SotN#22: BONDING! w/ Collin Myers (ETH Internet Bond Market, Staking Returns, ETH Needed to Retire?)

Transcript

if you want to live a bankless life you need to get a hardware wallet there is no alternative for storing your crypto in a self-sovereign fashion that's why i have four ledgers that i use to manage my different crypto assets using the ledger live account as well ledger live is like your home base for managing your ethereum defy and crypto accounts it does a really good job of aggregating all of your different ethereum wallets if you are the type of person that uses more than one but you can also add other cryptocurrencies like bitcoin or cosmos or whatever your preferred blockchain is and then it will display an aggregate portfolio of all your accounts at the main page one thing that ledger is doing a really good job of is enabling all the

money verbs that me and ryan talk about with the bankless skill cube enabled in the ledger live app so right now in the ledger live app you can buy sell lend swap and stake your crypto assets which is doing a really good job of fulfilling all of the money verbs in the bankless skill cube something that's new to ledger live is ledger swap where you can swap assets one for another directly inside the ledger live application ensuring trustlessness in your financial activity on ethereum and on bitcoin if you want to learn more about what you can do with a ledger go to the blog post the power of ledger live on the ledger website where they share some of the more advanced things that you can do with your ledger that you might not have known about there's a link in the show

notes that will take you to the ledger shop where you can get your preferred ledger hardware wallet i personally like the ledger nano x but i also have both they're both great options when you own a ledger you own your own assets in the way that they have been designed to be held by the user and the user alone so go get your ledger today to make sure that you are as self sovereign as possible the bankless state the nations are brought to you by wiring wiring is defy's first self-building community run project which i just get really really excited about wiring is a system that seeks out yield in d5 and it does that in a number of different ways a very aggressive way is with the vaults where you can deposit

your preferred asset of choice and different defy experts will come in and generate a strategy for what to do with your deposited token right and so it'll go find ways to get yield in that deposited token in d5 for those who want to just earn yield on their stable coins the earn system is for you where you can deposit your preferred stable coin and wire will go and figure out which money market on and defy is producing the best interest rate whether it's dydx it's compound or ave it looks around d5 to see where the yield is coming from and it directs stable coins automatically so you don't have to check them out at yearn.finance to get started and also check out the stats page to see what

other people are doing as well welcome everyone the bankless to the bankless nation this is state of the nation episode number 22. david and i are coming at you on youtube live we release these every tuesday on youtube uh we also release them on the podcast on wednesday so you can check it out both ways david how are you doing today i am just so excited about what's to come now that the deposit contract is live there are so many things to talk about that we've kept in our back pockets that we are now able to talk about which we are going to start talking about them today in today's state of the nation all right well let's talk about what we're talking about then today so we're talking about eth as an

internet bond and some folks from consensus and bison trails put together a fantastic article and not just an article some fantastic analytics around this that we're going to talk about today we've got one of them coming on to talk about this with us but this this new paradigm of eth as an internet bond i think is going to be super important for institutional investors to understand so that's the first part of what we're talking about today right david yeah absolutely and like i said there's just so many layers to to peel back this is a first ever in crypto this is a first ever in hard money there's never been a bond market around hard money uh and so like learning about what that is i think is going to be a really fun

adventure and i'm excited to learn about it with everyone in the nation awesome so we've got an expert coming on to do that uh with us we'll introduce him in just a moment the other question we're gonna answer probably in the second half of this is the question of how much you can really make staking it's a question i'm sure is in your mind uh and then maybe more immediately for david how much each is it going to take for you to retire my friend are we gonna answer that question today this is a question i've always been asking myself like every once in a while okay i pull out my calculator and go 32 times like two 32 times four like if there's like five percent interest you know eight percent interest like as somebody that you know got into the world of ethereum just like thinking

about like okay how many miners do i need to have versus how much and then and then it moves into how much like stake validators do i need to have in order to sovereign you know dependable income the cool thing you're all about that passive income all about the passive income yeah like the the whole cool thing about securing the ethereum protocol is that like there's no bureaucracy like trying to like figure out who need like do we get do we pay this guy like this month or maybe maybe we pay him next month like no there's no intermediary between you validating the ethereum blockchain and you being paid by the ethereum blockchain right so it's a dependable source of income and i don't know where else you can get that in the world which is why this is so valuable it's a non-sovereign hard money

productive asset that pays you in eth as dividends which is also a hard money in it of in and of itself this is going to be exciting to you to dig into and you're in luck david because we not only have the calculator that's going to help you figure that out we've got the guy who designed the calculator that's going to help you figure that out so uh you know let's figure out how much you need to retire how much each you need to retire on with this whole new staking thing yeah let me know all right uh lastly if we have some time we'll talk about some thoughts that i put out earlier this week uh seven thoughts for crypto pioneer so it's gonna be a jam-packed episode but before we get to the episode um talk about uh introduce our guests let's talk about a few things

that are new going on in the nation david yesterday we put out this episode on the bankless podcast with raul paul our best episode ever yeah i don't know some people are saying that it's definitely our most downloaded episode ever in a 24 hour in 24 hours yeah 24 hour yeah download limit it broke your record on that well what do you think was it our best episode what do you think yeah it was i was one one of our one of our better ones maybe not our maybe not our best but like people are really into the world of or the conversation of like you know ryan you and i are like we are deep crypto native right like we live breathe and die for for ethereum bro paul he's not like he's not so so like that he's bullish on crypto for all the right reasons but i

wouldn't really consider him like a tribal member of like the crypto world right like he doesn't he doesn't yeah he's not he doesn't bleed bankless he doesn't really necessarily bleed bankless right like he's not a crypto native he's just bullish on crypto and so having two people two parties that like represent each side i think is really important and i think that's why that episode was so popular it was super cool is bankless thesis meets macro thesis and there's this interesting venn diagram where the two things tied together and we have some common investment narratives there so check out that episode came out yesterday uh should be on the podcast right now we've also doing some cool things we're bringing in andrew keys tomorrow who is at dharma capital and he's going to help

answer the question are the institutions coming to ethereum staking uh he's also got a pretty cool announcement about getting some liquidity while you are staking eth and how that works so that's going to be a meet the nation episode on youtube only youtube exclusive exclusive and then next week michael sunshine is coming from grayscale and um this is funny because we recorded this episode david like two weeks ago with michael and at the time i remember saying in the intro wow grayscale has seven billion assets under management and like each week that that went by since then it's gone up by another billion so now i think we get to we get to title the episode like 10 billion right in grayscale something like that um and be

pretty close to accurate on that so it's been some amazing growth that's going to be about the bridge to uh traditional finance uh particularly with with grayscale that's going to be a cool one right yeah absolutely and in kind of in the same vein as like you know grayscale represents like the macro world right it's kind of similar to raul paul like ray scale isn't like the defy native right like great greyscale can't go bankless they are more or less like very very bank friendly but it's about the macro like creating the world and creating the bridges to get into the world of crypto in the world of d5 the world of ethereum and you know something that i'm that i'm paying attention to is you know we saw uh at least on d5 pulse it took us like 18 months to get to a

billion dollars locked in defy and then it took us like three months to get to three billion dollars in d5 and then it took us like uh uh three more weeks to get to like 11 or 12 billion in d5 and i see that same acceleration happening in greyscale except that's with ether in grayscale right and so uh i just want to know like how how soon is that and how soon and how fast are those numbers gonna really start ticking upwards the growth is non-linear it's something closer to logarithmic which is really cool it's hard for humans to think that way all right lastly on the announcements list before we get to the the main event i've got to mention the file coin accelerator so guys bankless is super important um d5 is super

important we also need to centralize storage uh in order to make these systems these d5 systems censorship resistant so there's a file file coin accelerator this is targeted at entrepreneurs and d5 devs that is happening you've still got five days to register and apply for this but they're giving out a 20k grant they're also giving up to a million in follow-up funding there's a link in the show notes if you're a d5 dev you've got an idea you want to use file coins distributed storage layer which we highly encourage you guys to check out and do there is a link where you can apply david is going to be a mentor as well so check that out david i want to get to the question i ask you at the start of every episode my

friend what is the state of the nation this week ah this one's so good the state of the nation is bonding we are bonding right we are bonding our eth to the proof of stake phase zero chain if you go to the ethereum.org launchpad site you can get your nodes up and running deposit your 32 ether and be part of the genesis of ethereum by bonding your eth but not only that like many states of the nation it doesn't mean just one thing we are also bonding as a community right and so i'm working wow whoa double meaning yeah double meaning yeah double meaning so and this is something that's baked into the core values of ethereum consensus of the l1 is supposed to be done by many many

people by everyone by us right and it is a way to generate community and uh we're in we're in ryan we have something going on in the background at bank list that we're going to start pushing out like next week i'm working on an article right now that kind of starts starts off with like how i started mining ethereum and how that made me part of the ethereum community and that is what and how i came to be in ethereum how i made my ethereum friends and it started with mining at the consensus layer right and this is what we are doing with proof of stake we are enabling everyone to validate ethereum and so we are bonding our ether and we are bonding as a community because that's what happens when you have decentralized consensus so today's state

of the nation is bonding david that was excellent i didn't anticipate the double meaning it's incredible you brought that in there um also this would not be a digital nation without a propaganda department of course and so you are bringing some of that propaganda in that article next week i'm just going to show two quick clips of this uh this is some of the propaganda we have in store to encourage the ethereum nation to start staking secure the network run a minority client if you can't see this because you're listing the podcast check out youtube this is a wartime poster folks you gotta check it out here's another one i'm gonna show we're gonna release a whole bunch of these they're fantastic they're amazing and i think should spread the

meme of staking a little bit further so that's going to be super exciting all right bonding is our topic friends and so we want to bring on an expert in that topic want to introduce you guys to colin myers who is the global strategy lead at consensus codify doing all sorts of things in the staking department today and also responsible for some of the fantastic eth as in internet bond um white papers that you've seen and also the eth calculator that we're going to go into colin how are you doing sir welcome to the bankless nation hey everyone uh happy happy tuesday stoked stoked to be on and um i like to think that the best is always

yet to come so maybe maybe we can make this the most downloaded episode so so to be here with you guys today and uh thanks for having me on well this is a super cool topic to do it and um colin we've been wanting to have you on for quite some time ever since you you helped put out the first eve to calculator but we are always like waiting for staking you know it's like it was always like two okay three three three months away you know like in three months let's talk but now it's here so we're we're super excited uh to have you on you know the first half of this we really want to talk about the concept that that you've been um preaching here lately uh the the concept of ether when it's staked

as an internet bond we've said before that crypto is almost speed reading uh speed running through the history of development of money right so like we've gone from like like hard monies like gold and now we're we're doing these early collateral based lending markets and some of these things are new to d5 but like these things have happened through the course of financial history and and uh through financial progress and now we finally arrived at this super cool thing which is an internet bond market we have digital bonds now like eth um but first before we get into that for people who aren't really familiar with bonds can we start with some foundations so what is a bond

market in traditional in the traditional finance world colin what does that look like yeah so um i think i agree with you guys one on kind of the the speed at which things are moving and and i think now we're beginning to see uh new uh primitives with new functionalities and different things that that actually will begin to create new financial products and kind of what we've seen today is recreations and now we're getting into that new financial product world um when when most people think of bonds it's mostly associated with debt um and a promissory note for for someone to give funds to someone in return for

some type of cash flow or some type of future promise when dealing with normal debt as well there's uh probably one of the greatest risks that that you have to deal with is credit risk and also prepayment risk as well if if you're on the bank side of the equation it's also important to note that bond debt markets by debt we're at a we're at a point today where and that was kind of one of the the purposes of the internet bond that mar and i wanted wanted to get across and at least advance the conversation around is uh beginning to develop macro indicators of network health once the world's largest blockchain finally switches to

proof of stake which will really we believe change the foundation of the risk return premium and an ecosystem of rewards that can be earned not only at the base layer by participating in consensus but then all the other stream of rewards and risk technical and whatnot that you can take on on top of that base layer for staking and what we want to do is try to create common terminology common understanding uh draw conclusions from the world that we understand today but then also at the same time let people know that these are these are hybrid instruments these these do not look like securities at all and they operate in a completely different world and the best way to describe them are digital work

agreements in the web 3 era so the goal of it is to is to bring it all together we've seen a lot of different proof-of-stake networks launched in the past year and a half all of which have have different bonding terms or bonding flavors or bonding styles um but we've been preparing on rn for eth2 now for for a while almost two years and now it's time to to get the idea out there it's time to standardize valuation methodologies for internet bonds it's time to standardize the way that we look at them there's other things that need to be sorted as well they're more advanced which we highlight at the end of the paper um rating methodologies uh and different things of the nature

um but yeah um i'll stop there or i could just you know keep rambling for hours standard is standardization and making sure everyone's on the same page about like what these things are are are super important but but let's back up and talk about like bonds as an architecture in the first place like why why do bonds exist like why who gets to issue bonds and and why would they do that yeah i mean bonds bonds like let's say i'm a company or a government uh or or some some type of entity um i would utilize a bond to get resources to grow so i would give up some of my uh you know future growth for short-term growth

uh by you know borrowing money from someone um we found that the contractor license bond uh which is a type of surety bond is is you know a bit different than what people think of you know bonds which most people think of corporate or sovereign debt um so what we've learned through the surety bond and through examining what what happens at the base layer of the ethereum network is is that you know the definition of a bond should be broadly expanded and it should be generalized as uh a financial agreement between two or more parties uh you need two parties to set up the agreement and you can have more than one party involved in this agreement

but it's it's a work agreement for compensation it is probably the best way to to think about a bond uh with a surety bond you know you are you are putting capital on the line you're also putting reputation on the line um and that is also similar to to what you're doing as a validator you know you're you're there and you're there to prove your reputation you are rewarded based on your future reputation uh and you're setting up an agreement between uh three parties but the network acts as two of the three parties uh which is which is quite quite interesting as it guarantees your cash flow streams are received um because it comes from a pool of tokens uh which can be minted uh as the network grows right right so so

why are bond markets so big like it's one of the biggest if not maybe it's the biggest market in the world and and i was doing some some research before this um before the stream and i and i learned that like there's 20 trillion dollars in united states government treasuries like that's a really big number why is this number so big why do people like bonds as an asset yeah i mean this is a deep question um but uh essentially i mean our our entire global economic scale is based on our credit system um prior to working um on wall street for six years and i spent all my time in the corporate debt markets this

small frequency of the deals that go on and just just the sheer number of what takes place and how how that system works but um it's a much larger larger structural design consideration for global growth uh which today is fueled on credit cycles uh which is fueled uh you know so many levers that that monetary policy can pull and utilize and one of the main ones is plan playing with interest rates uh as a result of being a um so you know that's a good thing um i think that that can be a bad thing but

if you use debt correctly it's it's how we've experienced our uh most of our human growth uh over time i mean that's existed since the beginning of recorded history if you will uh from what we know today so it all comes down to debt uh and debt is what people use to grow things and it's the way that the global economy is structured today hey colin do you know if the off the top of your head how large the um the bond market is in general like sovereign bond market and then plus corporate bond just curious yeah i would say sovereign bond market there is public data for that uh corporate bond markets there's not a whole lot of data honestly unless you're digging through a bloomberg um but i mean it's in the multiples of trillions you know it's

huge yeah so um what i think is really interesting from sort of it you're describing ether just at a high level for folks just at a high level so ether once it's staked uh is like a bond and you're describing it as elements of a surety bond because you're actually as a sticker you're actually having to provide some labor it's not just you just park the money there is a labor component in terms of responsibilities of running a validator so there's that that surety bond uh component as well david and i like also love to talk about how ethereum is almost like a nation in some ways and how if you think of eth as a as a money as a value asset as well it's

supposed to become a bit more like a sovereign bond in some ways except it's not governed by a central bank or a sovereign nation state it's a decentralized bond so it's almost like a non-sovereign bond it's almost like a a decentralized t-bill and i always find it funny that um crypto often talks about benchmarks as like what's going to be the total aggregate size of crypto right and people are like bitcoin right okay gold is eight trillion uh in outstanding like value in the world so what if bitcoin got to eight trillion or surpassed gold or fifty percent of the market share that's often the the benchmark here well what if eth takes 50

of the uh sovereign bond market market share right like then you're in the tens of trillions of dollars i'm not saying that that happens overnight but like introduce that concept into your brain because we have just created something pretty unique which is a non-sovereign um bond it has elements of surety bond but it's also completely decentralized backed by a decentralized economy similar to a nation-state that's where i think things get really interesting and by the way eth as a limited supply hard money that becomes very interesting as well so like

i'm just like okay 9 trillion that's cool i mean but like sorry bitcoiners you guys shooting a little low because we've got like 40 trillion in sovereign bonds and maybe a portion of that market size is is the market we should be going for here i just want folks to to see that framing of the world again this is not going to happen overnight folks like ethereum has to grow a nation-state-sized economy before that is possible but i just want you to see that this is sort of the the financial the financial instrument that's just been unleashed i just wanted to say that colin mostly yeah uh no we're aligned on the nettiness of it right and something that that i've been

i've been waiting for for eth2 to launch now for two years and i've been spending um pretty much all those two years on on the economics right and then as the more the meta thing like what there will be a reward rate that will come out of the network right so once this thing goes live and it gets bootstrapped and we surpass phase zero we get to genesis and then we move through the life of eth2 uh there will be some consistent reward rate that is public for all people to observe and that reward rate will become something extremely meta uh exactly what who knows it will be the risk-free rate of a new decentralized financial economy and it will be the benchmark of you know what is the cost of creating

trustless transactions or you know what is the cost of uh just providing trustless infrastructure as a public good there will be there will be some type of benchmark like a risk-free rate uh which will come off of the ethereum network and and i do believe that that once that gets put in place we will see a lot of different things change um within our current stack of risk reward and scales that we see on top of ethereum today there's all these staking mechanisms right that are built everywhere with their different reward structures and the different things but the thing they're built on it doesn't have a proper reward structure that has similar barriers to entry that the

things built on top of it do yeah so now when you gut the lower layer you redo it you create a reference rate uh and then the reference rates that you are getting on top of that layer will have to fundamentally change somehow or be anchored to it in some way so i think it's one of the final loops for us in d5 to bring a holistically connected system together as we will have a a reference rate of sorts is totally agree taking risk in a certain ecosystem what am i rewarded for for taking risk uh and then there will be a series of rewards put on top of it so i don't think we know exactly what what it'll look like but but we do know that that reward rate will be an anchor to a much larger financial ecosystem

yeah i mean what we're talking about is if could eat staking yield could become the risk free rate for d5 basically in this entire decentralized economy similar to the way the t bill as you're saying earlier is kind of the risk-free rate for traditional finance uh super cool to think about that so the current macro environment kind of changes up what in my mind what the risk-free rate is right and andreas antonopoulos i think made this uh made this claim in one of his internet of money speeches way back when where you know bitcoin changed the game on like what immutability is like whatever immutability was before bitcoin like bitcoin just added a new end of the spectrum for something that's much more immutable and i think that's coming as well for what it whatever we call the

risk-free rate in traditional finance because and especially during times of covid and money printer go bur like one of the reasons why there's a risk-free rate is because the uh entity behind the assets that are guaranteeing the returns can print money to pay you back on your bond right and so like yeah it's a risk-free rate but you're also inflating the currency and there's and and ryan you you talked about like compare how bitcoins compare bitcoin to gold and using gold as a benchmark but if i were to put my bitcoiner hat on hat on i would say you're like you know coal is like the minimum we are going for for a a gold 2.0 that's an evolution on gold it should be orders of magnitude more

than gold and i think we can say that same thing with ether and the bond market like yes we are reconstructing the bond market we can use the bond market as a benchmark but we are able to provide much stronger assurances about the bond market of ether because we have some things baked into the ethereum protocol that prevent you know an overly irresponsible like issuance of ether right minimum viable issuance so what happens when we get a bond market that also has an entity that is restricted in issuing the the uh the currency itself that's something that's really interesting to me yeah the i mean the the issuance of two

right and there's and that's some of the stuff that we baked into the model for the internet bond like in the earlier days of of eth2 before we get to phase 1.5 which which for everyone is where the eth1 chain is folded into a shard on eth2 and that's when ethereum will officially move from proof of work to proof of stake there's there's you know going to be ongoing issuance uh going on on the ether chain so so we'll have kind of like rewards split between two things um right now i believe uh the annual like the average annual issuance for ethereum is around five percent um whereas once we get into the mature eth2 world we're looking at one percent

or under and it's a very uh its emission is based on its participation uh which is quite interesting which then ties to its economics which are designed in a way that uh they're capacity-based essentially so uh if there is more ether needed to be staked in the network um then it will over-incentivize for that if we're have too much security or there's too many people involved and the rate of reward will drop and it'll reach its equilibrium state so it's east 2 is really meant to be this this fluid moving dynamic system and it's and it doesn't have a fixed supply uh and i personally think that

that's probably one of the greatest things about its design especially being a smart contract platform whereas how can you expect to have a fixed supply when you don't actually understand how large it could actually get right and by having a dynamic cap on the supply uh it's how it's been designed i guess is the way that i've looked at it um so when it comes to issuance and how that transitions over to e2 and how it compares to bitcoin it's a lot of interesting stuff going going on there and there are a lot of people who will argue that this so not having a supply cap uh is a bad thing but to be honest with you uh e2 is probably one of the like most complex things that i've ever tried to dissect and

there's still loads that i need to learn after doing it for two years but one thing i can say is that not having a supply cap and tying the economics to its issuance and usage is a very interesting thing that i i can't wait to see play out yeah absolutely colin can you in order to really figure out like what this thing is can you maybe compare and contrast like a traditional bond market or bond issuance to like what we are seeing coming on ethereum 2.0 like how are they alike how are they different yeah so i think i'll focus on one one point which is really really interesting and that has to do with maturity um so and that's also one of the unique

properties of an eth2 internet bond and how it works you know beyond the earlier phases which which has some restrictions which um are outlined in the paper and then we can also discuss them as well but there's this perpetual nature of participating inside of this um you know this global uh plumbing layer if you will uh when purchasing bonds or participating in traditional bond markets um their valuation their yield how they're sold and many things are anchored to a maturity date uh yield to maturity uh different types of calculations like this there's a fixed uh parameter inside of that one of them is being what is the maturity of this and the other one is what is the par value

so then you have instruments that are kind of free-floating anchoring to these two items when it comes to a perpetual e-2 internet bond the big difference there is is that there is no maturity date you are free to come in and come out of it whenever it is that you would like and par value has no barriers as to where it can go up and down uh an eq internet bond par value is 32 times the market price of whatever ethereum is currently at um and your maturity is there there is no maturity so when you look at who issues perpetual bonds they are only usually sovereign nations essentially and when

those sovereign nations historically have issued perpetual bonds um they have a fixed rate of interest whereas ethereum is dynamic and there is a call option that as the holder you you don't have any right around it which means that that authority or that central body that issued that perpetual bond that guaranteed you this interest rate into perpetuity has the right to pay you back whenever they want right so that means that you could lose rewards inside of that structure which is again how eth2 is different but but it's fairly similar so just uh just to highlight that two of the major differences here are that internet bonds are designed

or at least in the ethereum sense are designed to be perpetual you can come in you can come out whenever you want and you are not subject to those rewards ever ending uh because the protocol wants to you know take some money off the table if you will now colin one caveat to that is during the the this initial phase zero is you can't come out whenever you want right and i think you you guys highlight that in your paper how at first it has a little bit of a different structure because during the phase zero basically you don't have the ability to exit from the bond can you talk about that for a minute yeah yeah of course um so what we focused on in the paper so like i guess kind of long long story short is that we

built this perpetual valuation model and spent time looking at e2's internet bond from a perpetual perspective but we were looking too far into the future so then when we wrote the first draft of internet bond we backed up into okay what's going on in the earlier phases of eth2 because there are some fungible properties and technical restrictions that result in this perpetual bond actually looking like a deferred rate coupon instrument based on its different properties so in the paper we decided to nail down deeper into phase 0 to phase 1.5 instead of doing phase 1.5 and beyond right because that's the the

majority of how an eq internet bond will be valued in the way that it'll trade is 1.5 and beyond uh whereas you know zero to 1.5 is this 18 to 24 month time period again maturity unknown but its properties are very different so in the earlier days the way that the process works today is um i want to be a validator on e2 uh i head over to the e2 launch pad i generate my keys uh i deposit my 32ef i get my documentation and everything to spin up the client of my choice and also my eth1 node of choice and once i enter that system and and i make that deposit i make a one-way deposit to the eth1 chain uh which again is in the eth1 chain until the eth1 chain is folded into the

e2 chain into a shard on e2 which is phase 1.5 so i send a one-way transaction which is effectively a burn if the system doesn't work out and inside of that i accrue rewards but but i can't do anything with them right so i'm still earning rewards and i own these rewards you know the sovereignty of the rewards belongs to me as the validator who deposited but i don't have any liquidity on them and and i can't really do do much with it aside from watching a crew so during during this you know this time period the properties are very very interesting um there's lots of different types of risks that

uh exist at the beginning and exist through its lifetime but lessen and then there are some risks that completely fall away one of the major risks is not having liquidity on my base assets which is my principle which doesn't exist in the bond market pretty much all bonds have some degree of liquidity they may be highly illiquid but i still have the technical ability to trade it to someone or sell it if i'm uncomfortable with the situation um so what we have come up with for the earlier phases of phase 0 to 1.5 is that an e2 internet bond should be valued and probably will be valued like a discounted instrument where from its initial conception to its change in its fungibility

properties it will continually move towards its par value and that's part of this graph that we're looking at here colin i think this is from your white paper right the bottom line here is the the in red is the market value that's what you're talking about the discounted value that it would trade at whereas this top line is the the face value and what you're seeing i think um the the sort of the um the axis at the bottom is basically months over time and the transition from phase 0 all the way to this phase 1.5 and beyond and how all of the the the market value and the face value and the present value all converge ultimately yes they i mean in theory um

uh which is what what we expect i think it's important to note that in a fully mature eth2 like these internet bonds which are you know chunks of 32 staked eth these could trade at a discount these could trade at a premium um i suspect a world where there's a long queue for people waiting to become a validator at which point you may there was a point on madagascar where people had to wait two and a half nearly three weeks to actually enter the network and get a chance to earn rewards so there's there's this environment where over time it will definitely be a par value and how do you assign that par value and then as its properties change and the network changes uh it will trade at a premium or it'll

trade at a discount uh in the earlier days we suspect it to to trade at a discount for two reasons one of them being just the national time value of money and the fact that the rewards that you earn you can't have today and then there's some other economic benefit that you could be doing with those money so that's uh that's a fairly basic um present value uh you know evaluation and then the other market rate is we applied manual discount rates for illiquidity uh and a few other things as they would change change over time so one thing i think that's worth noting is that in our analysis we had to use a maturity of 24 months it was difficult for us to derive evaluation of an e2 internet bond

without creating some type of fixed variable and in ours it was basically laying it out over a 24-month time period from phase zero to phase 1.5 12 months from phase 0 to phase 1 12 months from phase 1 to phase 1.5 which is definitely on the conservative time frame uh yeah i agree i mean we talked to danny ryan but it's possible some of this could ship in you know 2021 at least phase zero and who knows about 1.5 but yeah so one last question we're going to get to the second part of this uh to help david answer his question in just a minute but one last question just to tie this off right so colin you guys read this fantastic internet bond

white paper that sort of models out how eth is similar to traditional bonds what does this do for the typical institutional investor who's familiar with the the traditional bond world does it help them understand it does it make them more warm to the asset class what do you expect from this yeah um i suspect well first first and foremost those that are on the regulatory bodies and the institutional people like they definitely have gotten more up to speed on what ethereum is uh in the past 12 months which i think is like super super great so the only network that they have the

chance to understand what proof of stake is uh if you give them a test if you give them a cosmos or if you give them any other chains and say hey take a look at this like it's most likely going to be more confusing for them to understand what proof of stake is so now i think that proof of stake is finally a reality inside of these two they understand ethereum they're comfortable with ethereum they see the value they see the things being built on it they're more knowledgeable about it now they take a look at okay so i have all this ether what what you know what can i actually do with it or i'm interested in purchasing ether what can i do with it because it is a utility token so what type of utility does this token have uh and today for

the first time that that token has uh its own utility uh within its own ecosystem which it was you know historically to pay for gas fees but now it is the main asset used to achieve consensus which is a self-reinforcing cycle of value so i do believe that now people are ready to understand staking and i believe that staking is easy for them to understand but they need to look at staking through a lens of a network that they trust and finally now it's time for ethereum to be that network that you know staking is here and people understand ethereum so i see this really cool mashup of of getting these poor people involved i can tell you just i just spent a lot of time on youtube research that the illiquidity

too is is is an institution there's absolutely no doubt about that but i also know that there there are uh custodial we're working on solutions help institutions get get involved i don't think there's any uh there's not much left selling on what is blockchain that they need to see they just need to have mandates in place one of them being liquidity yeah if you're locked into an asset that's no good and you have lps like you're going to need to get out and in an easy zero to 1.5 setting uh that's that's not a property that that that they're used to experiencing it's so cool i mean some people will think about liquidity as well that blocks the

institutions but at the same time i'm like well you know it's good for the decentralized of the network uh decentralization of the network that this is a bit more hobbyist and institutional blocked uh from from the get-go and get ready to come after i fill all my bags exactly after david retires on his passive income which we'll talk about in a minute but so but like i think what you're saying here is this is what's so cool about this is if you guys zoom out are listening to what we're saying about this internet bond thing five years ago institutional investors did not understand bitcoin right they didn't understand it and over the last five years we've seen the education of raul paul paul tour jones who stanley uh drucken miller right like like these people are now like oh i see

store of value it's like digital gold that happened over the past five years five years ago when i entered this space that wasn't the case they didn't understand this they thought it was criminal and drug money i think that happened in the last two years i think it was even even shorter than that so what i think will happen over the next i'll be conservative and say five years is that institutions will start to understand internet bonds as a financial instrument the way they understand bitcoin as digital gold and next thing you know paul tudor jones will talk about the eth the staked eth he's just invested in or started uh validating and i think that is the next chapter here that you have helped unlock colin so thanks a lot do you have some time to stick with us so we can help david

retire on his passive eth income yeah of course i'd like to know what these numbers are like too so i can set some more personal benchmarks all right we're gonna do that in just a second but first we want to talk about some of our fantastic sponsors that made this episode possible if you are looking for a mobile wallet to hold and access your crypto you need to go to argent.xyz and download their smart contract wallet app right onto your android or ios device arjun is the most secure way to hold money on your device while still being able to access defy services that we all know and love on ethereum through argent you have one tap access to the beloved d5 apps like compound unit swap ave and you can even

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out in the real world but you can still do real world things with you know real money and like buy your groceries so that's just fantastic coming soon to monolith actually already here to monolith is now you can buy die and get it sent to your wallet directly right so it's also being an on-ramp so you don't have to go through your centralized exchange like coinbase or gemini or wherever you can just go straight from your bank account right into your monolith checking account smart contract wallet so check them out at monolith.xyz all right bankless nation we are back with colin myers and david of course and he is going to help us answer a very important question of course we talk about on bank lists what what is

bankless about it's about freedom financial freedom freedom from banks um and david has the question probably the same question that many of you have which is how much eath is actually required in staking to earn a decent passive income off of this stuff an income source that is denominated in self-sovereign uh bankless money ethnic source david i think that's the reason you started to get into this space is that correct that's always been the dream abs absolutely and and this is something that really gets me excited about ethereum 2.0 is because we're about to do this all over again like i got into ethereum because i started mining on my gaming computer finding out like i could make five dollars a day on

my gpu and then i scaled that up into like 24 gpus like spread in different corners of my dad's house but then but then like in the bear market the bear market came and then you know asics kind of dominated the ethereum landscape and so i see this this migration to proof of stake as a resurgence of some of the original core values that brought people into ethereum in the first place the ability to mine ether and get ether dividends in your home is really powerful and like we are going back to that world with proof of stake that's always been the point of proof-of-stake is getting money paid to you at home in a self-sovereign way and so i want to know like how much ether do i need to stake so i can like have a

comfortable retirement like that's all right well let's find that out it's been my question for three years you know what colin myers designed we've got him on right now he designed the perfect calculator for you then we're going to go through it and i don't think david is the only one by the way i've talked to a lot of eath holders definitely not through the bear market and part of the reason they kept the faith and kept holding is like why i'm waiting for proof of stake i'm waiting for this to be a semi-passive income source for me in the future i believe in ethereum i believe that this is possible so david is not the only one and if you are watching you are listening i bet you have some interest in this too so i am pulling up the eth2 calculator designed by colin mara some other folks and and

the team at consensus and partially bison trails this will be linked in the show notes there's also a guide that we will link it's already linked and there's a guide we will link in the show notes too that we designed that will help you thrift it has some variables we're going to go through and help answer david's question today so we've got first this whole category under the eth2 calculator let's start here the current cost to become an eth2 validator is 14 293 dollars that is the cost of essentially 32 eth owning 32 each is that correct colin yeah that's your that's your raw cost if you will that's your asset acquisition

cost so that's your capital outweigh that's almost the equivalent david to your gpus basically you've got to buy the gpus you got to buy the a6 that's what the asics are in this new model we have to get a certain amount of uh validators and stake on board to to launch the chain i'm assuming we get that i still have full faith especially after our eth war effort next week david we're going to hit those numbers not going to be a problem let's talk about um some of the variables here so one variable colin is the eth price of course right so this calculator auto feeds into the eth price another variable that you could adjust up or down is the total amount of each at stake so this model right now the default assumes about a

million but is it correct colin if i adjust that amount amount up to say 2 million or three million or five million um that that indicates more east of the total state that the rewards will go down for david is that correct yes yes correct um so it's uh we're going to start off earning rewards at 524 000 288 uh that that is the genesis threshold and then as more validators get added uh you will see uh between phase zero and phase 1.5 when there is no liquidity you'll see a you know you'll see a a uni-directional decreasing reward structure where an earlier epoch you'll receive the highest and then as more state gets added to the

network you will receive less we'll keep it at a million for now that will probably go up in other phases over time it's hard to know each circulating supply that that feels um you know fairly certain i think the assumption of all the other validators on 95 of the time feels pretty safe but let's so let's get to the uh validator specific so david um do you already have an internet router my friend can i say yes to this question i got i have an internet router yes that's how we are doing this stream okay good to know good to know we're not using your cell connection all right so um infrastructure um what kind of node are you going to run so you have kind of two options here right so you could

either run your own hardware hardware or you could run in the cloud hardware hardware staking at home all right so you want actual physical hardware yep inside of your residence where you live and what are we doing for infrastructure choices i'll give you uh i'll give you two here that's what the calculator says you go the bare minimum requirements or you do recommend it all right so here is i think um let's see the minimum requirements are something like this four gigs ram 20 gig storage ssd i definitely got that yeah mm-hmm okay so so for people who are who are looking at this like i'm going to be staking on a 2018 macbook pro and that is more than

enough i i think i have an i7 in it and an intel i7 chip maybe that's a little bit higher than average but an i5 is going to be just fine okay so you've got the recommended requirements you're above minimum requirements and then colin what's interesting is david just answered the question like he has the internet he has a router he has broadband that's all you need broadband you don't need some super like fast fiber connection like your your comcast connection if you're in the us works is that right correct all right cool all right so uh david how many how many validators are you gonna run maybe we'll say like base case here first and then we'll we'll work towards your dream retirement passive income yeah i'm gonna i'm gonna only put in 32 i'm gonna put one validator through uh in phase zero and

then i'll get the rest of my ether over uh you know all 332 000 of them over uh you know later you know okay so this is you at first you're being conservative so you're like you're not ready to start retiring on this passive income but we'll set this to one one validator so that means you're putting 32 ethan and again 32 eth is about 14k in capital so not insignificant guys right and again we put out a a meet the nation video about rocket pool if you have less than 32 ether are other ways to stake and there will be other ways to stake but um david's running his own validator uptime 95 percent it's set at i'm better than that 98 give me 98 i'll just give you a flavor here's an sl

like a calculator uptime calculator so 95 means um you could be down up to 18 days a year right that's 90 95 so what did you say 99 98 give me 98. 98. i'm a good boy all right that still gives you even as a good boy like that gives you the ability to be down seven days a year right so so when i move apartments i can close my laptop carry it from one apartment to the another set up comcast and that's that's my like five to seven day break then that's okay exactly exactly that's reasonable as long as comcast is now for like two weeks or like some sort of disaster hit so i'm gonna set you at 98 um cost of computer hardware i think that's already been put in useful life

everything else is put in so um i think colin am i looking at the right place this is david's annual profit with these variables in place so that's an annual profit if you can't see this of 1 77 at a net validator issuance so he is making annual returns of twelve point four three percent on his 32 so on his 14k denominated in us dollars he's making a 12.43 percent return this is after the cost of hardware and internet am i reading that correctly colin yes that's correct and for specificity purposes that means that that epoch

that he participates in uh with the network state at one million eve staked uh on an annualized basis he would earn twelve point four three percent very so that's an annualized number and it's based on the snapshot of the state of the network uh at a million e state which over the course of the year will will will change you know it'll only increase so his actual annualized reward will be less than than what what the metric is that you see here today as it's annualized at a snapshot point in time got it so as the stake increases that could go down a little bit and it would be annualized up to that amount so so david i guess uh one question so if

you were to park your funds in say the equivalent sovereign um bond market like what would you do on it on a t-bill right like do you know t-bill rates off the top of your head t-bill rates especially right now i'm pretty sure are like to three percent maybe more maybe that sounds about right to me right yeah and specifically one to three percent on the us dollar which is not a hard money which is not a hard money it's between one to three percent and dropping i wouldn't be surprised if we saw zero some people talk about with the central bank digital currency negative and then in the background the fed is inflating your money right inflating the money supply right so this is uh i mean yeah this is this is a totally

different paradigm here it's it's a different source but there are risks here of course so um let's talk about other places you could put your earth is there anywhere in d5 that you can get this kind of return at the moment that you're aware of in wiring you can submit your ether into a y eth vault and then it will draw die from maker dow and use that die to get a yield and that is earning something like four to six percent but that also has some risks involved because if um your ether drops you actually might end up having to sell your ether because you are taking out leverage to get that done and so like while that is four to six percent that is not a risk-free four to six percent that is a risk on four to

six percent which is a very important difference then it also has um other like defy risk uh you're trusting die you're trusting wire and you're trusting maker smart contracts whereas this and guys when we say risk free rate somebody chewed me out on twitter one time somebody in d5 because i said like eat steak will be risk-free rate and he's like it's not risk-free there's tons of risks i'm like yeah i know there's risk but it's it's protocol risk it's the base layer risk that's what you're incurring here but you're not taking all of the other layers on top right importantly in ethereum staking there is no counterparty risk right you are not loaning out your money there's no one receiving it the the thing that is receiving your ether is ethereum

which we can all trust otherwise it wouldn't work okay all right so so you're putting that in but like you're getting 1777 which is a which is a good start right for uh some passive income for you but um that's probably not going to be enough to retire on right on return retirement that's a pretty slim retirement all right so let's let's talk about some of your dreams david so we've got a few variables that we can adjust here all right just for fun um one variable of course is you could put more eath into this thing you could go buy more eath and go risk it in this risk-free rate of eth2 protocol risking um so you have that option my friend another option that we might see and um

you know despite what people might might think dave and i do not control the price of eth at ebbs and flows on its own but if the price of eth goes up what's that going to do to your return well in u.s dollar value it's going to pump that number up absolutely in u.s dollar value interesting but not your ether nominated your ether denominated returns will stay the same the independent of the dollar price but if the dollar value of ether goes up then the dollar value of your ether dividends also goes up okay so let's say that um what what numbers do you want to adjust then david let's let you play the scenario out so we could adjust each price we could adjust how much eat you want to put in what's kind of reasonable

for your retirement passive income dreams yeah so chris burniske who is a person i i trust really tweeted out recently about his projected returns based off of bitcoin ether and d5 mid to small caps and he uh estimated that ether at the end of this cycle is going to do a 10x uh where he thinks bitcoin is going to do a 5x ether is going to do a 10x and then d5 mid caps are going to do a 20 to 50x so let's go with what chris said um and so that would be put ether at roughly 4 500 at at a stable end of cycle price wow 4 500 and uh when he was saying cycle any idea what the timeline was he was talking i don't think he gave a timeline

no okay so he's saying probably in the next three to five years two to five to five years yeah two to five yeah so we are jacking we are 10xing the heath price right now which is not crazy for a crazy market cycle okay and then uh are we keeping your you just running running one validator with 32e yeah let's keep one validator for now and then we'll see what number that gives and then we will go and change that number after i see you with the number that it gives all right colin's magic calculator did all of the calculations for us and but i think we have to tweak one more number because i think if we are assuming that ether price is going to be 4 500 i think there's probably going to be more ether of being staked uh i feel like that's a

likely outcome so let's go from 1 million to let's go to let's go to four million four million four million each state will keep the other variables the same of course each circulating supply is going to be up a little bit too but maybe we we ignore that yeah that's it okay known quantity all right anything else you want to adjust no i think that's right all right so your annual profit right now you're doing 10k a year so you went from you just basically 10xed your annual profit right now it was at seventeen hundred dollars and now we're oh yes ten thousand exactly so less than 10x because the issuance your um net issuance annualized went down from what 12 to seven yep right and so it we previously when there was only one

million ether staked we were receiving a twelve percent uh issuance rate twelve percent interest rate on our eth and since we bumped that one million total eath staked up to 4 million it went down to 7.4 percent okay is that going to be enough to retire on my friend 10k here we're getting closer but still like seeing 10k like i have a pretty bougie diet i eat a lot of steak so all right so i think we i think we're going to have to add some more validators ryan all right so what do you want to do well okay so if i'm making ten thousand dollars a year on one thirty two each node validator my retirement goals are fifty thousand dollars a year so i think we should 5x uh 32. so 5 times 32 which that number is

hmm quick math 125 times 32 is 160 each state and the calculator does it for you my friend um fantastic and then that gets you to your annualized profit of 54k per year a comfortable retirement and that would be that would that would mean that you are and this is by the way like some people talk about like fire financially independent retire early this is around the benchmark that they use for that sort of thing personal finance world right like 50k annualized some people feel comfortable enough to retire what that means is basically you've still got a lot of capital here if you're doing that because that 160 k is all your capital that's like your net like capital but it's throwing off 54k a year

in profit for you and that's paying for all your steak and your bougie lifestyle yep [Laughter] no that's right that's right yeah 55 you know it's not it's uh 55 000 a year as a salary is is you know a modest salary like some people would really appreciate 55 000 a year on retirement like that's not the it's relatively slim but i guess that your consumption and retirement goes down but like you're you're still gonna have to like you know do some things right you don't get to just like you know buy a jet and start flying all over the world you know what it does do though is it gives you the ability to go pursue hobbies like even income making hobbies like you know like the stuff that we do often i'm just like it's fun it's like

stuff i'd be doing if i didn't have to work right so you get to do that and you don't have to be a slave to the uh the wage right yep um so that's what that income can do for you yeah that is right 55 000 in again issuance of dividends to you coming from a protocol not a counterparty there is no dependencies on me receiving my 55 000 a year retirement right and so it's actually as a security as a safety net it's pretty strong yeah absolutely and this is uh hopefully will emerge as kind of the the risk-free like the teals essentially of crypto so this is less risky than say depositing

your your um your eth into the yam farms way back when we used to do that kind of thing over the summer uh very cool all right to that question i need a hundred and sixty each in order to uh retire assuming that ether 10x is in price so i got some work to do with my stack should we do some anthony sessano predictions and just uh jack this up to 10 okay let's see what happens at 10k let's see 10k 32 deposit rather than 160 let's go back to one validator okay all right so one validator at 10k eth this is the anthony susana prediction you're doing 24k a year from 1700 a year to 24k a year if if anthony cesano is correct which i i trust the

guy he he's he's pretty he's pretty correct uh quite frequently uh and so that means one validator node with 32 eth gets you 24 000 a year that is insane not too shabby my friend and then uh five if we increase that to five you're doing uh so this is again 160 each staked on a single validator you can do this it's 122k a year in relatively passive income okay but that if that's going to be the case we have to bump up the total staked to 12 000 or 12 million each we got to do that because that's just too good return all right you don't want to live in fantasy world i don't know if it'll ever get to 12k what do you think like yeah six years excuse me 12 million what do you think colin do you think

it's going that high because at a certain point like it kind of trails off and you're just diminishing returns as far as the returns go right depending on the price of each uh net like nominal yields do do turn negative um if he doesn't like moon really hard once you get about past that 10 million mark um i personally think that through phase zero to phase one we see about a million and a half to two million i think phase 1.5 people sorry phase one to 1.5 more people begin to step in and then by the time we fold each one into each two i think we're around that five million mark which is like phase 1.5 and then it's

kind of you know it's ongoing state uh once it gets into phase two and then with what we know today it's pretty mature on its fungibility properties but things may change uh i see 10 million as being the economic barrier uh that it may not make sense for people to want to participate given the skills required to do so on your own and the rewards that uh that you're offered but 10 million each takes plenty for security of the network uh but but i personally see 10 10 million probably being being that ceiling because there are uh negative yields that could be experienced based on where the price of these have all right 10 million you're doing 77k a year david and then by the

way that's plenty that's a pretty decent retirement if uh if some of our youth bull friends are right and then by the way how is there a way to see how much colin um like at it at 10k price eth at some of these variables um 10 million staked how much economic security does ethereum have is there a chart on that in this calculator yeah there's no there's no security measures okay um and benchmarks set inside of this just kind of relative issuances um if you scroll to the right though a little bit um one one interesting thing is this chart with the three uh descending which is validator issuance network at home and using a

vps um so this is the scale it's the top right chart so if you go up a little bit and then scroll a little over to the right yeah this one right here so if you take a look at this this is genesis to 10 million each staked with the price of each set at around 400 so so it is you know relevant so assuming you're seeing prices there this is your this is your gross from 19.8 percent to 4.5 percent uh and then when you begin to layer in cost there's two different cost factors as we've gone through uh as you can see once you begin to use your bps and you get out here and you're only staking one validator into the five million range uh

your yields actually turn negative uh whereas if you're validating at home you're you're pretty close to break even at 10 million uh so i think it it'll it'll come down to the cost of the validator setup is to as to where that breakeven point is um but i think this is probably relevant for users to take a look at uh it explains the reward structure and how how it's related to the amount of heat sticks and that's interesting because it could it should kind of uh collapse to to sort of something close to the marginal cost right and like risk of staking the similar similar to the way um proof of work does where it's like correct like energy plus asics like marginal cost

yeah it'll i mean doing a break even analysis is probably what most larger people will do when deciding whether or not you know whether or not this is a good use for for their ether whether or not they could they could earn more rewards someplace else very cool all right well we've got uh david on his retirement plan colin this has been fantastic guys bankless nation we've got guides we've got calculators you can see if staking is right for you and if it makes and how to get on the passive income terrain if it comes to pass um colin just thanks a lot for your time and thanks for putting all of this stuff together right devs are super hard at work um also like people like you to help educate the community uh on staking and

the potential internet bond it's just like instrumental so like thank you for all the work that you're doing here yeah absolutely this is my my e2 effort is is my uh my 15 of my time commitment at consensus that is that is you know meant to to give back in a non-profitable manner so it's been a very exciting two years it's been a great experience for me to go through go through the whole thing it's it's me giving back to the community that's that's given a lot uh to me over over the past three years so um i appreciate you guys having me on today to to walk through the calculator and also to help get more more people educated about you know eve to staking what what internet bonds would look like and also to

leverage the community that you guys have to kind of drum up a good conversation i'm i'm really hoping this kind of gets gets people's gears grinding um thinking about becoming a validator thinking about the different abstractions um that could be built on top of staked ether as there's a lot of different things that could be built on top so hope that the paper serves as a fundamental viewpoint and uh i can't wait to get back on with you guys once once genesis goes and then we actually start seeing some data as to how these things are valued and if it's relevant to some of the projections um that we did uh so just uh just to close it out um for those of you who want to check out the the internet bond paper that mara

and myself put together there's been a couple of good twitter posts by the bankless team and then we also collab on an article as well so feel free to check those out and head over to the pdf and and last last shameless plug for me would be for everyone to go check out activate uh activates a uh a project that consensus that i spend most of my time on um we collaborated with the ethereum foundation to build the e2 launch pad um so it's kind of the big thing that we're trying to to promote people to come in to activate learn more about phase zero we have an faq we have an interface built on the calculator there and we also have a secure link most importantly to the eth2 launch pad so you can ensure that you're not getting

phished by coming through activate as we built we help the ef build the platform so we're excited about phase zero i'm stoked the genesis uh is around the corner and uh doing things like this will help it become more successful so i appreciate what you guys are doing it's as it's extremely helpful likewise colin one thing i've been hammering on lately is i've been watching the the macro world really learn how to place bitcoin in the world around it and there's nothing more bullish for for bitcoin than being understood and when it comes to ether and staking ethereum and proof of stake and advertising like this internet bond market that's what i see you doing with this calculator for ethereum right like really putting it into

digestible and knowledgeable mental models for people to understand what is actually going on here and so that's just one thing that really just makes me really excited about you know staking my own ethers like people are going to figure out what this thing actually is and it's going to be on the the shoulders of your effort and mara's effort and and everyone else who's trying to push this conversation forward so thank you for everything you're doing thank colin take care cheers guys talk to you see you later everybody bye wow that was super good right i mean i know we always say it and i've probably said that we always say it last time but like i'm bullish you know what you said there that was

super cool is the most bullish thing for bitcoin is being understood right um same thing the most bullish thing for ethereum is being understood and i think we're going to see like both of these things happen in the next cycle uh well cool man this this uh nation is going along david do we have uh we got some more time we got time we got time yeah i know you've got some thoughts ryan that you put down on paper and so i i want to i want to hear them coming out from out of your mouth today so let's get into it well like at the risk of getting a little ranty here um and i don't want to get ranty i was just thinking of the weekend david about some lessons i've learned on the journey like um you know so i've been in the space about six

years um so not like super long you know i wasn't there at bitcoin genesis yeah you know so and i picked up a few things just from watching mistakes that i've made and being like oh that's how that works i shouldn't do that again right but also like watching mistakes that other people have made um people i've seen people flame out i've seen people quit crypto i've seen people totally lose it uh and exit the space prematurely and so i just offered seven lessons for crypto pioneers in the market monday post you want to go through these yeah yeah absolutely people like lists so yeah lists lists are fun let's go to number one all right so crypto natives crypto

pioneers we are definitely as chris braninski said the podcast we did with him exploring the infinite white space of this new digital country but we're also bearing the brunt of of danger here and so here are the seven things i um i i just want to convey uh to folks joining this journey the first is this crypto is in price discovery mode for the next decade at least price discovery mode for the next decade at least you know what this means to me david is there's no rush yeah like the ups and downs that we see on a daily basis and the crazy volatility and china slams the door or there's some

hack on an exchange or there's some defy contract hack or there's some extremely bullish news it's all noise guys the market is figuring this space out the price is in discovery mode this is going to take decades you're early expect the market to be irrational this is going to take years to figure out and it's going to take years for the market to figure out even the things that you already know now so just be at peace with that just have a long-term orientation that to me is the most healthy thing that you can do as you're thinking about getting started in crypto yeah i i totally agree and you know crypto moves so fast so it's hard to

keep a macro perspective when there's you know so many every single week there's something micro to pay attention to like oh paypal you know integrated bitcoin and then bitcoin pumped ten percent like but then that then you are paying attention in a very narrow way to what's going on one of my favorite um perspectives to take is and i can't remember who said this but like it was probably in the middle of 2018-2019 bear market i think it was eric voorhees who said this like we're not in bitcoin isn't in a one to two year bear market it's in a 10 year long bull market yes that is the right perspective and one thing i try and tell people who are you know normies who are trying to get their head wrapped around you know cryptocurrencies and bitcoin and ethereum is is they say like oh

isn't it super volatile and like you know bitcoin goes up like 20 000 and then it crashes and i tell them i give them the metaphor and then like think of bitcoin or or currencies like as a plant right and it grows out of the ground and you have this little sapling plant that's like six inches uh six inches tall and then next year come you come back and it's like four feet tall like it just grew like twenty thousand percent i don't know insert the right math here like so so like when people see that they're not used to those numbers showing up on the stock market right stock markets assets on the stock market don't go 20 000 but vc funds they are used to those numbers because they were able to get in before everyone else right and so like the the whole like bitcoin moved or

ethereum moved like 50 500 percent in a year like that's just numbers that we're not used to but the world itself the universe is used to those numbers and we are in the middle of the universe figuring out how to price these things i totally agree totally agree and sometimes you got to trip out your psychology a little bit right because humans aren't meant to deal with this level of volatility but you know we do it to ourselves when we go and check our block folio 10 times a day right like i know people yeah we're like right i i know people in crypto who it's like to gain perspective you're having trouble with this stop checking price yep i mean you could check price quarterly this is a that would be enough if if it's true that we're in price discovery mode for

the next decades uh so anyway perspective on that the second you ready for the second yep let's do it all right i have never seen a patient investor lose money in crypto never if you're patient you won't lose money if you buy and you hold you don't lose money over the long term i tweeted something like this out on on saturday and someone responded yeah like but what about uh the guy that bought eos or like the guy that put all money into i don't know some other coin which is like the fact that you went and looked for another ethereum or another bitcoin or another short-term project shows that you weren't patient

that you saw somebody else getting rich you had fomo and you did a bad thing patient investors don't lose money in the space how easy is that right it's almost like foolproof just like it's really hard it's hard i know it's hard it's hard but like it's hard it's difficult but it's simple buy and if your time horizon is five to ten years it'll work out you'll be fine if you're not buying short-term stupid assets right yup yesterday we saw the stock market pump on uh on vaccine news like it did something insane like 10 to 15 and then we saw a crypto uh sell we had a selloff because people went into stocks right yeah and so like there's two market participants there's people

at the base foundational level who are patient who are never selling who are have their theses and have placed their bets and then there's the people on top of those people that you know fomo into something every 24 hours right and those are the people making the market movements like the daily plus five percent minus five percent but it's the bottom substrate the foundation that really is the reason why we are in a 10-year bull market right and so be part of that cohort that doesn't fomo right just just place your bets and sit on your hands crypto is a device for transferring money from the inpatient to the patient warren buffett said the same about stocks it's also true for crypto some of this is just good personal finance advice guys but it applies in a

different way in crypto all right you ready for number three let's do it okay this might be um like some tough love for you guys 95 of you listening right now should stop trading and just hold you should stop trading because you're losing money relative to holding 95 of you are not good traders not great traders um and you don't have to be to do 10xs in crypto you can just hold if you don't want to spend hours a day developing your trading skills and competing at that level with like

the sbfs of the world and our friends at three arrow capital like the desks that are doing this 24 hours a day and spending 80 plus hours a week on it like just don't you don't even have better in that game they are better than you full stop it's like it's right it's like everybody thinks they're going to be in the nba right and like to get in the nba first of all you have to have a certain like natural born talent and like physique and athletic ability and then you have to work really hard um ninety-five percent of you shouldn't be playing that game at all you should just hold yeah i i would add one correlator onto this like sometimes you know people

go to the casino even though they basically more or less intend on losing money like the casino's still fun so like if you are finding yourself compelled to do that separate your stack into two stacks two separate stacks heavily weight one stack to be your hold stack and then allocate like two to five percent some low number just to get your like gambling itched itched right just to do it just to say you did and then you can leave your whole stack if that's if you can't you know control yourself moderate yourself i totally agree with that and that is a sensible strategy david all right number four i am responsible for everything that happens to me in crypto repeat that to yourself i am responsible for everything

that happens to me in crypto not somebody on twitter right not the builder who built the smart contract not the dude whose newsletter i read not the person whose youtube i subscribed to or the token that promised me the moon i am responsible that is an attitude that i have tried to uphold for myself in crypto because that is a growth attitude you have to take accountability for the decisions that you make in crypto you can't blame other people it's not helpful to your progress as a crypto investor do that but david i see it a lot

and whenever i see it um i see a mark of immaturity and like people when i've said this before people people say things like well you're just letting um you know scammers off the hook like no i'm not both of these things can be true i mean i totally reject scammers and people who are trying to take other people's money or hack and steal um but for you as an investor the best advice is to take accountability and responsibility for the decisions that you make in crypto that is how you'll get better yeah these systems treat users as admins like everyone who has an ethereum wallet that ethereum wallet treats them as admin as in know that ethereum wall it's

not going to do anything that you explicitly didn't say yourself that's why we are a self-sovereign industry that's why we have some of the core values of bitcoin ethereum bankless like you have complete control over your assets which means that if you lose your assets some you did something like you probably violated rules one through three in some particular way right yes uh and you know that i think that's really you don't get like empowerment and self-sovereign finance without also being responsible for your actions right yep or you see some crypto influencer tweet about something some token you absolutely have to buy yep and you go buy that right quote unquote that's how you get in to a token that's on you yeah i mean should the crypto influence

influencer do that no that's a separate thing but the fact that you are jumping into a position that you don't know anything about like would you jump into an empty pool like i mean look down look at what you're doing before you you go and do it yep um i think that's what we're saying here all right absolutely number five you ready yep own more crypto than the financial experts recommend and doubly so if you're young some prescriptive advice huh all right wow yeah yes let me let me uh let me say none of this is financial advice as always for some disclaimers also see number four right but um i think that the traditional financial experts people with cfas

people who are financial advisors they are selling typewriter writers in the age of the pc right they don't understand this asset class and therefore can't give you good advice on this asset class so even the ones that are semi-pro crypto they'll be like yeah you know you you should take one percent of your portfolio and gamble with it um that's not enough right i mean i get like one percent okay it depends depends what your portfolio looks like depends what age you are it depends on your risk tolerance on these things i get that but in general i think the financial experts aren't going to weight you as high as you probably should be in crypto and i think this is most important if you're

young like the one to three percent if you're young is that all you want of your net worth exposure in your crypto it's not all i want where's the other 97 what are you doing with that you're buying boomer stuff boomer stocks yeah you're getting dumped on by the boomers so i'm not going to prescribe a certain amount for you it's like but it's probably more than your financial experts um the guy your brokerage is going to recommend to you absolutely and like so anthony pompliano is a big fan of the phrase like get off zero right like he's going on the crusade of trying to encourage funds to just put one percent in just put a half a percent in and like part of the reason why that number is so low is because

like you need a number to convince people right and so like like if you say like you need to put 15 of your portfolio into bitcoin well to the you know funds that people are talking to when they say these numbers fifteen percent of their portfolio is like half a billion dollars right or it could be and so like in order to maintain legitimacy you as a somebody who's going off and pounding like put one percent into crypto you need to be have a low number because any other number other than that then that seems crazy but if you are the type of person who's like anthony pompiano who's saying like go put one percent into crypto anthony pompiano has way more than one percent it's over fifty percent definitely over fifty percent you said it i've heard him say it yeah so like

yeah so do do see what people's actions are not what they're saying yeah absolutely and of course he is talking mainly to like um funds and large pensions institutions on that one so uh all right this number six is a little spicy david you ready yeah i love it all right don't take crypto advice from someone who's never used una swap yeah that's a great one that's a great one i i just think there there are a lot of like uh crypto experts vcs pundits thought leaders who talk the talk but don't actually use crypto like if you haven't used uniswap if you haven't taken out a maker loan you don't know what that is if you haven't used d5

how can you possibly have a strong opinion on ethereum or d5 that does not compute to me you have to use this stuff in order to be knowledgeable and to provide advice about it so this is a heuristic you could change over time of course but like right now if somebody is talking smack about ethereum or d5 or all this stuff saying it never works and they've never used unit swap i call dude yeah yeah it's one of those things that you can only be bearish on defy if you haven't tried it right and i think the reason why you use uniswap is because it's kind of like the the nexus of all the other apps like if you're going from ave to compound you might have gone through unit swap in order to do that

because for whatever reason right and so as a litmus test is you can almost can't use ethereum without using uniswap at some point in time so like almost it's almost to say like if you haven't used uniswap you almost haven't used d5 itself right yeah i mean it's kind of like what does unit swap require well it requires like you to self-cust your private keys right so that's something you get familiar with the d5 wallet like metamask and you to make a trade that's it and if you haven't completed those checks you don't have a valid opinion to me on d5 all right number seven um this is something naval says a lot surround yourself with long-term people playing long-term games i think this is so important and i'm not just talking about people here um

as individuals though that is also true it's communities it's projects it's also individuals but like those people who are playing long-term games draw those close because there's a lot of folks in crypto who are playing short-term games that you don't want to be around and they'll all say they're playing a long-term game so you got to watch their actions not their words on this but if you are surrounding yourself with people who i would say from an investor perspective i think somebody like uh chris brinski like that's a dude who's playing a long-term game like he's reputation oriented he knows he's going to be in this space for 10 years he's even instructed his entire vc fund to be that

not a hedge fund trader there's like no exit right unless his lps are successful that's somebody who's playing a long-term game i think of like vitalik and some of the design decisions that ethereum has made as a project right they could have scaled much faster by taking shortcuts they're going through this like long arduous process of sharding and proof of stake because they think that they want to preserve decentralization and the neutrality of the network right that's another person who's playing a long-term game um if you surround yourself with those types of people in those types of projects and you yourself are a long-term player and keep your reputation intact as your strongest as

your most valuable asset you will do very well in this space over the long run that's why i've seen everyone who's doing it yeah man i have so i have so much to say about this and and i i can't remember it was a book i was reading where the author was uh illustrating uh the father at a kid's soccer game and you have one father who is like yelling at his kids score score score you know do whatever you need to do and then another father is like you know have fun right because there's two rules here like there's you can either play to win or you can get or you can play to get invited back the next time right wow yeah and that's what you are so as an individual who is learning how to engage with others and be friends with others

the goal is to not win the goal is to get invited to play a second time and this is also true with trading right like if you just do decide to trade like you the goal is to always be able to play the game like don't ever position yourself that gets you cut out of the game uh and and this is something i tweeted out not too long ago where i said like you know there there are theses in crypto that are pretty decently defined and i think we've defined like the bankless thesis and the protocol sync thesis and the eth the triple point asset thesis and we haven't swayed from that ryan like and i'm pretty proud of what we've done here at bankless if any listener has knows of a time that we've pivoted from one of our theses let me know but i think that we

have been on the same beating the same drum ever since this podcast started ever since this youtube channel started ever since you started the newsletter we haven't pivoted right and you know there's a bunch of other people in the ecosystem that just have not pivoted from what they think this crypto industry is about you know anthony cesano is one of them dc investor anti-pro synthesis as many bitcoiners hate that guy he has been beating the same drum over and over and over again so you should surround yourself with people that don't don't change up what they're saying based on the times of the day and i didn't didn't want to bring this up when we got into the state of the nation today but i recently tweeted out if your cryptocurrency project has a uh an army of green frogs behind it you

should probably rethink your strategy because we need people that are playing long-term games and so you need real people behind your network right you need a real community of real humans not just an army of green frog so absolutely i'm totally aligned with this one play long-term games yeah i think what you're alluding to there in like i know you got like twitter mobbed uh about it um but i think what you're alluding to like i think you're what you're alluding to though is like reputation is one of the most important long-term games that we as human plays that play right and i think there is insane amounts of value in creating sort of a pseudo-anonymous account some sort of reputation

uh behind it and you can accrue that over the time at the same time right like by putting your name out there um and by yeah right that is your that is your reputation that's your skin in the game that's some stake and and that counts for something too um so regardless guys those are the the seven thoughts for crypto pioneers if you're on the journey crypto is in price discovery mode for the next decade at least be patient because if if you are i've never seen a patient investor lose money in crypto probably if you're listening to this you should stop trading and just hold remember that you as an individual are responsible for what happens to you in

crypto don't blame others that is the key to growth accountability own more crypto than the financial experts recommend don't take crypto advice from who's never used unit swap and then lastly surround yourself with long-term people playing long-term games uh that's it right off right and i'm seeing the youtube comments uh give a big fat thumbs up to your list so nice job all right cool well good we we made youtubers happy green frogs don't like us but uh youtubers are happy we'll take that as a win all right david with that we should probably sign off we've covered a lot of territory today we'll probably chop this into uh some smaller videos for your viewing pleasure um it's been fantastic to be with you

guys risking disclaimers of course is risky so is the internet bond that we talked about today so is bitcoin all d5 protocols are as well but this is the frontier we're glad that you're with us on the journey thanks for joining us this has been state of the nation what number david 32 22 22 22 22. all right we're bonding as a community because we're playing long-term games and we're doing it together happy binding guys