The Trillion Dollar L2 Opportunity | Part Two

Transcript

welcome to banquets where we explore the frontier of internet money and internet finance this is how to get started how to get better and how to front run the opportunity this is ryan sean adams i'm here with david hoffman and we're here to help you become more bankless guys we have a sequel to our excellent episode from yesterday this is part two of the episode on the bull case for layer two the trillion dollar case for layer 2. just to recap part 1 we did yesterday if you haven't listened that podcast go listen to that i think it's helpful context for part 2 today in part 1 we covered ether economics in an l2 world what l2 that is layer twos will do for the price of eth and we asked the

question will we get a layer two season with all of the new layer two tokens that are coming but today's episode is all about public goods public goods are the new alpha david calls this a trillion dollar opportunity as well we're going to talk about how l2s are going to compete how some l2s are going to beat other l2s with growth and adoption through public goods funding and here's where the opportunity comes in we talk about how you can become a public goods entrepreneur and also how to become a public goods investor because of course public goods investors and builders are the new alpha that's what we're talking about today david what were some of the highlights

from this episode yeah i feel like i'm about to become a broken record with how many times i'm going to say public goods are the new alpha it's the new frontier it's the new way to make money and we are just on the horizon of this we can see it on the horizon optimism is leading the charge into this whole entire movement of turning alpha into public goods where public goods and public goods builders and public goods investors has the same amount of upside that we saw power silicon valley and web 2. so with retroactive public goods we're putting the upside potential of a brand new startup but we're injecting that with the products and opportunities that public goods uh and create for the world and so uh the the reason why i'm calling

this a trillion dollar opportunity the second trillion dollar opportunity of the layer two ecosystem the first being the one that everyone knows l2 tokens apps on layer twos ethe itself of course trillion dollar opportunity there but this brand new one has never before been seen on the face of this earth it's something that is uniquely enabled by crypto and by layer twos themselves and it's going to be the vector that all layer twos compete on whether or not layer two survive and adopt and see adoption and see growth is whether they can compete with other layer twos as to how well they can fund public goods and with the innovation the tinkering of mechanism design using retroactive public goods funding gives

layer twos the path towards turning the upside of layered of building public goods into market opportunities and injecting the power of the market with the opportunity of public goods uh so ryan we walk through this whole entire subject matter and and give you the narrative and the reasoning behind why you might want to be the first of its kind a a public goods investor or public goods builder a lot of opportunities here and that was the word we used so many times in our last episode we're gonna use it more today because that is the truth there are a lot of opportunities in this brand new horizon that's opening in front of us in layer two so that's what we're gonna talk about we're going to get right into the episode but first we want to tell you about these awesome tools

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public goods and we could use this analogy we've been using throughout this this episode in part one and now uh this as well of like chains being a little bit like nation states and countries and nations they have public goods and so why shouldn't chains and what are public goods and what's what's the analog to uh the nation state world here yeah republicans are globally shared resources that are like non-rival risks and non-exclusive is like the technical definition um but it's also it's things like uh clean air and clean water these are all public goods roads are things that we all use when we drive to the grocery store and so public goods are these public utilities basically like transportation

and like access to health care these are all things that we all need and it actually benefits everyone even if other people have them right and so clean air is beneficial to you if i have it like good access to roads is beneficial to you if i have access to roads it's like when we generate good economies it benefits our neighbors which benefits ourselves and so it's these globally shared utilities like these commons these common common utilities that just make the quality of life for people better like it's better when we have clean air it's better when we have clean water uh kevin owaki likes this line it's like what's the point of having a lambo if this guy's on fire and it's a it's just been a part of the grand story for

crypto at large is how do we actually price in the value of these public goods into our markets because previously before crypto and still to this day because crypto hasn't solved this yet but we're working on it that like we can't find ways to protect public goods without top-down government intervention so this is ultimately what taxes are for like they take the governments take our taxes and they are meant to protect public goods protect our national parks like clean our clean our water systems make sure we have good roads fill our potholes governments you know are famously inefficient for this but that is the ultimate purpose of taxes in the first place is to produce public goods um and governments that can figure out how to make their public utilities more

and more useful ultimately help generate economies that are stronger because when our roads don't have potholes in them and they're efficient and we have clean water just life in these in these countries are is better they're more desirable it's a more desirable place to live where commerce can happen more efficiently and so the the countries that invest effectively into public goods ultimately become stronger economies because there's just lubrication everywhere the populace is happy and they can actually charge more in taxes because they have created a more desirable place to live and people aren't actually like dissatisfied or disgruntled about paying their taxes because they see it going to things that make their lives better so

public goods are a part of just a part of this world and they're also famously difficult to price in this is why we have this the concept of the tragedy of the commons right where like if it's a public good people will just consume it all as much as possible for free without giving back so how do we establish a business model for public goods has been one of these core drivers of crypto economics and part of the layer two opportunity is that we actually have an actionable concrete known path forward for actually producing valuable market prices on our public goods and that is a trillion dollar opportunity that is coming uh and it's like not just coming in a decade from now but it's coming just like in a mere months and something i want the

bankless nation to be prepared for all right i think we'll we'll talk about that in a in a minute like how to get access to these public goods or how to you know be a builder of these public goods because i think that's sort of the opportunity in the invitation right and this this uh whole podcast series is all about layer two opportunities but you know just to kind of establish that a little bit so like a public good is kind of a utility that benefits everyone and it's generally not like privately funded either it's like funded by like a collective right it's owned by the people for the people yeah and so like the like um you know and and i think people who'd say well public goods aren't uh aren't important uh you haven't really looked at the public goods that they benefit from in their

own lives like who who goes and looks at a house and doesn't look at uh you know if you have kids the neighborhood you're looking at the school system where the kids can play and is there green space and how are the sidewalks what's the flow of traffic like uh do i have easy access to downtown is there you know a metro station nearby all of these public goods enhance the value and the network effect of the place i decide to call home and so the idea of like like first of all neighborhoods have public goods cities have public goods states have public goods countries have public goods and it is a way for one country to compete against another one one region to compete against another where i live is ultimately it's a determination of okay does this have the

best like uh public goods infrastructure at a reasonable tax rate right and so that can be part of making the calculus and there are some like countries or jurisdictions that might have um high taxes and like terrible public goods and you're just like why would i want to live there it's not worth it uh in other countries that try to try to give you kind of the the right mix and maybe chains are are no different there was actually a tweet thread from um tasha tasha labs where she talks about chains needing to subsidize uh various industries and she advocates this this in the future and so like if you think of like what does a blockchain produce what is its original public good it's like block space it's

defense is the original public good it's security when you pay your transaction fee taxes what are you actually funding you're funding national defense of the chain you're funding the security of the chain you're funding the miners or the validators who are economically protecting the chain and that so far has been really the major maybe i might say the only aside from new experiments that are happening but it's been the original public good uh that that chains produce and the reason it's so useful and valuable of course we need these these um security for the for the chains to function but it's also the distribution of it is very very fair it's like it's credibly

neutral distribution how does bitcoin decide who to reward it's well it's based on your hash power everyone's treated equally it's like if you have x amount of hash power you get y amount of tokens doesn't matter who you are anyone can permissionally um participate same with ether if you're staking you have you know allotment of eth and you get a share i'm tasha and tasha's twitter thread she was actually talking about the the notion or the idea of chains starting to fund other things as well so you can imagine a different industry that a government might want to fund like the green energy industry or the solar industry or like healthcare industry or something electric car

innovation yeah and so what what types of things might a blockchain want to fund well probably like wallet infrastructure potentially maybe liquidity funds to like incent people to to come in maybe like marketing budget does a chain want to stand up like a a propaganda ministry like uh all of these blockchain is good efforts exactly or like maybe we're just funding all of these influencers to talk about our particular chain like you could start using public funding which effectively is how do chains pay for defense it's issuance of the underlying asset itself they produce more you know there's a bitcoin uh uh reward block block reward and ether has block

rewards so you could actually issue mint some of your chains coinage some of the assets to pay for some of these other things if you wanted to but i think that has a fault doesn't it like what is the fault i mean you know bitcoiners realized this very early i think the ethereum community realized it early as well but like what happens when you start rewarding and picking and choosing different industries or different things to fund with block rewards there is certainly a place where public goods should be invested from but at the l1 layer it gets a little dangerous we also have to remember that money the system of money is a public good where like the actual unit the actual like

dollar or unit of ether is a private good as in that like that's my ether that's my dollar but the system itself is a public good like the system of money is a public good and we need to and money this is a very famous bitcoiner approach is that money is the ultimate public good because it coordinates resources around the world like money is this resource coordination mechanism and when we start tampering with the money if we start tinkering with the money we lose some of that power we lose some of that effectiveness especially if a privileged party can direct money into places where they think that it should go because humans are inherently corruptable and crypto is in the business of making uncorruptable systems this is in the in the fiat world this is called the

cantelon effect where if you are approximate to the money printer you have the positive benefits of the new issuance of money and there's like a bunch of industries that have been able to lobby their their position to be close to the money printer for example the military industrial compact complex like lockheed martin lockheed martin is really close to the money printer and now they're incentivized to create wars or conflict and so that's a that's a corruption example and so having money issuance at the layer one to fund blocks place space security protects the system of money but if we start like siphoning off like a dev fund right like 10 of all issuance goes to funding like propaganda or funding like public infrastructure

what that public infrastructure is can be corrupted right and like people the entities that produce that public infrastructure can be corruptable and so at the layer one level it's my belief and i think brian you agree with me that the money needs to be not tainted the l1 asset needs to be not tainted however this is where we can get into the layer twos because layer twos can tinker with their own public goods funding without corrupting the layer one and this is where layer twos can start to compete with each other about who can fund the best public goods along with the other layer ones who do choose to take the risk of tampering with their money issuance and their distribution of their currency to fund certain efforts and so

layer twos they also generate revenue just like the ethereum protocol generates revenue at the layer one ethereum layer twos will also generate revenue from blocks based sales optimism has pioneered this thing called miva or minor maximum extractable value auctions as in they can auction off the rights to produce a block and that money goes into the optimism like balance sheet the optimism treasury and all of a sudden this gives the optimism which is a dow the optimism dow gives it has like ammo in the tool belt to start to fund public goods infrastructure for the optimism layer too and i think this is going to be the vector on all layer twos that all layer twos compete by is can my layer two produce better and more

efficient and more useful public goods to attract more people to come onto the layer twos so just to recap here for people um public goods are important in any sort of social structure and uh you know including blockchains the original public good that chains produced is security defense and the reason that worked is because there was a credibly neutral issuance policy no group of people got to decide it was basically you participate you present hash power you present validator power through a token and you're allotted this incredibly neutral allotment of total funding rewards right when we start to branch out beyond that even though it

could be hypothetically useful for a chain network to uh compete by creating other public goods then you start to get into this governance territory of well who actually gets to decide which dev team gets the millions of dollars we are producing and what happens if insiders start to sway that vote in one direction or another and what you end up doing if you don't have credible neutrality is you like corrupt your entire money system you just recreate politics yeah you just recreate politics and it's a worse politics because it's all kind of like uh plutocratic and insider there's no like one person one vote you know underlying democracy to protect this thing and you end up with a corrupt system that is destroyed from the beginning and so that is why chains like

bitcoin will never introduce something like this and also chains like ethereum will never introduce uh like blockchain subsidy to to groups that are arbitrarily like governed and arbitrarily decided so you are saying these sorts of experiments while valuable are not suited for the the layer ones but can be experimented with much more effectively on the layer twos and that's as far as we've gotten in our story so you were is there anything else we should unpack there before we talk about retroactive public goods funding david yeah let's dive into how funding for retroactive public goods funding comes about because that's an important part of the story and we'll answer some questions that will inevitably come up

anyway so we have this thing called retroactive public goods funding which we haven't defined yet but we will in a second where does the money come from for retroactive public goods funding and i alluded to this a second ago there is minor extractable value or maximally extractable value on every single layer two some people will propose blocks and they will sequence transactions in these blocks that will allow them to extract some value some arbitrage opportunities on unit swap some liquidation opportunities on maker dow or ave that exists on these layer twos and block proposers can auction off for the right to produce these blocks and there is such thing as good mev and there's also such thing as like unethical and bad mev and this is actually a very dense topic

so i'll do my best to summarize it good mev is just like arbitrage opportunities they make our markets efficient they they balance the prices across various dexes they just make things very very liquid they also protect your positions and so like if we don't have mev opportunities where validators can sequence transactions then like your liquidation position in compound if you get liquidated will get liquidated at a worse price highly competitive mev opportunities make sure that if you do get liquidated you get liquidated at the most favorable price to you uh it's good it's good it's a good thing and it's a it's just good user experience like no one likes getting liquidated but if you do at least you get liquidated at the most favorable price to you and mev produces this mev can also be very very

bad and very very unethical there are things like sandwich attacks where you can put in a uniswap trade for one price and because you're going to move the market the person can front run you take that alpha take that arbitrage and give you very little in return and it can get even worse than that these can mev can even destabilize entire chains uh and there's just it gets crazy how bad it can get and there's a just a large conversation in the industry it's like how do we control mev to optimize for the good side of things and mitigate all the bad side of things and this is also a vector that layer twos will compete on because layer twos the protocols will ultimately come to allow certain types of mevs to be allowable

and other types of mev to not be allowable and so this is going these are going to be protocols that say like the bad mev types are just not allowed on our layer two and if we discover that you as the validator are engaging in them we will remove you from the validator set because you are doing what mev strategies that we consider unethical and harmful to our users but is that like protocol determined or is that like arbitrary uh it'll it's different for every single protocol right so every single protocol will allow certain validators in based on certain rules and they will also create certain rules for how to violate the rules of the protocol of the rules of the dao and so every single this is again this is the vector that protocols compete on is how well they can do this but

basically it's an optimization function it's like we we need to extract mev from our users to fund public goods but we want to make our users feel enabled and protected as they use our defy ecosystem and not feel extracted from so it's a balancing it's an optimization function like how much can we extract without being exploitative like how much can we extract that is actually good for our users not bad for our users and this goes back to the nation state example of how much taxes are we charging our citizens versus how many public how much public goods are we able to offer them what are the quality of our public goods versus the level of taxation that we are pulling out of our users and layer twos are going to get better and better at better at this and is

ultimately going to create a very fantastic environment to live on it's going to be an optimization of can i produce the best layer 2 for my users and will force layer 2s to compete for the love of their users not just exploiting them for as much mev as possible i think this is a good thing to to zone in on right so you're you're saying that a main source of public good goods funding for layer twos is going to be this thing called mev right as opposed to and call that a tax a tax for public goods as opposed to there are two other taxes that chains impose and that layer twos could impose but many of the designs are are dwelling more on the mev

tax maybe it's worth just really quick defining what the kind of the the three different taxes are to fund public goods because this is true of a layer two but it's also true of a layer one um the first type of tax is one we've already talked about which is block rewards this is issuance right so in the fiat world we call this money printing right we print more money we inflate more supply and we use that supply and we pay for public infrastructure right we'll cut you a stimulus check with some money that we've just printed we'll go bail out the banks with the money printing that we've done or we'll pay for the military with some additional ether we we printed that is what a blockchain block reward is and this happens in bitcoin this happens in ether it's not

so much gonna happen with most layer twos although they could i don't anticipate many of the designs at least at first will uh will do a lot of money printing i think like optimism maybe they're doing like two percent issuance per year but they're not awarding that block uh subsidy to to anyone in particular it's kind of going to the treasury yeah yeah going to the tr so so that is the first um the first category of tax right it's you print money just like a government would the second type of tax is an excise tax so you know when you go to like um a store and you buy some clothes i don't know what you what's the state tax in california david like just for buying stuff even though i don't know in washington it was seven to ten percent i think there you go seven to

ten percent like i live in virginia it's about six percent and it's a consumption tax right so when i buy stuff in the economy i pay six percent uh tax on things i'm consuming if i don't buy anything it doesn't cost me anything that's different than the money printing money printing costs everyone something equally if you hold that asset dilution but yeah but the uh the like excise tax is basically only consumption so if i buy a block in ethereum for instance i get charged tax right what's the tax it's gas fees that's what gas fees are they're taxes and what does that go to all those taxes go to a public good which is security defense again that's all that ethereum and bitcoin chains like it fun today

the third source of revenue tax revenue is this the kind that you were just talking about david which is mev and that is almost like a unique form of tax that doesn't exist very often in nation states or exists in various ways which is like a tax on the money robots you think of it like that all the money robots that are doing some nice like um like arbitrage for you and ordering of of transactions for you uh there's a there's attacks that um must be paid and that is kind of like mev and that's where that comes from and what you're saying is layer twos are primarily not using the category one of money printing and inflating their supply for

public goods funding and they're not using category two of transaction fees there are transaction fees on layer two but those transaction fees actually go to pay for block space on layer one primarily so the public goods funding is really coming from this big source of revenue in the future which is mev that's what we're talking about here right right yes and this is the beautiful thing about mev is it's like it's largely totally invisible to the users at least good mev is bad mev is very extractive and very exploitable good mev is completely invisible and it's just i use the metaphor of like it's it's like pulling geothermal energy out of the layer two there's a certain amount

of economic heat some economies are hot some economies are cold and hot economies generate more sustainable good mev uh and so it's like mev is like the geothermal energy of layer twos and it just is this perpetual heat source which is a good economy turns into funding for the dow funding for the layer 2 which ultimately can go in towards funding public goods now i will say it's not explicit that all layer 2s will do this this is something that optimism specifically is pioneering and why this opportunity exists in the first place but i think optimism is going to lead the way into what is inevitably going to be a competition that all layer twos must compete on because if optimism makes the best public goods for the

layer two then it's just gonna have the best layer two and so other layer twos are going to also compete on this vector and they're gonna compete in the same strategy because i think it's a very viable strategy yeah i agree so what you're saying is well all layer ones for that matter but also all layer twos they'll all have mev right and some of that mev is good some of that's bad and let's kick the can down the road on the on the bad mev that's a whole nother podcast we're not going to talk about that but it's definitely a source of revenue now what a later 2 decides to do with that revenue is kind of up to them right so some layer twos will just pass that off to the validators in their network like the block sequencers

in that network and they will receive a dividend so they'll receive cash for providing this service right and others and you think that this is a more game theoretically competitive scenario we'll take a portion of that mev we'll tax it essentially give it back to public goods and build stuff for the whole network so you don't have a bunch of like wealthy elites that are extracting out of the economy you're actually feeding some of that back into the public goods of the network and you're building the parks and hospitals and roads that everyone can benefit from and you think that if a layer two is not doing that public good strategy then effectively like no one wants to move there right like why would i go live there yeah like is it's a nation state model where two

nation states they have the same tax rate say ten percent wouldn't that be lovely but one nation state takes that 10 and then starts building parks starts building plumbing plumbing starts building clean water starts like investing in public transportation and the other nation state only gives it to right and so like one all of a sudden over time one layer two is going to be a very enjoyable place to live and one layer two just won't be uh and so yes i think the the competition collapses down on like well the the ecosystem with the best public goods wins ave is the leading decentralized liquidity protocol and now ave v3 is here ave v3 has powerful new features to enable you to

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what are we defining here yeah so retroactive public goods this is the alpha and this is something that crypto can only enable and why it makes me so optimistic that we are going to have a a better future because of this mechanism design of retroactive public goods this is where the the historical disregard for investing in public goods is fixed where it actually becomes profitable to build public goods uh rather than like building out this new private good this new web 2 social media app or i don't know building out lockheed martin or or something crazy like that it starts to become equally advantageous equally like upside exposure to all of those like highly extractive highly uh you know you know

like silicon valley upside projects and that energy can be directed into building public goods via retroactive public goods and so can we pause here david and just talk for a minute about like um a lot of the most important public goods in the real world and crypto are not getting funded yes and why are they not getting funded is it because they don't have a like a business model they don't have a business model there is no upside it's like charity so like how you can't really convince people to donate their money to help clean the water there is no business model for cleaning water exactly so it's like it's like these sorts of things like environmental is maybe the the primary externality is right it's like there's no business

model for going and cleaning all of the air in a particular city it's just false prey to tragedy of the commons right there's no business model necessarily if we if we didn't have a interstate highway in the u.s there's no one company who's going to be like you know what we'll centrally like spend the hundreds of billions of dollars to build out this road system and connect and charge people taxes that would never get done because it's not profitable to do that and yet it brings so much public good to the network as a whole so there's a whole category of things that we could do to collaborate more tightly into better society and to live in a better like world effectively and but we're not because the system of capital markets that we

use today doesn't allocate funds to those things because there's no short-term research uh there's no cert short-term return on investment like research and development is another category like the general sciences i mean no one is actually investing heavily in like general research that will pay dividends to future generations 10 and 20 years later as they discover things like quantum mechanics right yeah education also a fantastic public good that like requires an investment like that's where some of your tax dollars go is to educating the kids and like i don't need to convi i hopefully don't need to convince banquets listeners that like an educated youth turns into just that's that's an investment in the youth and makes them build better things in the future it's

investment in the economy essentially right yeah it's just but it's also long-term investment right and so where's the upside there is no like equity upside for being a teacher or for like starting a school uh and so like the it's these things that retroactive public goods funding actually fixes and like how we said like mev is a unique property of crypto economic networks and so retroactive public goods is a unique property that comes out of being able to extract mev a source of income that we've never had before in humanity and if we it's really just the power of where can we direct the mev that we collect from our layer twos into public goods into things that humans deem to be valuable and this is what retroactive

public goods funding does this is that mechanism yeah what is the retroactive part that's been the big question in my mind right so yeah in order to explain retroactive we have to explain the whole entire thing so let's go ahead and get started with that say you are an entrepreneur a builder and you are looking to build a product but it doesn't have a business model because it's a public good so you build this thing and because of the commitment of retroactive public goods funding means that money will be there if you build this thing and so it's it's partly like a confidence thing and so retroactive public goods funding says there will be money if you build it and so here's how this works you come up with this idea bank list for example if we had started

bankless when retroactive public goods funding we might have started to use that instead of git coin which is a kind of a precursor to retroactive public goods funding so we would go around to all of our our of our friends and saying hey would you like to invest in bankless we are going to make an education system for all of crypto we're going to make the best podcast the best newsletter and we're going to provide a ton of education and we are going to be retroactively compensated for that in the future by proving our utility improving just the the the value of the education that we bring to the crypto world and then some we get we would collect some investors we would have some sort of like seed investment round we would set a valuation as we do in with normal seed investments so hey uh

10 million dollar valuation uh we're gonna we just need to raise half a million dollars uh and we'll do it from our friends and family and people who believe in us you can open this up to you can open this up to the world and then we mint an nft nft is part of this and uh as or tokens it also works as a erc20 tokens and then we just give pro rata shares of who invested into bank list before uh we were like uh doing our work and so then we have our investors with these tokens and when we get to work building bank lists and then later as we've built out bankless as the podcast gets listened to as a newsletter educates people and as we onboard people onto ethereum or onto crypto at large we get to go to the the the dow and say

like look at all the funding that or look at all the benefits that we've given and this is where the role of optimism's two uh two uh bicameral governance system comes into play is they've had the token house and the citizen house the token is the op token the citizens house are these known entities that direct public goods funding the token house does like protocol upgrades and things like this and the citizens house which is an identifiable human like on-chain identity it's the citizens house of optimism that directs funding towards public goods and so they will the the generates like optimism generates like 10 million dollars every month or so and so that's the 10 million dollar budget for retroactive public goods and the citizens house just allocates funding

from their monthly budget towards the projects and the ecosystems that have benefited the optimism layer too or benefited the system as a whole and so what they do is they go and like reward token holders who invested in the public good in the first place and there's many different mechanisms of doing that you can literally buy and burn the token or you can just put cash in the pockets of token holders but basically it is a commitment to funding the projects that invested or the people that invested in this public good so by like putting the public good into a token on on the layer 2 or on ethereum you can identify the early believers the early investors in this thing and start streaming cash into them as determined by whether or not

they actually provided good utility and good value to the layer 2. so it is a top-down like governance system as in the citizens house of the optimism dao votes and determines how to allocate their other retroactive public goods uh funding that they have but it's baked into the social contract of the optimism dao to do this and so there's a little bit of a bootstrapping problem as in like people might not take the risk of venturing out to produce this public goods venture until they have assurances that money is coming but if you believe in the optimism uh social contract and then later if you actually see this actually working out your vcs and and entrepreneurs are going to have better and better assurances that

money will come to them if they uh provide something of value to the optimism layer too that explain that okay yeah i think that's cool yeah i i just want to dive into some of this and repeat some of it back to you but first of all i just wanted to clarify i think you explained this but for everyone like the uh the citizen house at least in optimism these are individuals like individual people yes like one to one one person one vote this is not capital voting yes uh it's kind of like a decentral it's an identity protocol if you will in optimism that shows you are a person living in the optimism layer to you and your vote matters and counts this is public goods funding you're essentially a member of congress that's allocating budgeting decisions right not setting

laws but actually imagine that imagine if you could actually as a citizen of your country vote where your tax dollars were spent like more directly that's what that's what this is kind of providing for which is super cool but it strikes me that's like what you said was if you are a startup right you can start to think about developing an entirely different set class of um applications and products right you're not necessarily trying to convince investors of uh like revenue and profit and like the hard capital metrics you actually just have to convince investors like you start measuring things differently you start to convince investors of like oh this is the utility

the public utility that we are going to add we're going to benefit x amount of optimism residents right we're going to benefit the citizens of optimism by growing the community tenfold through education and bring more of those citizens into into the citizens commons right into the citizens house uh your your metrics your success metrics completely change from success metrics based on like revenue and profit and all of these capitalist for-profit things to like impact what impact did you make in the network in the community these are these are notoriously like not captured by capital markets right so something like um god what is the value of the geth team right and the ethereum client so geth if

you're not familiar with it this is the client the main client that runs all of ethereum and that all of these other alternative layer ones have forked and used for binance smart chain and for like what is the value of that right the avalanche l1 fork of death finance smart chain fork ethereum it's geth so like imagine how much market cap stands on top of the shoulders of geth and they have received zero funding other than like grants and payment from the ethereum foundation exactly it's unsustainable yeah not sustainable and so what is the value of of geth like you could you could show all of these metrics for impact and then the community would effect effectively vote and say like yes this is so valuable to us we are going to

allocate funding to this and i would imagine david correct me if this is uh this is not true but like the token economics behind this um further supercharge it right so what you're saying is startup gets funded and it has a liquid token and that token can trade up or down right but it's not trading based on profit it's trading based on oh there's a new report from the bankless education platform that they just crossed a threshold and they're now educating from 5 000 individuals to 10 000 individuals oh it's doubled in the last month right well that's worth double the value right and so the token trades upwards and why because it's expecting that liquidity event at the end of this road when the um you know the public goods

uh essentially voting body votes to fund it and provide that's the ipo right and so like you're trying to get from like you know uh pmf product market fit or pn uh yeah pmf it's now it's like public market fit yes it's like how how um how can you design a product that benefits the public the most the most and showcase those metrics in order to get funding and have your ipo so it kind of flips it on its head right and am i right about that yeah you articulated that so well and and the the flag in the ground is that like retroactive public goods funding funds it creates impact equaling to profit as in you profit as much as you impacted

positively the world around you where like old investments are investments that like maximize private financial return like the in retroactive public goods funding these new investments are are investments that maximize public financial return so it's a question of how wealthy did you make your community not you like how how much did you spread and share in wealth and upside and knowledge to everyone around you rather than extracting and pulling that in for yourself and so like you can now as an entrepreneur you can now build a whole new slew of products that have never been seen before on the face of this earth which is why this opportunity rhine is so big because it's completely untapped snow it's like the internet we don't even know how big it is and so if

you can build a product that maximizes public financial return then you get your share of the l2 mev that gets pulled out of the the uh out of the economic energy of the layer two uh and so and this turns into like a positive feedback loop where if you generate more public goods you make that layer 2 a more like a more lovely place to live it's got better infrastructure it's got better roads and so because of that more people will live there and they will go to that layer too and that will generate more revenue out of mev because there is more people paying their small share of taxes to to the layer two and that layer two now has more funding to fund in further public goods so it's a positive flywheel effect uh and and ryan like

right now like i said like optimism is producing like 10 million dollars a day in in mev like fees and rewards like then the token's not even launched like we talked about this in layer one there is a coming mania of layer twos and it's going to generate so much revenue for this opportunity and so like this isn't this isn't just like ryan and david and saying like oh like public goods let's all like remember to celebrate public goods no no no this is going to be money in your pocket we made it we made it capitalist we just made it capitalist public goods are not good yes well i guess what's what's cool about this is uh it feels very scalable in the way that capitalism is scalable yes right in that like

part of i think we want to get to some examples of potential public goods for layer twos but before we get there like we could just say we don't even know what the best public goods are going to be they're gonna start skeuomorphic probably yeah yeah but like yes but it's it's almost a matter of like yeah that's what the market is for the mark like all of the public goods entrepreneurs out there are going to innovate ideas and create ideas that no one else had like so the other way of distributing your public goods is basically it's non-market it's basically top down i'm gonna allocate a little bit here a little bit here a group of managers making decisions effectively that's what they are you're

managing a budget for like even a public a city or like a nation state or anything else this takes the opposite approach it's like go build us an awesome thing first right and like show the success metrics for that thing we don't even know what the roads are the hospitals are what the analogs are in the layer two space but we'll know it when we see it and go let a thousand ideas bloom and the ones that survive the ones that make it through that gauntlet of public market fit kind of like these the survival of the fittest the best ideas will win and those are the ideas that will be handsomely generously rewarded on the other side so it kind of solves the problem of like

well what should an l2 like network actually build it's kind of like we know some things but the market in general right will solve the problem of what to build right and you could imagine right like you know all the people that play like the token rotation games is like all right is it gonna be this token this week that's gonna pump or is it gonna be that token next week that's gonna pump like these shelling point games or like who's gonna buy what tokens next the shelling point as a result of retroactive public goods becomes public goods like people become fascinated by public goods because that's where the alpha is that's where the upside is and so like people pay play these degen trading games in crypto all the time what retroactive public goods funding does is it injects that energy into the public goods tokens uh

and so like it's it's so bullish for not just like public goods but just humanity at large ryan because the cool thing about optimism and and what they're doing with evm equivalents and arbitrary is also evm equivalent so they're doing this as well they haven't talked about retroactive public goods but perhaps they will is that evm equivalent layer twos like optimism and arbitrary when they fund something that is useful on that layer two it becomes infinitely uh copy and pastable for all other layer twos and the ethereum layer one so these aren't privately owned public goods by which is an oxymoron it becomes a public good for the whole entire ecosystem in the same way that like avalanche forked geth to produce avalanche avalanche could also benefit from all the public goods

innovation that happens on optimism so this isn't contained inside of the optimism ecosystem it's a public good for the whole entire crypto ecosystem it's kind of like like let's say a you know a wealthy country does the r d for a new vaccine right for instance and builds up the public institutions educational institutions to to to spend the time and effort to develop this vaccine in a lab and then the rest of the world can benefit from that knowledge but it also it also doesn't stop at crypto networks ryan because it can go outside of crypto network so we can just start funding public goods like not crypto public goods but public goods for the whole entire world it's like yeah it is interesting to think about like probably one step at a time at some level but like if this is

successful in crypto this could be a mechanism that um that nation states end up using or crypto could kind of step in and be like you know the uh the us isn't funding this specific thing very well maybe maybe this crypto network needs to fund it a little bit better cryptography education right it's like could you imagine a layer two funding a a university program a massive online university program for cryptographers in a way that a nation state might but now they're doing it like for layer twos and par part of this like excitement that i have about this is that because this is extremely legitimizing for crypto networks for public populists that like still think crypto is scary and foreign and gonna

come destroy the world imagine if like retroactive public goods funding starts funding literally starts filling in the pave holes that the nation states forgot to to fill in and like extrapolate that as a metaphor not as literal where like oh look man i think financial literacy is one sure right yeah it's like i don't think nation states education system provide financial uh literacy to to kids growing up what if what if crypto networks started to get into that space they benefit from it because eventually they'll become citizens of their respective layer twos but like what if crypto networks stepped into disadvantaged communities and started providing financial literacy training through crypto tools right what happens when when retroactive public goods allows for layer twos to start

filling the shoes of government starts filling the gaps the government's left behind because this is a just a market driven source of public goods funding which is something never before seen and uniquely available to layer twos and so this this is where we literally create what we call the bankless nation ryan where the roles of government are like deconstructed and and then reconstructed on crypto economic layer twos and so this is what makes me so bullish for humanity is because we actually have a known concrete actionable path forward to creating better social structures for the whole entire world a lot of steps to get there but yeah it's this is this is kind of a new mechanism right there are

very few new governance mechanisms but this feels like one of them potentially that's not being used in the real world um but let's talk about a few examples then the here and then out in our limited brains in our minds and that like we can only see a foot or two in front of us what are some examples of public goods that people could start think about building um we were talking about one which is like education right bankless education but all sorts of different education you can imagine for crypto um what are examples of other things i know we mentioned clients so if you have dev skills and you want to build kind of the layer two's version of a of a geth or or something like it maybe the ability to run a um layer two you know sequencer on a phone or you know from from individual

houses decentralize the network a little bit more that that is a public good for you know for certain maybe that's something that could get funded do you have any other ideas yeah like flashbots definitely comes to mind and flashbot is i think is a fork of gas but it's a main ethereum layer one client that helps solve mev helps mitigate bad mev at the layer one level uh so it makes the the layer one less uh less extractive from the users because it mitigates against the bad abv mev and only allows the good mev that's a public good and that that just has come from just like the blood sweat and tears of people like phil diane without any i don't think there's any upside there so like uh flashbacks could have been a retroactive public public good funding

ecosystem um david mihal's websites like all of the websites that we frequently use on the weekly rollup the moneyprinter.info cryptofees.info he's got all these fantastic data dashboards that are just public for us to consume that data he could build that and get funded and further rather than that just being a passion project that he just thinks is fun he could get retroactive public goods funding for producing all of that we can talk like at-home node hardware like new types of wallets layer two bridges like anything that the public uses that is beneficial for all of us can get funded with retroactive public goods unifop could have been a retroactively public good thing it was it was a grant was it was a great anything that's a

grant can now have a sustainable business model yeah and that's that's kind of what what you need so i guess um you know and please don't be limited by our ideas this is not an exhaustive list this is just things we can think of kind of on the fly i think the best ideas will come from the market as they as they usually do which is the power of of this whole thing and the answer to the question of why layer twos would do this is because it's good for their network right it's basically why why does a nation state invest in in public goods it's because it's good for the people of the nation-state makes more people want to live there increases the economy increases gdp and there's economic benefits uh you know to doing this so what is the invitation what is the

uh i guess opportunity this whole two-part series is all about these layer two opportunities we're basically saying that there is a massive amount of future public goods funding out there for you in the same way like like you know miners like you could be a public goods miner minors provide a form of public goods which is security and defense now we're saying that same mechanism is going to unleash a whole bunch of other categories beyond security into like education into like you know a general protocol development into like decentralization public goods that these are the roads and the hospitals and so are we basically saying

hey go become a government contractor go work for like the public public goods think about some startups that you could develop for this future is that the invitation is this the big opportunity that you've been talking about yeah that's one of them there's there's a second of them as well and overall the call to action is like prepare to get good at this because this is going to be a new skill to develop can entrepreneurs and builders build public goods and and get the retroactive public goods funding that's going to be a brand new skill but also there's going to be a new skill for vcs is can you identify viable public good projects ahead of your competition because can you get that early investment there's like the the

world of vc investments is super saturated right now and we're about to see an explosion of new types of potential investment opportunities and the vcs that can identify public goods projects that are going to produce a lot of value and a lot of impact for the surrounding communities are going to win at getting good at investing in retroactive public goods projects and so the call to action for builders is that there is going to be a wave of just a tsunami of cash coming available as soon as this project gets rolled out of optimism and they'll layer two start to compete on this vector and then the other the other call to action is like yo get good at investing in these things maybe maybe building is not for you although question that

but if you want to just invest in projects like it's a skill to identify ahead of the curve projects where impact equals profit there you go that's the action item i think that's the bottom line anything more to say about this david yeah there's a link in the show notes that we'll put in for just the metrics for like optimism's revenue fees on a daily basis and remember that's before token incentives that's before this layer two phenomenon i think this is going to 10x maybe by the end of the year and 10x again in 2023. so seriously the amount of like just massive amounts of cash that are coming towards retroactive public goods funding is is significant and this is something never before seen in humanity and this is something that

like when you got into crypto and crypto made you optimistic about a better future this is why this is why we actually have like a path towards solving global human coordination problems and if you want to get to a star trek future it's retroactive public goods that can do it i do think that there's going to be a a time period like a window of opportunity where there's going to be all of this public goods funding available and wanting to get spent and not enough builders in the system to actually like build out good public goods there's kind of an arbitrage there right so much money flowing in for public goods and yet not enough builders and so we're at the very beginning stages that's a good place to be if you're a builder because uh you'll be

more handsomely rewarded before things get crowded you can you know what do we say at the beginning of every uh every bankless podcast is front run the opportunity here's an opportunity to front run that opportunity is public goods funding so uh tune into that optimism is the first one that's doing this big retroactives public goods uh funding experiments that be the first one to tap into we expect other layer twos probably some alternative layer ones to start attempting this in the future too so you may as well get good at it we will include some links in the show notes anything else david um bullish humanity ryan there you go bullish humanity what would a bankless podcast be if we were not bullish humanity so we'll include a link for the action item in the show notes to

start building out public goods you want to consider what public goods products are now viable and what you can build in the future of course risks and disclaimers none of this has been financial advice ethan's risky layer twos are risky so is d5 you could lose what you put in but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot hey we hope you enjoyed the video if you did head over to bankless hq right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence we recommend joining our daily newsletter podcast and community as a bankless premium subscriber to get the most out of your bankless experience you'll get

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