Unpacking Ethereum's Demand Drivers, Commodity Attributes, and Evolving Roadmap | Roundup

Transcript

there's a societal impetus for Commodities going lower which is we use Commodities so if the price of oil goes to a 100 bucks or 200 bucks our policy makers will move Heaven and Earth to make the price of oil go back down they won't do that with the stock market it's the opposite with the stock market if the stock market's too low they'll move Heaven and Earth to make it go back up and so in in some sense asset prices are determined by what Society needs and I think the same incentive match in a long term is going to play out with these l1s all right everyone we will be back to the program in just a moment but before we do I want to share something that blockwork has been cooking up for these last couple of months March of this coming year in London blockworks is

hosting D London the largest institutionally focused conference in all of crypto Goldman JP Morgan 72 all in one room so you can know what the big money is doing so click the link at the bottom of this episode it'll take you right over to the homepage and use Bell 20 for 20% off I will see you in Sunny London Town in March all right everyone welcome back to another episode of bell curve before we jump in quick disclaimer the views expressed by my co-host today are their personal views and they do not represent the views of any organization with which the co-hosts are associated with uh nothing in the episode is construed or relied upon as Financial technical tax legal or other advice you know the deal now let's jump into the

episode all right everyone welcome back to another episode of B Cur first of the new year here got me and your boy miles hold it down miles how's the break buddy great got some uh got some son with the family down in Florida um you know acted like a retiree for a few days which is great the usual the pickle ball some golf um yeah little birie told me you tried to swing out of your shoes it did really wanted to get a piece of it on one of those drives reminded that I'm like very old and uh then then actually felt like a retiree for about three days with the damage I did to my back but it's all right we're back uh back on the

horse feeling good uh so I also uh was reminded of my I went out to Montana I tried to ski for a couple days didn't do my warm-up stretches before um never do pulled pulled the old back was uh was was uh was walking very gingerly for about a week um so yeah it's a worthy effort you know wor yeah it was a good shot yeah man it really sneaks up on you the the old talking like we're 80 years old here but uh but yeah the it's you know it's the sitting all the time the sitting does not help you and every time I see a PT they're like do you sit a lot I'm

like yeah I'm required to for my job you know like like well don't sit so much like okay cool I'll just like figure out I have to do that exactly uh well surprisingly it's not since we've both had back problems for the last 10 years but anyway a good point yeah sure the audience wants to hear more about this exactly let's let's jump into it I think the the first topic that I want to address to you happened uh I guess technically last week but that's okay I wanted to get your take on vitalik's most recent piece so make ethereum Cipher Punk again and I also wanted to get your take on he released an updated version of the ethereum road map and I I think that's the one that it actually

makes more sense to focus on a because I got reminded of what that actually is uh but B I thought the reaction to it on Twitter was really telling and maybe we can use this as an opportunity to dissect a little bit the current state and Narrative of ethereum so why don't we start with this road map and just to give folks and I here I'll actually share my screen I've forgot to p P up but for those of you who might not have this right off the top of your Dome uh there are multiple stages to the ethereum endgame but T's actually been posting this at least since last year and just sort of had a a minor a minor update um to us so the the I guess it's

six stages is the merge right which is the merge the transition from proof of work to proof of State consensus The Surge which is the goal to scale to 100,000 transaction per second Beyond on rollups um then is the scourge so that's mitigate centralization concerns in ethereum you know particularly around me liquid staking uh that sort of thing The Verge which is uh verifying block should be extremely easy uh The Purge which is to simplify um basically reduced technical debt and uh I guess State growth things like that uh and then the splur is just fix everything else so um

a little bit of a cop out right at the end there but uh other than that a an extremely detailed road map I actually as we were looking at this before I I actually see I guess from vitalic standpoint we're we're at The Verge um where we're working on making proofs and verification extremely easy but you know if I just if I just sum this up and I have a lot of empathy here because uh for six years I've been getting the feedback at blockworks that we don't have a Clear Vision so I think we do it's it's clear in my head but I understand how difficult it is actually not just one years out or two years out to describe what you're going to do but in a cohesive detailed enough but also simple and easy to

understand you know inspiring way describe what you're doing on a five to 10 year basis if you haven't tried to do that to a group full of more than 10 people it is a daunting task so I have a lot of empathy for the guy to just put this out there um but it was interesting to see the split because there were a lot of people and definitely historically when vitalik said basically anything you know it's met with sort of agulation and oh my gosh this is so great and there was definitely some of that but there's definitely some push back I would say on the complexity and some people kind of boning a this stuff feels still very far out or B this just feels very technical or it didn't really have the parts that I really cared about

which is reducing gas costs or or whatever it is so you miles what did you kind of think about this this update and then just the reaction to it yeah I think the order that these two were put out was that the blog post put out first and then the road map came out second um yeah I almost wish it was reversed because I think people have like a pretty uh you know understandable knej your reaction to looking at something this complex and you know just like it's so daunting given how early we are in that road map um and I think the post speaks to a lot of the values that vitalic is saying hey this is like what

justifies the complexity of this road map like if we actually care about these you know values like we say we do this is kind of rationalizing this road map where you know if you just compare to something like salana you know it's much more like I would I would say it's not like they don't share the same values but it's much more straightforward road map it's much more you know you understand what they're optimizing for you understand that like there is going to be issues along the way and we're just going to tackle them as we go um so I would say that first and then I guess second is uh you know I think I think a lot of the uh the push back that we heard on it um

it's kind of a a reflection of the current state of um of ethereum and and this awkward stage of where it is in its longer term road map um we're at this stage where we're beginning to see you know I guess the key pieces of infrastructure that are going to fulfill this road map whether that's you know rollups themselves or zkps um and lots of other items that were listed on here but they're not the best version of themselves and frankly they're worse in many ways than much more you know I would say like uh straightforward um platforms like like what you can get on a on a monolithic chain like salana um and so yeah I I do think that you know

ethereum will be fine I don't necessarily think that this road mapap is going to play out the way it looks right now um and I do think ethereum should take more of a maybe uh listen to the apps building on their um chain and and iterate you know this road map refine it based off some of that feedback um sometimes I do feel like there is a little bit too much of a a disconnect between you know the the objectives of the core developers road map versus what I think you know the customers G the Builders of ethereum really want um and sometimes with any business right you your customers will tell you they want

something and you know the bottom of your heart like that is not the right thing to build and that's okay but I still think that there's probably needs to be more of that uh Incorporated here um so yeah I'll pause there but I'm curious to hear your thoughts I agree with that and it's actually one of the simplest things that people tell you all the time that I don't fundamentally believe is true with a little bit of nuance you obviously have to talk to your customers but especially a if you're really early stages and you don't have any customers to ask you've got to do it based on uh you know your own intuition and then B even with a small subset if you don't have your if you don't have something like product Market fit or your perfect customer identified

you're going to listen to a cacophony of voices uh that are often directly at odds with one another and you're not going to get any useful information anyway and even at the very highest levels you know you've got quotes from these I don't even know if this is true but the this is the the Ford quote you know if I gave people what they wanted I'd have faster horses and Steve Jobs certainly didn't listen anyone came directly from his his mind now we can't all be Steve Jobs but I think there's an element of of listening here and um yeah I think that hasn't been done as well as it could have on the other hand though I think where I have to defend ethereum and vitalic here is a just my personal empathy of the difficulty of sharing long-term Visions in a cohesive way but

B because I think what we've seen over the course of the last certainly year is a convergence in the architecture of various blockchains and stuff that looked really distinct even a year or two ago is now starting to look very similar today so that could be something like Cosmos in ethereum we've talked about it ad nauseum almost on this podcast about very similar Visions just starting from different points but even something like salana I think and salana is getting a lot of the benefit of hey we're the underdog now and we've got this much simpler Narrative of going fast but they're probably going to have to deal with this stuff eventually as well uh you know I listed it in one of the predictions for this year but I think eventually salana

is going to get l2s as well and it's not going to be a cost thing it's going to be a sovereignty thing that Cosmos has been pretty directly right on in the beginning so you know a lot of these architectures are heading towards the same way and maybe some of the criticism that ethereum is facing right now is you know maybe there's an element of they're getting squeezed but maybe they're just the furthest along and this is something that basically every L1 is gonna have to deal with at some point yeah I I totally agree um I do think so it's interesting I don't know thinking we were chatting about this earlier um it does feel like ethereum is trying to thread the needle between I I guess offering a lot of what Bitcoin

does um at its base layer and with its you know native asset and eth um and the qualities that those represent as well as the plurality that Cosmos offers um without a lot of the pain right and I think that that's a super combell Vision if they can pull it off um what does the role of like ethereum L1 become in that world uh and and what does it need to be I think there's that's where there is some difference of opinion um because just expecting there to be like zero activity on ethereum L1 but also expecting eth to have the moneyness of Bitcoin I'm not sure you can have both of those things

um it would be interesting though we also chatting about this before I mean what if ethereum L1 is just used for staking and raking and pro posting proofs basically as a bulletin board um that might be a way to get there uh but I don't think that that is the vision of the core devs that are you know creating these road maps um in fact I think you know we've heard many times how concerned they are about like reaking um and you putting more stress on the social on the consensus layer right yeah oh man there's so much to dig into here okay so on the one hand I think I'd break this discussion into two different parts which is does the ethereum as

money idea and meme ultimately end up making sense and then there's the concept of okay let's just ignore if it's money if it's a commodity if it's just an operating system a new model for an operating system where is going to be the demand to buy ethereum um and and is a settlement for rollups like is that ultimately sufficient let's talk about the first one first I think people talk past each other quite a bit on this and this has always been the case within crypto there are people that care about the money side of the use case and then there's the people that are in it for the tech unironically and they they just talk right past one another and you know what's funny about this miles CU I know

you're a little bit more in the Tech camp and I find myself defending the monetary opponents of it to you but then you know right on the other side I will often be like hey guys like maybe this ultrasound money mes was like a little too far and doesn't I that was another one of my predictions this year so I feel like I'm in the middle of this and I kind of see the merits of both a little bit but I find it difficult because it's tough I have this mental framework that maybe we can get a little bit more into but maybe we are shifting towards something that looks more like multiple commodity monies in which case yeah maybe you do have like Bitcoin and eth and all of this stuff because Bitcoin has basically with no Demand right we can see outside of ordinals uh

transactions have been a one-way stream down but people are still adopting it and it's the furthest along in its use case of money that's a pretty strong data point but on the other hand maybe uh just Bitcoin is the only money and the rest of these things are things that look like operating systems and it was silly to try to get squeezed so I can kind of see both stand but I think that's it's that talking past is is a lot of the confusion it is and and I think the um the the folks that are most influential think that they can have their cake and eat it too and I think that's definitely a possibility but if you're optimizing for you know to be a a money it's going to be you're going to make very different decisions than if

you're optimizing to be a development platform right um yeah it's if you are trying to prioritize the base asset and the money then you're going to want to basically put constraints on what the L1 can do and also constrain anybody building on you know your platform to have to use your asset in some way um and have that actually be significant in terms of value equal uh versus you know I think like a development platform doesn't necessarily even need a token whatsoever um and you can give ultimate sovereignty to all the builders on top but as we've seen with Cosmos you know you go too far that direction um just as somebody who's been very

active in Cosmos for a while we could use a Bas layer money that's kind of a you know Rising tide lifts all boats um sort of deal um at the same time you know I think trying to I guess pack everything into um one monolithic chain I think I I do think salana is going to like struggle a little bit at some point and they're going to figure out fees but that's okay they're like totally they're going into this with with eyes wide open of yeah we know this is not it this is completely iterative um but I think it is just even more difficult when uh the further along the road map you go the more success you go you have the the harder it is to to make any of these um

decisions that may be optimizing for for very different things um because there's so much at stake right um and and that's where ethereum finds itself on top of being at just a generally like awkward state of this road map but yeah I I I do think that there's there's so much you know to come I I I do think a big question of this is like what is the role of ethereum L1 um in in five years and based off of that we can kind of you know uh have more informed decisions on or at least opinions on on some of these road map items the rising tide lifts all boats is a very interesting and I think accurate way to phrase it there every

once in a while this debate will crop up about how gas is denominated in the native token so guay or lorts or whatever and people make the argument that when the Tok there there's a fundamental Mis incentive because as the price of the token goes up it becomes more expensive for developers however I would argue that the best thing for developers is for the token to go up because token goes up leads to more people buying more people moving on chain more users for you as a developer so whatever incremental cost you're incurring by the native the price of the Native token go up I think you're making it back tenfold in the amount of new users yeah it's like a mind share type of type of deal absolutely um though if we are

optimizing to have you know a base layer money that's used for lots of different purposes um that volatility at some point is not a great thing for the actual usage of it Beyond I would say like just you know like B2B use cases where like rollups need to need to hold some to post data um yeah this I think this is the money versus like Tech crypto debate surfaces itself every couple years especially as we get to major road map item you know decisions um the original being kind of like the block space wars I would say with with Bitcoin um and ethereum is kind of having that moment too right now I don't think salana will necessarily have as uh

dramatic of of a debate but they will um eventually need to face some some tough decisions I I think I I still like to your point think they will either have to deal with Roll-Ups or find other ways to satisfy um apps that want to control more of their block space economics within the same monolithic chain there are some interesting Avenues there um and of course they have to figure out their own fee Market you know uh Dynamics so I have a a long-term theory that might satisfy or tie some of these paradoxes in and one one thing that one thing that I think you have to get comfortable with

if you work in crypto full-time is the presence of rationality for like sustained periods of time there was a pretty funny thing that was happening during yield farming there was an there was an irony where these uh markets were behaving in a way that was very rational and irrational at the same time so you really what you're doing with yield farming for a new protocol is you are issuing a ton of equity and what traditional efficient markets Theory would tell you is that when you issue more Equity the price should go down of course that's not what's happening um the price went way way way up um and that was actually rational because you could have surmised as a as a Trader that when people yield Farm a ton of new

users come and buy the token to yield Farm which makes the price go way up and then there's a thing you can do you can you you can contribute to a pool and farm and get rewards and but there's this very irrational and simultaneously rational thing that was happening and then eventually what ended up happening is real rationality kicked in everyone dumped the tokens and now most Founders look back at that as sort of a a mistake or something to be improved on and I think the same thing is basically going on with L1 tokens which is that right now you can make these logical arguments about long-term incentive mismatch matches and I think there is a long-term incentive mismatch but the best thing to happen is for you to have this sort of

mimetic narative driven no cash flow like very difficult way to Value sort of thing go up you gain a lot of Mind share developers Builders create a lot of wealth and have people build on it but long term so I think and I think that's going to happen for the next like five years I think the the framework to keep in your mind is a commodity boom and uh because that's what these I think most of these things are digital Commodities but eventually incentives will kick in and that I think that point you know this is just like Commodities in the real world the reason Commodities aren't a long-term buy or they tend to Trend sideways or down is because there's a societal there's a societal impetus for Commodities going lower which is we use

Commodities so if the price of oil goes to a 100 bucks or 200 bucks our policy makers will move Heaven and Earth to make the price of oil go back down they won't do that with the stock market it's the opposite with the stock market if the stock market's too low they'll move Heaven and Earth to make it go back up and so in in some sense asset prices are determined by what Society needs and I think the same incentive match in a long term is going to play out with these l1s so we could argue that these things are Commodities today and it would be good for the developers if they're lower but they're going to continue to go higher but eventually once we get businesses that consume that block space with product Market fit the Leverage is going to change the incentives are going to

kick back in and eventually the daps will have the leverage at that point and my guess at that point is that these L1 start to trade more like Commodities that's interesting I think whether it's a Dap or whether it's an L1 um this is a little bit more of a a simple uh take but I think there's always a period where you know you have a chance to be early and what I mean by that is going all the way back to yield farming as a retail you know uh participant I would never be able to get to own any thing that looks like Equity um of a private startup at maybe what

was probably a series a series B stage and you add that with like a risk on sort of macro backdrop uh and that's when you you see like this speculative Mania I would like look at goto right now too right um I don't think there's anybody doing DCF charts of of GTO and and saying that that's why I'm like buying more or like not selling my airdrop right it's just that I have the opportunity to get in at this stage and oh seems like we're back in terms of the market um I'm probably going to make money by holding this for some period and then when that risk return profile goes down

now we see you know projects even at the DAP level um again just to get the commodity out of it maybe just focus on daps where yeah you have maker Lio dydx you look at the pnls and it's really really impressive at this point um it's like they've actually gone to that stage and yet they're unfortunately being priced like you know a real asset like other people are looking at fundamentals um dydx for is is you know offering it it if you stake it I think it's like 20% API in pure usdc from protocol Revenue Alone um and you haven't heard like anybody talk about

that um I think that's insane that we're now at the stage where these like uh there there are a few projects that have kind of like crossed that Chasm into the point where even a fundamental investor would see value there um so that's not to say that like it's like at a certain point where you know be being early is kind of like you miss the window now all of a sudden all these emissions these yield farming the like continuous air drops looks like cost um and I I would also just point out like there were some air drops during the bare Market uh those guys just bled Equity without any of the benefits for you know a year and a half sometimes right they just had the wrong timing um whereas there were a lot

of projects that said actually it's probably not the right time to you know I guess pull that card um and now the ROI per se of that you know um I Ico or you know token launch is is a order of magnitude higher than those that that just just purely from a timing perspective um then unlike the assets longer term to your point on the commodity side the l1's the assets that you actually need to use um that to me feels like a bit of a different animal um I I do do Wonder at what point you know um like you and I debate all the time whether l1s can have should can or should have pnls right um and it's much

more hazy I I I will admit that even though I might be on the side that like you could probably you know have a good understanding of the fundamentals um if you're not like overly creative um I do think that that's a much more interesting question whether or not it actually detracts from the platform like the vol volatility or like speculative nature of it does attract from the platform um yeah I'll pause there I don't know no it's you know it's it's we had this conversation today if I if I if you had to guess what percentage let's call it maker synthetics Unis swap a are off their all-time highs what do you think

probably still pretty high at least 50% for all of them maybe 75 70 to 85 90% yeah all right I was maker maker didn't get insane maker was like eight now it's at two okay yeah and that's probably the best one Unis swop is at 40 yeah yeah and that's not that's not to say that those assets were ever worth those ftvs at the time though right um and not to say that they will be repriced now that they're in a new stage of maturity and a new and you know um okay I have a I have a thought for you on the FD this is also something you and I have talked and puzzled about and I don't think we ever came to Super

satisfying answer so one of the quirks of crypto as compo as compared to just traditional equities like a private company is that you have a concept of market cap and fdv as just opposed to Enterprise Value that you'd have in a in a startup and I think that FTV first of all I think it's a hold over from Bitcoin you know we need this many Bitcoin and this is the number until the heat death of the universe type thing uh but I I I continue to say that inflation is absolutely a cost but if you are getting in excess like if you are getting a return in excess of what you're paying out inflation it's a good deal you should do it until you can't do that anymore but one of the thing that's funny about a startup is like if I just

asked you to do do the fdv of this startup you'd be like that doesn't make any that doesn't make any sense it's infinite because you at various rounds you reprice and issue Equity the FTV is infinite you have this infinite pool and it's just so funny optically that these early stage startups have basically been like okay here's this here's what we're issuing today which is essentially a small funding round we have this other pool which we're going to use for other funding in the future but the fact that it's just so there and visible reminds everyone that you can get dumped on and everyone's like go the fdv is real but you're getting dumped on all the time if you're an early stage Equity investor it's called dilution it's called raising around and they're kind of the same thing if you squint at it but optically

it feels very different in cryto totally yeah I think it was this great piece from hu and Monet Supply from a while ago that talked about treasury assets as um it's the closest equivalent um is being like uh authorized but unissued shares um and I just think I I'm not an expert by any means but I just think the um relative difference in terms of float to authorized but unissued shares is much lower or much like there's probably just a little bit of authorized but unissued shares than what we see with a lot of crypto projects where it's you know 5% of the supply is representing the market cap and the fdv is some

insane number that no one knows you know what it would look like when those tokens are actually issued um I think it's I'm I'm I'm completely with you I don't know if and when this is ever going to change but um there's only been really one major vote to issue new tokens through governance and it was uh I think it was yearn from a few years ago um and that's this crazy scary thing that shouldn't be that crazy and scary um it shouldn't no it shouldn't this whole Space is too focused on the supply and not focused enough on the demand again I think a psychological hold over of of Bitcoin yeah okay I I wanted to I

wanted to ask you about the ethereum so okay let's let's take this from the perspective of um I I would be probably on the side that it's you know slightly less appropriate to put a p&l around ethereum uh because you were the one who gave me this framework actually M multiple different intersecting pnls of so the analogy would be oil if you think about ethereum as oil oil itself doesn't have a p&l but you know uh the Exxon certainly does right and whoever else is involved in that ecosystem same thing with and the intersecting pnls around ethereum would be holders stakers if you think about like one of the narratives that has come out around ethereum is ether very similar to bitcoin it's this

settlement layer so it would be I think it would be interesting if you treat eth like a commodity let's say I don't want to try to Value it in a p&l form I want to Value it I want to look at it as a model of supply and demand in the same way that you might try to anticipate what the price of oil is going to do I don't really know how you do that for oil I would guess it's like this is how much is coming out of the ground this is how much OPAC holds on the supply side and then on the demand side it's like I try to aggregate cars and jets and things like that and you try to shake out where supply and demand is gonna is gonna U do so like let's do that for ethereum so for ethereum on the demand

side of the token you've got whatever rollups are going to have to pay to ethereum for settl which is not very much right settlement is very cheap there's whatever rollups are going to have to pay in terms of data availability which we know are going to start to get outsourced to Celestia or Igan da which has an interesting reaking connection there is the gas fees that get paid by users on layer one which I think this was one of the criticisms of the road map for vitalic he removed something about reduc reducing eth costs we know that they're trying to move so we should expect that to go down and then there's another one which is reaking I would argue um if if reaking

really takes off it's incremental demand for people to buy ethereum and then stake it on the Chain which has implications for the supply so ultimately we can say whatever we want eth is a and then I guess there's the Delta between you know the supply and demand versus I guess the other reason why you hold eth is because it's this store value money type thing so am am I missing something on the on the demand side for the reason to buy eth which which do you think will be the most significant um drivers on the demand side how do you view that yeah it's super good question um and I've I guess there's two ways to look at this

there's the sort of like commodity with those separate different pnls um it's the marketplace sort of Economics have always resonated with me um as well and and marketplaces also have three different pnls depending on you know whether you are the suppliers um or whether you're you know one of the consumers on the other side um or whether you're at the marketplace itself taking a rake um and I think that a lot of those Dynamics still apply here um you know I think it's can look at all those things that you just listed are true um the bigger questions for me is uh you know is there this wagu Da wagu Block space for something like token

issuance or just really price insensitive users um settling very large like high value trades I again I think this migration off of L1 is going to take much longer and and maybe will never fully happen um and like that's just another demand driver to think about um and then yeah the reaking side I don't know where I would put that necessarily um because see it as basically one way to look at it is if you're if you're like me and you look at um let's just say like because it's the cleanest self solo stakers right solo stakers to me are like the most

clear-cut case where you could argue this is a service provider to ethereum as well as an ethereum holder but from the service provider side right they are literally performing a job and the only reason they're performing a job is because they're getting paid enough either through a combination of Admissions and uh Revenue share from the protocol either you know M fees or or um just priority fees right and if they weren't getting that Revenue they would they would stop and the network would you know if that was if the network was just solo stakers um you know the network would no longer run right so that's why I consider that a cost but it's almost like you're you're looking at this supply side which is this weird

hybrid of you know service providers and and actual like holders of whatever asset You could argue like represents value like you know is correlated to the value of the network um and it's almost like it's repurposing a lot of the existing costs and a lot of the existing um services that it's running for other networks um and so I just think a some sense yeah I think it will drive the demand for ethereum to a small extent but it in a lot of ways it just kind of I'm not sure there's going to be more demand for eth necessarily but there could be more demand for staking um

which again I I don't think that changes the economics of eth right it just dilutes the total yield that all of the supply side um you know operators get if the staking ratio goes from what it is today to something well over 50% um so I know I we we differ on a few of these points no no no no no I actually uh I think so the future that I think we both agree on here playing out is it's funny because I I don't think this is what the ethereum foundation wants to happen but um I think the future that ultimately ends up playing out as the stake rate goes much higher 50 it starts to look

more like a traditional for stake chain one of the funniest discrepancies is in between what like salana or Cosmos might think of as the target stake rate because from their eyes they want the security higher stake rate means more people are staking you have more security whereas ethereum wants it lower and I think the reason they want it lower is because if you are paying more out to stakers if you're if you have more people staking you have to pay more out to stakers and you're favoring the stakers as compared to the holders of eth and you're I think diminishing some of its monetary properties but and lsts lsts just add a whole another like element to that right because now you're competing you're you have something that can compete with liquid eth from a moneyness and a utility standpoint um

you know that actually is like the stated goal of Lio is to become as ubiquitous and as you know useful as eth itself um and there's mixed feelings on that I mean some people just see that is like an inevitability um or some version of that is an inevitability uh given just the incen that play here right yeah there's a comparison to be made if people care about things like this but it I think it's directly relevant in between a country's currency market and its bond market there is a natural reflexive relationship and tension in between them and the tension being the way a company or a country there's a lot of debate around this to oversimplify fund itself is to issue bonds and uh

that and that allows basically the government to like spend money into existence and people argue about the order of that they say they spend money and then they issue the bonds whatever doesn't really matter that's the basic relationship and then what ultimately ends up happening sometimes is country will sell bonds to a bunch of other entities that hold those things like money and actually most people that are monetary Scholars would argue it's very difficult to even Define what money is money is different things to different people when corporations say they have money on their balance sheet they're not talking US Dollars they're talking about bonds they're talking about yield bearing money so I think there's a distinction between yield bearing and non-yield bearing money um but there's a tension in that and this is something the US is probably going to have to face eventually we have so so many bonds

outstanding that people are going to say we can never repay our debt well we can repay the debt but what we ultimately have to do is print more money to do that and so you have to the US will probably have to make a decision at what point do we prioritize the bond market or our currency market and countries always always always prioritize the bond market so I guess I understand that from the perspective Ive of eth there but I think that is the ultimate idea as they see this tension in between the derivative in this case steth and eth itself and they want to prioritize eth but I think inevitably what's going to happen is that people are going to want a stake um keeping the issuance rate low I think has the risk of actually doing the opposite of what people want which is

they're not going to stake less because you offer less yield they're going to go out on the risk spectrum and do things like reaking and find ways to opt into additional incremental yield but miles I'm not actually sure like I'm font running our episode that's coming out on Tuesday but I do think an asset that these networks have outside of the security of its block space is this group of validators that they people that and entities that they've convinced to do work on ethereum's behalf and to receive rewards denominated in ethereum and you're starting to see this with both igen layer and Pepsi but if you were to ask validators to do more things

you could do you could build a lot more cool very decentralized products so I don't know you're right maybe that's not necessarily A Creative to the price of eth the asset but you could get a lot of cool stuff if you readjusted your definition of what a validator is supposed to do and all of that cool stuff that's made possible by not being beholden to the constraints of literally building like as a rollup or on L1 right but still being within the ethereum ecosystem um and and providing value back to the ethereum ecosystem I think the whole point of Ian lay their their main thesis is that that does ultimately like grow the pie much more than you

could if first of all everything was you know horizontally scaled completely separate like Cosmos or if everything was you know basically constrained into one sort of execution environment like you know we see salana today um I I think that it's you know there obviously the downside risks of any sort of um debt rehypothecation are are significant I do think you know when if and when igen layer is used irresponsibly like it will lead to a blow up but I do think you know net net it's going to be very very positive um and we'll see I mean I think igen lay is

definitely more of this sort of tech crypto sort of uh um mindset right it's like okay we're constrained by ethereum but we love ethereum the asset it's got amazing qualities this this huge asset of a of a their supply side right it's the most decentralized in the world Let's find let's build things that wouldn't be possible without necessarily like adding all these new trust assumptions um that has the downstream impact of raising the staking rate you know significantly right because it will drive demand for staking which in turn it makes the I guess the the premium of liquid eth like you know less significant versus um stake deeth and in fact you can imagine stake Dee um BEC

the far more you know popular way to have exposure to eth um so there there probably is ATT tension there and this is just another example of that like tension playing out right now yeah yeah I can certainly see why you know I look this up at one point I looked this up actually you know what there is a great interview from a guy Sir Paul Tucker used to be a bank of England uh head of head of the bank of England's Central Bank and he described the monetary policy of when he was forget if he was the head of it or like the vice you know the chairman type

thing but he described it as you know because I've looked at this is like a a an issue that a lot of people talk about that got them into Bitcoin why do we have so much debt and he described it not in terms of really managing the finances of a country but the relative demand of yield bearing versus non-yield bearing money and he said there's just so much more demand for yield bearing money than non- yield bearing money and probably yeah that would probably be similar to probably be similar in this case so who knows I agree I agree well we'll I think um it'll be interesting to see how they handle this over the next couple years all right everyone we will be back to the program in just a moment but before we do I want to share something

that blockworks has been cooking up for these last couple of months March of this coming year in London blockworks is hosting Das London the largest institutionally focused conference in all of crypto we are gathering 12200 of the world's largest asset managers so thank trafy macro fund funds Crypt native funds big allocators and financial institutions so Banks payment processors Etc all in one spot it's very rare to get the likes of Goldman JP Morgan 72 whatever all in one room so you can know what the big money is doing we're diving into the themes that they care about so we're talking about the intersection of macro and crypto where we are in the cycle real world assets so everything from stable coins to unchain treasuries to tokenized assets it's going to be a blast but the other reason you really want to go it's London baby

center of the world at one point you got Pub culture you got fish and chips great beer it's going to be a blast so because you're such great listeners to bell curve there's a Code Bell 20 that's going to get you 20% off so click the link at the bottom of this episode it'll take you right over to the homepage you'll see all of our speakers and use Bell 20 for 20% off ticket prices are going up soon make sure you go use that code I will see you in Sunny London Town in March let me ask you this SM one more question I I had a a good back and forth on this with uh Victor boonin on Twitter uh you know because there actually there was a long discussion I think it was Sam Hart and David and then there was some back and forth about whether or not cosm

or Adam was a monetary asset uh vers compared to eth and um you know people always knock Adam for not being a monetary asset and for some reason eth is but I'm not actually 100% sure why that is so much and if and if the idea for eth is to be a Monet asset is the assumption that all these rollups are going to want to use eth as their native currency or do you think it's more likely that they'll try to use their own native token as their currency so you know ad Cosmos their explicit design is that anyone can be fully Sovereign I we've talked about this I think Cosmos

has gone probably too far down that route or it's just too ahead of their time a little bit uh but I do think a lot of people are assuming that the rollups are going to want to use eth as a currency and okay BAS is doing that because of regulatory reasons most likely but I think a lot of these other rollups don't you think they're going to want to use their own native token or how do you see that playing up um I think I don't think that there's going to be one dominant model I I actually if anything I think for a long time it will be majority eth uh you can still have your own token all that eth revenue from sequencer profits whatever that acrs to the you know your Treasury and at some point if once you're large

enough you start paying out you know real yield eth to your token holders that's a pretty good outcome um I think maybe just to touch on Adam versus eth just the clear difference is like you need ethereum you need to hold eth to interact with gaps on ethereum you need to hold eth to onboard to ethereum it's very hard to onboard you know uh to ethereum without having any eth I think it's probably going to change over the next couple years but um at the very least even if the rollups like abstract that all away they need to hold eth right to post data um Adam in you know optimizing for sovereignty uh while it's still like the most held widely held

asset in Cosmos you know um you could see like the uh the latest projects that that arrived in in Cosmos have really no interest in like associating with Adam um because that's not why they chose Cosmos in the first place um and so I do think like I would call it that distinction I don't know to what extent you know necessarily it's the utility of eth that has really grown the moneyness versus i' would say like their early stage Beginnings as everything being you know on one chain I guess those are kind of the same thing you need eth right versus like just the mtic sort of value and and momentum that both of them had

um yeah so that's a little backwards looking I think because I I'm making the Assumption at least that most rollups are not going to pay for so it's your assumption that most rollups will use their own token as gas right yes I think they're Mo I think the vast majority are going to try uh one one other one other uh maybe subtle but I think important difference between Adam and eth is that there's token governance in Adam and that has led to slightly different ideas like redirecting uh some funds like the Community Fund right that's not something that exists in in eth although I guess you have the EF but you do have

the ICF anyway it doesn't there's a there is a difference between I think the governance aspect of it as well oh huge yeah um but I I to I I also think it's going to be a slightly more nuanced thing my my guess would be though is that most I just try to put myself in the situation of one of these rollups and I think if you I'm assuming I'm you know a mid to high tier rollup here because I believe in myself and uh I would try to use my own token as gas before I and I know you can do restake security and maybe that's the I think the end state is probably that all of these tokens try for optimize for sovereignty but eventually they're going to end up

having to have some form of reserves sure right sure sure but can I give can I give the the counterargument um or like a word of caution here I mean let's think about so the upsides of using your own token for gas is that it provides uh there's utility right there's a like you actually have to hold some of this right um and there's like I don't actually think that has anything to do with staking right um you could have you could have staking as part of that too but that's just you know kind of continuing the sort of uh mapping over of L1 tokens and that's I think doesn't really make a difference um so the trade-offs are uh I think three things

come to mind one is uh onboarding friction so if you want to go after you know if you're building on ethereum part of that decision is because ethereum offers a great distribution channel right and now you're making people who will hold eth go you know maybe buy another buy your asset right which maybe that hurts your funnel metrics to some degree um so that's number number one number two is the economics get really complicated where you need to hold at least seven days worth of eth for your on L1 to pay for data posting feeds basically your sequencer Ops right um and you are then having to gauge that

against the price of your token um and if you want to keep the price of your token flat and the price of eth moves now you're dealing with potentially a shortfall not or you know if the to if the price of eth stays flat and you keep your token flat your gas price is flat but your token goes up now users could be paying $5 doll a transaction right so like it just gets complicated from an economic standpoint does it does it change your mind if most of these rups don't end up posting da to ethereum um no because then if anything you have like you might have even more complexity where you have to like hold some eth

some Tia but then you're con you're you're converting your token into those two cost buckets like oh that's actually that's a good point then the last thing I would say is like you don't want gas Revenue like to be a big uh I would say Revenue driver in the long run um standard transactions are going to be driven as close to zero as possible or if you don't then you're going to get undercut now I think there's probably you know one cent versus like fractions of a cent doesn't really matter um as much as people might think um that's number that's the first half of that you will a significant portion of Revenue

could be high value block space though right like so if you have a proposer build their separation of some kind or you're auctioning off the highest value block space that people are actually willing to pay for it it's not a it's not a drag on users it's actually you know pure profit for them and so they're willing to give you a piece of that profit that all becomes much more complicated when you've got especially like these shared you know something like Suave right where everybody's trying to price the opportunity um and you have maybe like you know one auction shared auction for multiple rollups that's priced in eth but then you know you're going to have to pay for that block space in yeah whatever rollup token is and so if

you want like a really uh competitive Searcher sort of environment that is you know paying you and paying you as much as they you know possibly are willing to pay for that block space minus some profit for themselves um the more complexity you add to that the more like the less they're willing to pay because that adds risk to their to their like you know p&l as well um those would be like why I think I think there'll be a couple of like the big big general purpose ones that try this super interested to see how it goes um but it does feel amazing that you could you don't you know you can have a token or you don't or you can't have or it doesn't really matter like you could be

base and not have a token and still be making a ton of Revenue in eth right or you could be um you know have some token but still just charge eth as your as your base fee um and I think you know at the end of the day day token holders what do they like what is the for any sort of asset like a great outcome is is getting that Capital return to them um and having that Capital return to them in the asset that they're likely going to you know if it's eth they're not GNA they'll get like you know X token dividends and sell that back to eth probably anyways um so I do see like uh obviously it's in eth's best interest to

be pointing out like all of these like downsides but once you really start thinking about it um I think I think the it's it's one thing to say okay users can pay in usdc and ether like whatever they want um it's another thing to like force a token on them but I know there will be many many that do I think that's sorry the point that I was trying to make is that they will try to but yeah you are convincing me first of all you're convincing me that it's not going to work faster than I probably thought it wasn't going to work although in a bull market these token prices will probably go up more than eth so it'll work for them the foreign exchange risk that they're essentially taking on but this also explains why Cosmos is God

Cosmos just so ahead of its time on all these that's explains the sort of describe it the localizing the unit of account to um because the the this is the argument I was trying to make the other day like the the onboarding flow today I think of most users has been when there were fewer assets and this environment was less complex and actually I still think this is going to be for a a while how most people get onboarded to crypto on a centralized exchange you buy Bitcoin or ethereum or salana or atam or whatever okay then it realistically takes how long two years maybe a like it depends on what stage

you get in in the cycle I got in in a bare Market it took me longer than probably you did to take your assets off the exchange to get a wallet to start doing things on chain and so from the I I'm sort of making the assumption that many users are going to the first their first foray into this space is going to be to buy a major L1 token and then to go from the L1 into other things as opposed to something like usdc that assumption might change within the context of layer twos maybe they don't maybe they don't do that here here's the the longer term the longer term push back though that I would have on you for what you just described is the benefit that you have of having your own token

is again something that Cosmos has just been dead right on since the beginning is the pull of sovereignty and I do think on a long enough time Horizon that ends up trumping a lot of other things and dealing with complexity whatever you know countries have shown that they're willing to do that in order to have their own control and people will actually accept people companies whatever they will actually accept objectively worse circumstances to have control over their own destiny yeah I would say though like having your own token doesn't necessarily have to equal you know that as the gas token um good point I mean in some ways yes in some ways no like um with Cosmos you can te

from the user perspective you can use any token um osmosis will just you know swap that back to osmo on the back end um and yeah I I think that that um gets so complicated so fast I don't think I don't think people like jumping around Cosmos from token to token I guess in the sovereignty piece I'd say it's really more about like the uh technical architecture and like where how you choose to build your rollup that gives you you know more sovereignty or less um or if it's your own CH then tons more sovereignty um vers versus your choice of like what the token itself does um so one you know one thing I know you

know in much more granular detail than me is is the adverse selection problem with shared security and with basically the really high quality projects and somewhere like Cosmos they don't need to rely on something like the uh you know the The Hub but sometimes they do anyway for like this kind of alignment um this kind of alignment reason and I do wonder if that same Dynamic applies to eth I was just sitting here wondering to myself like as an interesting hyp itical if arbitrum decided tomorrow to become its own layer one what would that look like would it be that hard for them to recruit at this point their own set of

validators no not at all not at all I think Sovereign rollups on Celestia although you know it's weighs good amount out strike an interesting balance of those two things right um you do have this token that you know you are kind of everybody's Unified under and you need to hold in some capacity whether that's making your users use it for gas or at least you you know swapping that on the back end um but they do strike that middle ground of not having to you know they're not beholden to the rules of the the L1 that they're posting da2 right they can they have the sovereignty to make their own ordering rules and things like that um so I think this yeah this

this whole Spectrum will will will kind of come into shape um it'll be very interesting to see how the role of the to token you know evolves once we do something like you know have a decentralized or at least a um a distributed Whit listed sequencer set that maybe they need have some collateral posting needs right or there could be more types of slashing involved as these rollups kind of evolve their own um road maps whether that's provs or you know uh sequencers it's all very ining one um and so there probably more to be done I just don't know if the gas token is the only or best use of it you might be entirely right and I and

I'm I'm after this I think you've changed my mind much more bullish on the idea of e first time ever that's not true you've influenced my thinking a lot and I uh yeah I I just to to sum this up because I I want to conclude here talking about the the stride uh liquid staking proposal that went live on the the uh Celestia Forum the the last thing that I just want to say is I I just I really do think that people have flipped way too hard on ethereum like they I kind of think they got the model right and they're still in pull position no matter what this this narrative says and if it feels like

they're struggling with things or it feels disjointed I think that's coming for everyone and you can already see it in Cosmos and it probably doesn't matter that much your design everyone's going to have to deal with this eventually so I don't know I go into the new year optimistic yeah couldn't agree more um yeah it's a a product of the maturity of the project um the amount at stake and uh there is probably a little bit more of a monetary versus Tech sort of divide I think in in ethereum than um than other ecosystems that you know actually raises a lot more debate in terms of what you should be optimizing for in the road map um you know can't just like it's not like just totally comments out

and says yeah we'll uh we'll fix things when they need to be fixed uh if there's something that can make this go faster uh we'll probably add it and uh yeah we'll go from there um I think it's it's a lot a lot more straightforward but yeah let's talk let's just close here discussing so there's a big there's a big proposal from call Mutual Friend of the of the Pod uh stride um so Aiden and team over there put together a a very thoughtful proposal about liquid staking on Celestia and Celestia you know it's OB it's a Sim similarly to I we saw this a little bit we had Aiden on actually to

talk about the liquid sticking module over in Cosmos land obviously very different architecture but they sort of had the benefit of looking at how liquid sticking played out on ethereum and and salana I guess in a sense and deciding like Hey how do we want it to play out here and now Celestia is really building this from from scratch and they are incorporating a lot of data points that chains before them didn't necessarily have so can you can you kind of walk us through the the Highlight miles of what what this proposal so I would say like if if you're interested in liquid staking I highly recommend taking a look at this proposal because I think it um it's one of the best jobs I've seen at really laying out the spectrum of different

uh I would say liquid staking models um even outside the context of Celestia and then thinking about okay within the context of Celestia we have an L1 that does not have an execution environment what are the models that are possible and then what can we do today and then what can we build towards as the the the dream end game right um and to give some some more context the uh normal way or I'd say the way that um liquid staking typically Works in um in Cosmos is using something called a a component of IBC called interchain accounts uh it's where you can basically use the IBC protocol to open and control accounts on other

chains uh so this is the way that you deposit to stride but then they can stake your assets on another chain um and your assets that are sitting on stride really inherit like the full security of the stride validator set or like the atom validator set um that is not part of the initial implementation of Celestia you know this is a a project that is um trying to be as minimalist as possible to its core use case which is you know data publication and retrievability for rollups um and anything added to it really is is a huge debate um that's maybe anything added to it that's outside of that core sort of value prop right or could potentially take away

from that is is something that's um in general kind of like how salana is with anything that extends the block time or reduces latency or increasin or Bitcoin with you know a lot a lot of like anything there's no smart contracts we can draw that compar parallel to bitcoin right yeah and so strides coming out and saying okay here's the you know landscape here's the design space of what's possible um here's why we think an ICA based solution uh you know the one we offer today to other Cosmos chains is currently one like safe to add to Celestia two a much better interim solution than other solutions that are

you know don't basically have any s of any form of slashing it's not you know uh basically a very very very small subset of of the validator set so basically a you know nine nine person multi seg um here's why we think we should Implement I for this interim solution but by the way we've been talking to you know some of the leading Builders and and thinkers within the Celestia ecosystem and we've been looking at Celestia's own road map and then you know backing into what we think is the liquid staking endgame um for Celestia what could that look like um and that's where you know they get into

some some future looking um forward-looking uh you know designs that would leverage um snarks when snark accounts are implemented on um on Celestia and probably 12 12 18 months who knows um and as well as ZK IBC and you know don't necessarily need to dig into the details of this but um the goals here are really interesting to think about too it's you know in a perfect world you want your liquid staking protocol to come as close as possible to inheriting you know the same security properties as the base L1 to mitigate that sort of principal agent problem

right but at the same time enshrining an LST which is like the literal way of doing that leads you to the delegation problem which is okay so we solved the safety issues with this LST but now we have to actually be opinionated of how the validator set looks like if we're assuming this LST you know that is going to become very popular then we're now having a large influence over the makeup of our set by deciding who gets delegated to and who doesn't um that said you know so there's that question right um and then if you think about like the possible solutions for that obviously you could do something like

pretty straightforward like have okay a council of Celestia ecosystem you know uh participants that are very aligned with the you know long-term vision of Celestia and have them do some sort of you know selection maybe you do dual governance so we brought up like ideas from uh a lot of what you see with Lio doing right now to to you know appease like eth holders or steth holders um you know in some way right which is just adding checks and balances that let um mitigate governance attacks of the actual thirdparty liquid staking protocol by letting the Ste holders veto certain types of proposals um and Celestia is very very unique um

Celestia is like ethereum and that it is you know very uh opposed to token holder governance uh in in in general um you know if so maybe just quickly stride team followed up today with a Celestia Improvement proposal um this if it was a normal Cosmos chain would just go to a governance vote to upgrade the chain but Celestia handles chain upgrades much more uh closely to how ethereum does which is largely offchain you know rough social consensus based uh decision-making and so you know I think in line with that uh if you're if if you

care about those values and you want to uphold those values to something um and apply them to something as close to the metal as liquid staking uh then you wouldn't want to air away from any sort of council or like token based selection of Delegation um at the same time okay so what's the obvious answer to that it's copy staking so just anything that goes into stride just delegate it in the same proportions that the current you know represents that reflects the current makeup of the set this is also problematic this does not lead to this does not allow the you know liquid staking protocol to be a healthy driving force of centralization even you know that's I you may not like being opinionated but

if you end up delegating a ton ton of LST you know deposits to some fund with a white labeled validator that has a 100% commission that's already in the top 10 validators that's a terrible outcome um in fact this you're missing an opportunity right so I'll pause there rambling for a while no no no it's you're just digging into a point where again we talked about this during the liquid saking season but to underline one of one of the issues with having delegation in protocol and a lot of proof of stake networks that have this look like is a very topheavy validator set because of how users tend to behave right when as soon as someone gets a lead it's like well I want to stick with a top validator so we've talked a little bit about and I think John charbono has

done a good job of giv the example of how these outside staking pools can actually be if they have the right aligned values forces of decentralization for the network because they have the opportunity to actually rebalance the validator set to something that looks more decentralized than if you left validator selection purely to Market forces yeah totally and not even just like the most popular validators and giving some love to like you know the more Grassroots validators that are equally performant but at the bottom of the set not big brand names it's you know there's literally like funds in this validator set that should not be receiving external delegations that was never their you know intention of setting up a um a validator right it was

is just a house their own their own like uh Tia assets so that'd be a that'd be a very bad outcome for the both the health of Celestia by giving those delegating more to those like validators as well as the product because all that yield doesn't go to the its 100% commission so there's it's going to be an interesting needle of thread I just would say like this is a um among the most like Advanced thinking I've I've seen um on you know liquid staking protocol design um which I'm you know constantly impressed with this stride team for for pushing forward a lot of the the big Concepts uh in liquid staking not just in Cosmos but broadly um things like the liquid staking module which was really

interesting and now you know looking at something like okay how could um we build this as a rollup in the most trust minimized fashion how do we have governance and processes aligned to that sort of philosophy and those objectives that we're trying to do um and yeah I'm very excited to see what will come yeah I agree we should also probably close R is an investor and stride and actually I am personally personally an investor and stride as well but the reason for that is because that you know just how much work they've done um you know in the last you know year or so and yeah just an incredible team and you know definitely be um I think they've got a bright future on Celestia hopefully so great to see that from from Aiden and Co and uh I think Miles we can wrap it

there we uh what did we have yeah I think that's that was a good spent a lot of time don't know name this episode because there really like a topic it's a lot of good stuff hopefully you know I it was mostly eth based and I think ethereum in 2024 or something like that I don't know the Bull and Bear case for eth I I think it was mostly bull but um I don't know I'll come up with something but we will we'll rely on our crack team uh here of producers exactly so all right miles this was a fun one buddy I will uh I will see you soon awesome oh we'll plug uh for for folks we we're going to plug our episode uh uh that's coming live on Tuesday um it's a

surprise but big episode coming on definitely tune in for that one that's gonna be that one's gonna be a lot of fun it's been a long time in the making so yeah exactly should be man yeah sound good see y [Music] cheers