quo um from from prior to like you know anything onchain existing um like you are I think really um touching pretty sensitive like functions of the value chain like settlement right and you could argue if it's a chain like the chain custodies the assets that is the control that you know every like massive you know industry today has basically

said no like no single you know entity is going to own that like the entire market will be far more efficient if that is a shared sort of neutral service that we all use right and I think that's why like you know that mentally like we map that so cleanly over to public permissionless blockchains as like you know being the one thing that the the enterprises aren't going to touch. Um, and so that's, you know, why I think like the risk is for these enterprises, uh, that are doing this and like the potential ceiling. Um, but yeah, Zave, what do you think?

>> Yeah, I think you guys make some great points. Um, if I have to sort of like break it down in terms of like why I think maybe the sort of BMW example is slightly different to the sort of blockchain example, um, I think it's just because now with blockchain infrastructure like so much has been developed, uh, and it is quite mature now and not it's somewhat commoditized. But what I'm saying is the difficulty to spin up a chain is actually not that hard. So if you have an application, let's say Stripe has Stripe app on Ethereum, the app does really well. They're giving up economics for people who are using the app because they're paying an ETH, whatever it is.

So they're thinking to themselves, well, I want more of that value. So maybe I build like an app chain. I build a layer 2. Okay, the layer 2 is going really well, but it's settling to Ethereum. I'm still giving up value there. Well, I want to control the economics. I want to control all of it. Like it's my app. Like, give me all of it. I'm greedy. I think like the reason why they can do this right now is because it's never been easier to like build your own chain and control the economics. The hard part right now as we're all very aware is actually like distribution of those chains and you've seen most generic public permissionless chains fail this year simply because they just do not have the distribution that Ethereum or Salana has and it's incredibly hard to build that distribution. Base here is a

good example of like building a chain layer 2 with existing distribution and they're doing very very well. So, I kind of wonder with with Stripe that like if they can hook into merchants and they don't even realize they're using crypto, like this is going to get very interesting very very fast in my opinion. And so, the reason why I can see why they're choosing to do it all themselves is because I feel like it's a lot harder to get distribution and get to those people and have them using crypto as opposed to like building the chain itself. And if they've solved that problem, I feel like the blockchain infrastructure side can be somewhat more easily solved at least for Stripe. I also want to like actually give this one back to you guys and hear what you guys think about this. So, you know, Stripe

Tempo announced a lot of their test net sort of data in the last day or two. So, I saw a tweet from Hive today, I think, mentioning that, you know, they're still charging merchants 1.5% or something like that. I'm pretty sure today it's like four or 5% in fintech land and then onchain it'll be like 1.5%. They do have distribution so there's a question of like if merchants actually care because they're still saving a lot of cost compared to like what they have today. At the same time, I think Mike, where I do really actually agree with you, the fact that they are building a chain and might actually be like sort of slowing them down in terms of finding PMF for certain apps on their chain because they're just launching a sort of generic chain and they want to bring apps to this this chain. And the question is, do

they have any apps that people actually want to use? And is the UX actually better than what these people have today, for example. And so if you build the chain first before you actually start building the apps, which is what they're doing in this case, you you have a lot less wiggle room when it comes to trying to find unique things that actually people really value and want to use and keep you in front of your competitors. So the way that I've been thinking about this kind of lane in terms of app versus app chain versus chain itself, which I think is interesting, I'll opinion is at least if you build an app, for example, let's say you're targeting merchants with an app and it's like 0.2% 2% or something like that instead of 1.5% and and you're using ZK or something like that or some

like very unique and defensible distribution strategy to get in front of a bunch of merchants. It's like so obvious that then they're going to save all this money. It's it's incredibly hard to do. But my question now is like if that happens and if someone does come up with 0.2% instead of 1.5% and they do get the distribution, how much does that actually impact like Tempo itself as like a chain? because like they focus a lot on the infrastructure and the chain itself when actually maybe there was just one killer use case in the application that like all merchants wanted to use anyway and save a bunch of fees for a much better experience. So like the question with a chain like stripe which I like the fact that it's targeting payments the question is like can you build an app and actually move faster building app maybe it's on

Ethereum or some related to whatever it is and get in front of like the chain because realistically even though it's not hard to build a chain it still takes time. It takes a lot more time to set up a chain and like deal with this. And like Mike here, I think your image is really great around actually everything you need to do which you need to think very hard about in terms of like to put all that together. And also I guess right now when you look at these sort of eight things on on screen, there's not really many services. There are some that exist that put these all together, but like I don't think Stripe could go to any person or entity today and be like, "Hey, these are the eight things.

Like what do you specialize in? We'll take that from you. We'll take that from you like I don't know Mike if you like think differently here but >> so okay can I respond to some parts of that and so I actually would say that Stripe is doing that look at the acquisitions that they've made so one area that I was going to point out is the wallet layer to me if I'm an application that feels ripe for ac that feels core identity and the wallet layer if I'm an application like I do not want to like think about how many application developers over the years have complained about MetaMask right that's just first of all there's a core UX part there like it's that is core to the business, right? That is core to what your application is. So, and then look at what look at what Stripe has done

with privy. They've also acquired bridge, right? They're m to me those are really strategic acquisitions um which are going to improve the core parts of the value chain that they can innovate on which I agree. I mean, it's ecosystem and BD, right? This is these are the parts ecosystem and BD. And I would actually say wallet and identity are probably the two most important areas if I were Stripe. And the reason why they could potentially win at consensus and security and DA, I'm actually going to make the case that one, it doesn't make business sense. And then two, I'm actually going to even contend that they could do it even though they're going to try. So, one, imagine you have $100 and you have to disperse that, you know, in each of these different categories, right? And you get a certain payout.

There's a certain ROI dependent on, hey, if I invest a dollar into BD, that's super valuable. No one else can do that. I think there's a ton of upside in value. I might get $5 back. Um, and then let's go down to the other layer, which is consensus and security and DA. We all know these are commodities, right? So, I invest $1 there, maybe I only get a $150 out. So, from a pure business ROI case, yes, they could do that, but should they do that, right? Because they're not going to win on this monetary premium, you know, anyway. Uh, so you might as well just it's a dollar in dollar out thing. So if we think that they can invest, you know, if they can get the best ROI by focusing on BD, wallet and security, again, kind of business sense and logic would dictate that that's

where they want to play. Now, I do think that there's this, hey, I I think that what's actually driving this is one a we talked about platforms in the past. Uh, everyone wants to be a platform. People don't want to be a product. So I think there is a slightly outdated version of hey I want to be a platform and and win the entire stack and I think I have the leverage to do that. That's what I would guess is driving the business logic here. But I want to contend about how possible that really is because I think what you need to be at the consensus and security and DA layer, it's you need the neutrality, right? I'm going to contend that it's even possible for them to do this or that it's going to move the needle for them. Um because one, in order for Stripe to extract the amount

of economic value and transactions that you would get as a platform, you're violating the core principle of what makes a good consensus security DA layer, which is neutrality. So to me, they're oxymoronic. They don't actually go together. Or what you do is, yeah, we're not going to be extractive. Don't worry about it. Um and then you don't get anything for your investment. And by the way, we talked the whole last episode about how hard it is to do go to market um and how high the barriers to entry are and how difficult this is to replicate. So I'm looking at where like Ethereum, Celestia, Salana are playing and I'm like this is both a very commoditized area but in an unbelievably difficult to replicate area. And then finally, when I think about um the

importance from Stripe's standpoint, right, I think we're building a whole bunch of new financial apps and the core innovation of blockchain is innovating on counterparty risk and will you rug me? Are you going to screw me? And blockchains afford you the ability to say actually you're not going to get rugged or screwed due to political or strategic reasons. And so as soon as these corporate chains get into that, like once you like really think about that, you're like, well, I don't actually, you know, me as a consumer, I don't think Robin Hood's going to screw me. Uh, if I'm Interactive Brokers, am I going to go on this? Like, do I think that Robin Hood, the owner of this layer, would screw me? Yeah, I think they're going to screw me. So, I think that that's why to me from a look, the BMW analogy, you cannot map analogies

perfectly one onto one another, right? That just doesn't work. But the reason I wanted to go through that in detail is, you know, to outline some of the the thinking. This is how I believe companies approach these sorts of problems and decisions around where to play. And I think the same amount of nuance will uh get translated into crypto value chains. And this is just my guess on what I think happens here. So I actually love the L2 construction. I hate the L2 construction as we originally thought of it, which there are going to be a bunch of generic ecosystems that get built on top of Ethereum. Like I don't think that's going to work at all. Um but what I do like is applications that there is like this intermediary scaling technology which is pre-confirmations uh you know white glove support and

tooling. This is the Red Hat model. I like a Red Hat I like apps Red Hat ETH. That's what I like. That's what I think this ultimately ends up being. >> I agree. I al but I I do think L2s are like actually much more complicated than L1's in a lot of senses like to to get all the guarantees that you actually want. Um, and when you start peeling back like the things that make L L2s like kind of decentralized and they get, you know, arguably like more and more scary uh, in terms of how centralized they are and what they can do, then let's say like, you know, uh, an L1 with like at least a a decent size gated validator set. And maybe back to your question, Zave, like what how would you

try to compete, right? Uh, how would you if if Stripe is still charging 1.5% um do you go and deploy on tempo itself uh and use their free infrastructure and free like you know um middleware right uh and and try to undercut them um and then or do you I think more likely like what startups will do um well they don't want to have to compete like on trust with stripe right and one way to not compete on trust and actually use that like against them is to be on a public blockchain right um like a salana or something like that. Um, and then you can get, you know, uh, partnerships potentially even with, um, Stripe's

competitors that help you win distribution. Um, but yeah, I just would call out like the the the 1.5% is obviously not like just for moving stable coins on Tempo. That's for all the periphery services, right, that Stripe offers today. just moving over to Tempo and having you know the the stable coin be like the settlement asset but also facilitating like those you know merchants to get uh paid in fiat right so they integrated like like uh on and off ramps and probably you know one thing about blockchains is scary is like there is no reversibility of transactions and I'm guessing Stripe is charging like most of that 1.5% is because they're taking like guarantees on fraud right and if it if it if

something goes wrong like they'll they'll make you whole Um so how do you not like try to compete where you have competitive dis disadvantages like then I think you go and look for um you know public blockchains where um eventually you can you can you know basically counterposition against them in that sense. Yeah. >> Yeah. 100% agree with you Miles and I think that's exactly right. I think the way to compete with these corp chains is exactly going to an Ethereum or a Salana or something like that, a neutral platform, building bottoms up and then trying to yeah get out in front and and compete against these these big corp chains. And you're totally right, the 1.5% like it's going to be really interesting because you know even right now they pay much more than that and they still use Stripe. Stripe has all

the power you know they have the leverage and so you know even it sort of feels like a better deal to the merchant. So the question is like again like you said like how do you compete? Is it just a cost thing or is it a convenience thing? For example, like in Stripe's case, it's, you know, surely a convenience thing. I think another point I actually wanted to mention and this one's thrown at you, Mike. Um, so what I also find very interesting about Tempo is that I don't know if they invested or acquired. You might be able to um sort of confirm, but CommonWear, of course, shout out to to Patrick, great great guy and you know, regular on on the show. Um, so you know what he was building super cool, brilliant. His initial idea was sort of like this Red Hat layer

talking about Mike like kind of middleware like you know RPC nodes like his initial pitch early on which always made a lot of sense was like you have the blockchain which is kind of like free then you have all these services you provide to the blockchain and you kind of charge for that and that's like you know sort of plug and play. So I do think like and here as well like I would sort of maybe make the argument that they haven't really outsourced they've inscreded almost they've kind of like brought what he's doing into tempo to like acrew that value like they've done with the other acquisitions as well. So yeah I'm curious Mike like how do you see that like do you think that makes sense like do you see like other corpses doing something similar? How do you see that?

>> I love the commonware model. I think Patrick got it exactly right and yeah, I think this kind of services model on top of the free part around the commoditized stuff like settlement and DA is exactly the right. So maybe like a prediction of mine would be I think the modular stuff was right um but the path dependence was a little bit off and we vastly overestimated the amount of complexity and layers that we needed at the development that we are in the industry. So you had all of these different categories, right? and they looked different. Uh shared sequencing, um rollups as a service, rollup frameworks themselves, um like you know, pick any number of different stuff. Uh like and I think ultimately all of that is going to

collapse into one business model. Um, so these things that started off from very different points are going to collapse into essentially service providers that sit on top of Ethereum or Salana or other public chains and help these applications get what they want u which is the free stuff from the the public chain. And uh actually the an analogy that I would give you again is um we actually basically had an overbuild of infrastructure in 2019 20 sorry yeah 2018 2019 it was centralized infrastructure it's like there was a gajillion custodians uh and it was the same thing everyone build prime brokerage it was some people started with lending some people started with custody some people started with cap intro and then what happened was there

was this explosion of funding because every VC could wrap their heads around it and then it collapsed onto a couple of winners that aggregated all of those services into one and now what do you have? You have Anchorage and Galaxy and that's that's the end model. And I think if you look at L2s and L2 frameworks, shared sequencing, RAS, all of that stuff is going to collapse into essentially the common wear Patrick OGY model of providing services that help connect you to the public chain. Now the I thought like two maybe two points to to end on here. I thought I just asked this question at chat GBT, but I thought I'd actually got it pretty right. Uh, and I thought it was pretty interesting.

Um, where, okay, SHVT sucks at imaging, so sorry. This should be strategic importance this way and supplier maturity this way. But in the top right, right, this is from the perspective of a corpo chain. Where does it tell you to focus? Ecosystem and BD. I think that's exactly right. Um, but what you also have that I think is pretty interesting is it views settlement and DA as being very important like core like strategically core but there's also a mature supplier base and so yeah I think that you know this is chat GPT and it's hallucinating and frankly it's like absorbed a lot of the crypto gobbledegook over the years and I think there's some big flaws in how it thinks about it but I thought it was

interesting that it spit this out because that's exactly how I view it too. I think that the what what public blockchains provide are both very core and strategic, but they kind of give it away for free. And I wonder if part of the reason why Tempo and Stripe are doing this is because they've been a fintech that have relied on banking partners for a long time and probably been deeply deeply frustrated with the moat um and the regulatory uh you know kind of capture and incumbency that comes along with that interaction. And I dropped this I dropped this to you guys in a in a chat here, but maybe to just demonstrate this. I thought this was there was a really interesting piece from multicoin that just came out on

uh basically stable coins, vertically integrating stable coins with the neo banks. This is the challenge with like kind of the different eras of fintech. Um and the the big challenge and why it's ultimately been commoditized is because even though you can innovate on this distribution layer, there is a fat regulatory uh incumbency and moat at the settlement layer. And even though these FinTechs that are innovating on like UX for the first time in 20 years, right, from banking services and making things nice and trying to go in between countries, you can't solve some of these core things because you're still relying on a banking partner and because you need a banking partner and because the new number of FDICins insured commercial

bank charters, like this is a crazy chart, right? Like look at how much it dropped off post 2008. you know, we go from 175 new banks to like zero for a number of years and then now it's back up to like six. Um, because that has been so throttled and because there's such a an advantage to h to being a banking partner, they can extract an enormous amount of the value. So, I do wonder if part of the thinking from tempo here to say, "Oh my god, we can finally get around these guys." And so, this is kind of the, you know, I know people love to use this term, but it's like commoditizing your uh your competitor, right? And in this case, the competitor in the value stack for fintex was banks. But yeah, it's a super interesting thing where but I think the

my while I understand the logic from the perspective of stripe, I think it's probably good enough. You don't need to own it. Um I think it's good enough to just say this is core, but it's also public and neutral and it's never going to charge me a ton of money or extract a lot of value. So I'm just going to leave it. um and I'm just going to leverage this and use it instead of own the entire thing. So that was that took us in a little bit of a different direction, but that's where I see this ultimately playing out as opposed to the current iteration. >> Yeah. No, I I couldn't agree more. Um I think like if you own distribution, you are not going to want to compromise on UX performance and economics. Um, and I think to like for the most part today to

get those things you have to like launch your own chain or roll up. So we're going to see more and more of these. Um, you know, I think like what I'm excited about about, you know, from working on Delta is that you can get those things and still outsource, you know, act the the security of the assets to, you know, a neutral like settlement layer, right? Um, and I think we'll we'll probably see like a we'll overshoot on how many of these uh, you know, come out and how many of them are successful. Um, and then we'll probably withdraw back, you know, a lot of activity will come back to L1's. Um, and L1's will probably need to be built like to support these things, right? Um, either that's some rollup strategy or like I think you know

for for Salana they're trying to you know enable like application specific sequencing, right? So like how do you provide more control like to these to these institutions that do have the leverage without you know um with with making it less attractive to actually move to your own chain and settlement layer. Um because I think like control over settlement is really the crux of of where this could fail. Um that's what your competitors do not want you know to rely on you for. They don't today even in old Rails. So, um, yeah, that's that's kind of where my like um, you know, where I see the like next five years going.

>> Yeah, I might actually mention one last point. I think a lot of this also just comes down to the human side. Like we talk a lot about technology. I think talent is everything in crypto. There's only limited. That's really the finite resource I think in crypto is talent, not not blockchains, not like infrastructure, etc. And, you know, one chain we didn't mention today which just struck me was Monad. And you know, of course, probably the most recent public permissionless blockchain that go live. Also quite decentralized, by the way, in terms of that third um thing that you know, these blockchain properties have.

So, I guess all this is to say that like the Monad team very strong talent, you know, like you speak with anyone at Monad professional like tech is also great, but they're super supportive. Ecosystem development all great like Delta Miles I think also a strong team. You know, if I think about Stripe Tempo, some of the talent and also the resources they're throwing at this talent. It's a bit like AI right now where like all this money is raised and it's just like paying these amazing AI engineers and then of course you can get great AI products. The thing with Stripe which I think is interesting or tempo I should say is just the fact that they raise so much capital like $500 million is bloody crazy. And so like they have to be throwing it somewhere and they are throwing it at like you know either

buying things or probably paying like really talented engineers to build and ship and make sure that tech is great and then you know go from there. So I do think that talent is means a lot and potentially might even mean more than just being public or or private etc. And I'm definitely in the camp where it should always be public. I think we all are aligned there. But it'll be interesting to see like Tempo versus Monad for example because I think this is the most recent kind of public permissionless versus public permissioned who wins out there. Like I I think that it was just like a DBD right now and very different sort of target markets they're approaching but also at the same time two very exciting chains I think everyone is watching in the crypto world.

>> I agree Z but I also I um money is an interesting thing. Money has not correlated to success in crypto at all. Um, in fact, there's probably a pretty strong inverse correlation there. And my experience, you know, even with, you know, when we did that exercise of ROI and where to focus, even with organizations that have unlimited dollars from a financial perspective, no organization has unlimited focus. And I think the the correct strategy and picking the right areas for any organization literally if you have unlimited money, can get any talent you want. You still like honestly I I look I feel like I'm picking on

tempo a lot. I love Paradigm and Stripe and I love this is great. I'm just it's kind of the most interesting corporate chain right now which is why I'm maybe using it as a little bit of a to try to dissect some of what I view as the core logic that underpins the decision. But, you know, I look at a lot of the stuff that's coming out and these new innovations at the at the L1 layer and, you know, what you can do on Tempo that you can't do on Ethereum and I'm kind of thinking I don't think that matters. Um, I think it's like mostly good enough at this point even on Ethereum which famously like a really constrained L1 environment and I think sometimes actually uh too much money can be a distraction and it can allow you to say I'm going to

compete in all of these areas because I don't have to make decisions. Whereas this is a little bit of I guess maybe now old-fashioned thinking when it comes to startups, but I think the more money constrained you are, it forces you to decide where you want to focus and where you want to innovate on. And I think actually it's a little bit of a curse for big ecosystems that have infinite dollars and can just pay to solve every problem. I think you're more at risk of not having the right strategy. >> Yeah, I yeah, definitely some some good points. What I do find interesting, and I totally agree, focus is really worth way more than money. Um, with Tempo, if you think about what they're doing, they actually are like quite focused, if that makes sense. Like they are like

targeting payments like that. Like at least right now, I feel like they're not overstretching into like AI or something like that. Like maybe down the line they do that. But what I actually also find interesting because it's a good point, Mike, like look at something like Ethereum for example. Like okay, that I don't know exactly how much Ether have the foundation, etc., But I imagine there's still quite a bit like the hard part for generic chains, public permissionless generic chains, is like where is the focus? Like should they be focusing on something because maybe there's a competitor like Tempo that comes and like I'm the payments chain then all of a sudden it's like oh maybe I want to be the payments chain but I didn't really make up my mind in time and now Stripe's taking it from me. So like maybe I do think there's a risk for

the public permissionless chains like Salon and Ethereum like because they are generic and they're trying to work out exactly what it is. Is it RWA? Is it AI etc. Maybe the next corporate comes out in AI like Google. Like Google comes out saying, "Oh, thank you very much Ethereum and Salana for not choosing AI. I'm going to go build my own AI chain right now." And like this is pretty sick. So I do think it's interesting like where focus is and I totally agree that this is everything for a startup. And I also agree with you Mike that like having too much money like can also be a bad thing for sure and being resource constraint can also be a very very good thing. But um yeah maybe there is a question which could also be another potential podcast topic. It's like what should these chains focus on? Like

should a theory be focused or not? like should should be more focused and like because maybe the risk is that they're not actually focused enough in terms of like exactly hitting something and finding an amazing amount of PMF in some category in particular. I don't know how you guys see that but that might be something to think about. >> All right guys, this has been a really fun one. A lot of good debate on this one. Um a lot of good 2 by twos. Miles, thank you for bringing >> Yeah, we'll keep them coming. We'll keep them coming once a week. >> Um I think that should be a staple of the show. But guys, this was a ton of fun. thanks for doing this and uh yeah, we'll uh I'll see you see you guys next week.

>> Sounds good. >> Thanks, guys. >> See you guys.