Why Coinbase Is Incredibly Mispriced | Matt Hougan, Ryan Rasmussen

Transcript

it's so cheap it's so small you X Out the cash of coinbase and it has the same market cap as Dogecoin it's got a lower market cap than cardano it's half the morphy cap of xrp once you've exclude the cache those are ridiculous comparisons this is the most important company in crypto and it's trading on r with those coins what's up everyone welcome back to another episode of zero X research we have some super exciting news today actually we have a new sponsor the atom accelerator they are aiming to push the Hub forward through various Grand opportunities to establish Adam as the Hub and the foundation of the interchange Cosmos is an ecosystem we're

super super excited about over the rest of 2023 so if you're looking to contribute to actually building out that ecosystem check out the link in the show notes uh there's plenty of opportunities for Grants and governance BD replicated security public goods research and much more so definitely check them out uh today though is May 15th as of the time of recording and we have a great interview with Matt and Ryan from bitwise but before we get into the interview we are joined as always by two members of the blockworks research team to discuss the latest Market happenings thanks for coming on renin Xerox pibbles Ren I can kick it over to you for your hot seat or cool Throne yeah sure I have ethereum in ahasi today so obviously a lot happened last Thursday and Friday starting off on Thursday afternoon if

you even failed to finalize for three epochs and an a similar thing happened again on Friday afternoon where if you failed to finalize for eight epochs what happened was that two consensus clients prism and techu both failed um the todr is that they had to process order at the stations that were coming in from nodes that didn't have the latest block info and that data also had to process the newer attestations that were coming in and basically the guys couldn't keep up there was kind of like a resource overload and the clients field as a result of that on Friday afternoon for roughly eight bucks or so ethereum didn't finalize at its worst probably only 20 25 percent of bad ideas were a

testing to a certain Epoch and it was the first time that the inactivity week which is a special term and a special sort of like thing that kicks in the face once it even fails to finalize after three four epox kicked in and once this inactivity kicks in what happens is that validators that are offline and are testing the Box start slowly using their steak div and that's kind of the mechanism by which over time hopefully the network as a whole can reach super majority after stations to finalize an app up again um there's obviously a whole like philosophical debate about whether ethereum went down or not sort of prioritizing liveness over safety uh

at what point would you consider ethereum as down and I would love to have that debate with you guys yeah yeah that's a great Point Ren and you know personally to me it feels like you can't really call something down if transactions are still being processed at the end of the day um but like there is that interesting point though you know when things aren't finalized you are susceptible to reorgs that which and if that happened then your transaction essentially gets forked out for being in the canonical chain so there is this like interesting thing of how you view it right like if my transaction gets forked out and doesn't get processed like the chain technically wasn't operating for me but I think you have to view view liveness in the sense

of the entire chain as a whole uh and so because of that I you know I don't really view this as downtime for ethereum I more so view it as a couple things one is like a wake-up call like okay we're still building this revolutionary attack but it is not built or completed by any stretch of the margin you know you can kind of look at the transition to proof of stake and you know the activation of withdrawals as further evidence of that but um the other thing here is the resilience of ethereum you know we built out a multi-client system specifically for this reason um and this having multiple clients is exactly why the chain was able to continue working so I think that's a really important thing to to remember and you know this is this exact issue would have taken down other chains

ethereum's the only major blockchain that has multiple clients um you know Salon is kind of building out in that direction with the inclusion of fire dancer but that's a bit more uh of an upgrade rather than a client diversity mechanism um so you know I just think it's important too really take take this moment to be like okay we're still building and what we've built is actually quite resilient yeah I agree with everything you said Dan and I think another thing worth pointing out is just how it's a wake-up call a bit that staking isn't a risk-free yield like yes validators I think Ren you tweeted the other day that some validators got slash point zero zero zero zero zero zero seven percent of their stake or something incredibly small but I think it's worth paying attention to and actually understanding

what went on because I think a lot of people think about the staking yield as like a risk-free rate and it's not quite exactly that um but yeah again this is just a testament to the client diversity I think it's honestly more of a philosophical question in terms of whether you prioritize safety over aliveness or vice versa and I think you could talk about it all day and there's probably people out there actually there definitely are people out there much smarter than us who have a lot more nuanced angle on the on the matter so I'll just stick to the importance of client diversity on this one yeah I think it's a good flag that make sure that LSD providers are actually building out insurance funds for situations like this and this is also a really good flag because you have all these uh

distributed validator companies coming out such as like o-ball and ether5 so it's a good thing this happens now rather than later when there is a ton more stuff built out that's running on this yeah Iran what's your take would you consider this like a downtime for ethereum I wouldn't consider it as down because at the end of the day for the end user assuming I didn't read scg I wouldn't have realized that if you was starting to come to consensus you know I would have still been able to submit check my transactions these would have been included into blocks perfectly fine and I wouldn't have known any better so I wouldn't have said if you miss down and to be honest like for the average user like us if you're just contacting

on ethereum it's not it's not like you're going oh okay but is my transaction really finalized you know and at the end of the day it's a lot of these sort of like interoperability like caution communication Bridge protocols where you really need that finality and you can only sort of guarantee that transaction went through after 30 minutes or so right and then after that the L2 can for example mint whatever token you locked into it oh what's right contact that's definitely where it's important but for the user I'll say ethereum didn't go down it's sure like it's underperforming especially I think it begs a question if in the future we live in a much more multi-chained world or like a Crossing world what happens

when something similar happens but I wouldn't say it went down and I think another important point about this is that this consensus mechanism in terms of like Gasper exists for a reason right I know there's been discussions in the past about like single star finality and what we can do to sort of achieve that but now after this you may think that perhaps single star finality isn't that good right because if there Network fails to come to consensus in a single start then essentially the network as a whole has lost its liveness and is that something you really want or is the fact that we promote liveness over safety a really good thing actually because even when something like this happens it gives validators a chance to basically catch up to that testing the newer

blocks and kind of quote unquote fixing the chain while the chain on the front end still appears to be working as normal yeah I think that makes a lot of sense Ryan and and even one step further like I think the idea of prioritizing liveness over safety for ethereum makes a ton of sense it's a general purpose blockchain with a series of different applications and even sectors at this point built out on top of it and when a chain goes down that is horrendous for D5 right the token is still tokens are still trading on centralized exchanges or on other venues or even on other chains and when the chain comes back online those prices are like rapidly armed uh in D5 which essentially just leads to mass liquidations so

if you have the largest Diva ecosystem you really can't go down that's a non-option but you know some like the cosmos ecosystem uses tender Mick consensus which does prioritize safety over liveness so the opposite of ethereum and I think that makes a lot of sense right you know broadly this is still very immature Tech and we're still working out building that out so the ability for one-third of the validator said to kind of say hey we need to Halt the chain pause something make it some updates and then we can kind of think about restarting generally seems like a decent idea especially when it's an app chain and it only it's built to serve one purpose like osmosis for example if there's an issue with like the amm curves that they're using we're just making something up here but in that example if there's an issue then exactly what I

just mentioned can happen the validators can hold the chain and they can push a fix and then restart the chain so like having that more specific control um seems like a good kind of build for an app chain but again for a general purpose chain I just think the liveness is such a major piece of the puzzle when you have ecosystems built on top of you like that yeah for sure Sean agree with everything you said there too Dan uh pibbles who you got in the hot Cedar gold Throne this week I've got the hot seat for Richard Hart and pulse chain quite possibly the lowest IQ thing I've ever seen happen on the blockchain um so Richard Harts the founder of hex he raised like 11 to 12 billion dollars in a sacrifice round

for um pulse train which is an ethereum Fork it has a 135 trillion circulating Supply right now and people were able to sacrifice money to it and get poll Center price of like .0001 so right now it's allegedly like a 13 and a half billion dollar market cap token but the issue is there's no Bridge so everything is actually worth zero he copied he took a snapshot and copied everyone's ethereum's tokens over the pulse chain and this actually went live last Friday night so like he essentially

minted like 90 million dollars of stable coins out of thin air and there were probably like a bunch of people who just have no idea that it's fake like I'm sure people Friday night like swapped their pulse for a couple million in usdc and then like called their boss the next day and they're like I quit like there's so many people who just genuinely have no idea so like there's no Bridge live we don't know when the bridge is happening and it it's just like the funniest Ponzi scheme of all time what's the stated intent of pulse shade not not what it actually does or what it is today but like what is it supposed to be it's supposed to be a fair and

decentralized start and that you're against like censorship and you know you're all about like open blockchain which is pretty ironic because Richard Hart probably owns like 95 of the supply oh and also the um the people who created Zen that thing that spiked ethereum gas really bad towards the beginning of the year so you could like you could mint Zen for free but you had to pay gas and then you'll get yours on in like a year or something they launched on pulse chain and pulls chain gas went up to like I want to say like 50 000 pulse per transaction so they clogged the gas which made like I think like 500 million

impulse has been burned in like three days but the Zen team also did that on bitcoin with BRC 20s so they launched like Zen ordinals over there so they're spiking Bitcoin fees too they're kind of just like really infiltrating like every blockchain right now this proof of gas concept is like the strangest thing ever in uh yeah wow no surprise it's on it's kind of haunted every little gas environment so it's interesting to see it finally come to bitcoin um but but you're blowing my mind with this pulse chain facts yeah did I hear 12 billion raised right like like with a B total billion dollars that is just mind-blowing I yeah when he

started with lowest IQ thing you've ever seen in crypto I I think I might agree 12 billion dollars in absurd amount of money I'm I'm not too surprised that uh intellect of FIFA crypto anymore after ben.eve got seven million dollars I mean that's like the most obvious you're not gonna get that money back thing you're like rug of all time and people said to him so much even it wasn't like a million people like sending him like 100 200 there were people sending him like One E3 like it was ridiculous what was the promise on sending him if I saw that but didn't dime in I think it was just like a pre-sale for like a unlaunched token because he launched a Ben token and now he's gonna

watch another talking about psy-offs named cyov's like really but yeah I think that's the parents basically like a pre-sale yeah I then saw Pip Boy tweeting about the Ben token we gotta uh we gotta get this under control uh but moving on to the the cool Thrones this week I'm actually gonna throw Lido in there the largest liquid staking provider at about 74 of liquid staking Mark could share and about 30 of total staked youth market share uh has just launched their V2 as of a couple hours ago today on March 15th so exciting to see that kind of the next chapter for Lido obviously they're a very integral part of defy um and in the first few hours since withdrawals have been live we haven't

really seen any major players come through yet uh it's been about 300 each staked withdrawn or requested to be withdrawn at least but interestingly the protocol kind of built has built up a a backlog of ether it could use to be like a buffer to process withdrawals and this is kind of in accordance with uh the the details of you know how this process is going to work right so they keep this buffer amount so they can kind of um process withdrawals without making users wait through the withdrawal queue so they have about 400 or 2008 sitting there in this buffer account and another interesting piece on this is Celsius the now defunct uh you know crypto yield C5 lending platform has about 428

000 state to eat that will presumably be Unwound to kind of cover their their losses that they occurred and potentially repay some of the creditors that were involved in that incident uh just a couple months ago back in 2022 and so we don't really know for sure that we'll be Unwound you know the pegs stake teeth Peg is trading nearly at one to one at this point um so you know you could theorize that maybe they would have just been Market selling that if that's the case but uh definitely an account to keep their eyes to keep your eyes on um and we'll link that account in the show notes if uh the funds have not been withdrawn by the time this episode airs but nonetheless I do think it's a net positive to see Lido maturing in this

sense and enabling withdrawals so um of the major protocols or liquid staking protocols we now have Lido coinbase and Rocket pool which are the top three with active withdrawals which kind of leaves fracts in the the last piece of that upper echelon tier bracket in terms of liquid staking providers to enable withdrawals um I haven't really seen much from the team on what that process will look like my only hope is that it does have the ability to force with validators to withdraw I know we've kind of talked at that talked about the importance of that before but yeah uh ultimately I think protocols need to be kind of prioritizing the liquid staking token holder a little more than the

validator but nonetheless I'm curious that everyone's takes here do we see Lido remain dominance as the largest liquid staking token provider I would say yes just because the network effects they've they've already you know uh created like I think that's going to be really really hard to overcome they've got a massive treasury I don't know how they actually diversify that treasury as most of its ldo tokens but you gotta think with that high of a market cap you could you know you could probably sell a little bit of those and keep yourself going for the foreseeable future so I definitely pick Lida to not maintain its percentage market share over state to eat because obviously it's harder to do that with the vast amount of heat they already have I think that'll continue to downtrend but I think they will maintain uh you know number one status in the LST

provider space going forward um honestly I would put myself on the hot seat for this like I totally thought a lot of people would withdraw um through Lido and go to other LST providers maybe it's too early to tell you know it's only been a few hours as of this recording but yeah very surprised that there's not more people looking to switch providers considering like people who staked with them in the very beginning are definitely ogs so you'd think maybe like the the ethos of decentralization and supporting maybe more minority clients or um you know trying to make that market share get a little bit more evened out or even some people taking profits like who knows what the reason would be but yeah I was just dead wrong on that I think another interesting point about uh

lighter V2 being enabled was light is a protocol where you really really can't screw up like this upgrade and like the associated code of it you know like if you screw up something here you've probably decimate a good half of like D5 on ethereum and other like blockchains or l2s and so because of that Lido went through if I'm not around nine different Audits and each one of those nine audits found something that the previous auditor didn't find which I don't know if it's comforting or horrifying but it kind of just shows like what is average shooting enough you know to guarantee like how secure a smart

contract is is after like eight Auditors I've gone through it and I would presume light which I was like pretty tough to your order it's not like the artist was like certain um and it really makes you all right if by the time they got to the ninth one like they still found something in there I I didn't look through it I got of the auditing reports and how big like the issues that they had to fix were but it just kind of makes you wonder how much out there is like potentially like exploitable or if we can never like get it truly right you know because a lot of these conversations about smart contracts immutability is that eventually it will get to a point where we will know like all of the exports that exist we're gonna have literal like

perfect spot contracts that are never ever like exploitable regardless of whatever attack Vector there are but I'm not sure how much I believe that I'm definitely not like a software developer by any chance so probably not the best person to speak of that but this is an interesting thought shots fired man I heard that uh but no I think that's interesting yeah I like you mentioned I hope the severity of each uh you know audit decreased right but uh hard to say and uh you know I tend to think that a lot of people had this idea that lydo had been a state lotto State youth had been the safest because it's been so battle tested it's had all this um a market cap behind it making it the most attractive place for exploiters to

be looking and then yeah you add some new contracts to the protocol and you kind of start over like that's you're back to Ground Zero because there's a whole new host of contracts that can be exploited potentially be exploited so I think they kind of really took the safety first approach there so it is good to see that uh thought process yep Sean agree um I guess that's a good time to hop into my cool Throne I'm sure everyone's seen by now that tether revealed their uh q1 surplus of one and a half billion dollars of profit and now the total Surplus in relation to outstanding supplies two and a half billion um they their market cap has grown to nearly 83 billion since the usdc d-pag with usdc's market cap trailing closer to 30 billion from a high of I'm not

even looking at it right now but I'm sure like 50 billion at one point so considerable decline in usdc market cap pretty unfortunate that that's kind of the result and that's where we're at you know you'd rather see a US domicile The Entity maintain that market Sheriff but nonetheless the interesting news of all this is they bought 52 000 Bitcoin with some of their uh interest income from the United States government so the government is essentially paying them to buy their debt and they're using the proceeds to buy Bitcoin which is super wild to me if you really zoom out and think about it but yeah just to put an additional perspective that's about a third of a little over a third actually of how much Bitcoin microstrategy owns so I mean if if interest rates stay where they are there's a good chance by

the end of the year tether is actually the the one of the largest Bitcoin holders so um very very interesting not sure if I think this is a good or a bad thing I have PTSD from just everything we've experienced over the last year and a half so I kind of hate for a whale to be gobbling up that much especially a bit of a black box to some degree as tether has been historically even though it's getting a lot better um so I'm curious if you guys have any thoughts good or bad no more black boxes please for mistake of the industry maybe they're buddying up with the US government if they're like kind of being the extra liquidity for all that Bitcoin so maybe they're buying themselves some immunity there which um might help them beat out Circle in the long run so I

don't know it's some weird stuff on the note of the Black Box though this is what I believe to be the first uh at that station report that was done by BDO uh which is the fifth largest accounting firm that's not like a you know sketchy you know one person shop in the Cayman Islands like this is an actual company and it is their Italian arm so it's BDO Italia that completed this I have no idea uh the quality of that specific arm of BDO but again given that it's a branch of uh the larger company I'm assuming it's kind of held to the same standard uh so I do think that's pretty interesting that they've kind of taken that step to say hey okay you know Circle kind of four-star hand here we got to open up the Playbook a little bit

this is what we're working with so I do you think Briley it is a step in the right direction yeah I think another interesting point about this at the stationary report was that gold was also purchased alongside BTC so obviously as everyone knows the U.S job that goes standard in 1933 I think and then like eventually everything relating to God Center was phased out by 1973 and tether I think buying gold alongside BTC is like half symbolic but also have super interesting you know because now if we just stage especially postcode where the US government has essentially printed three trillion

dollars out of dinner I think people are realizing that like that's kind of for like a better term and I don't know maybe tether brings back like some gold standard or at least starts that like ideological thought movement that maybe go standard was like the better thing for Fiat yeah I I agree Ren I I do see that angle I think pebbles's take was pretty interesting too in terms of like kind of being a counterparty over an OTC deal for that sees Bitcoin that's that's a really interesting take I haven't heard I guess it just kind of makes me nervous like we like we're seeing in real time fractional Reserve banking doesn't like you know work too well when people want their money back in the fact that they're holding these liquid assets like

if there ever is a crunch and everyone's running for the door and then you know they gotta liquidate you know hundreds of thousands of Bitcoin gold like I don't know I just it seems like a scary outcome that the United seems somewhat inevitable but I guess we'll just kind of wait and see cross our fingers what's interesting is so with that gold purchase I just looked and it looks like tether has a tokenized gold and it's uh I think it's 500 mils the market cap just about and then I think paxos has one too yeah no that's that's a great flag pitbulls but you know before we hop to our jam session with the fellows from bitwise I do want to give one more shout out to the Adam accelerator uh they're really a mission-driven group that's focused on

catalyzing actual growth within the cosmos ecosystem and there's really never been a better time to build uh on Adam or using cause and wasm or anything in between right if we think about what's happened over there recently you know replicated security has gone live Neutron is actively using it and making blocks from it which is an incredible feat um and we're already seeing Builders come to the ecosystem as well right Lido Astro Port git coin uh Mars osmosis Apollo we're already seeing these names uh kind of come over and say hey we're going to build over here and the just the ability to come and increase the activity that's happening in the economic Adam economic zone is super

exciting so if you're a builder or a researcher or anybody's super interested in the space that thinks that they can add value be sure to check out the atom accelerators home page we have the website Linked In the show notes and if they have the ability to provide grants to actually get these projects moving so if you're excited about building and are looking for a new home then definitely check out the inner chain all right everyone today we are joined by Matt and Ryan from bitwise super excited about this one we actually did an episode exactly six months ago as of recording today May 11th so excited to bring them back on thanks for coming on guys thanks for having us we're excited to be back yeah happy happy to do it again yeah so I love getting your guys's perspective just because Dan said while we were off

air you guys kind of sit on the fence between crypto native and institution so getting your guys's perspective is always a real treat um what are you guys seeing in the institutional space like is there a lot of interest like are people starting to think you know maybe where the tail end of the bear Market just what's the general sentiment uh after all these events we've been through throughout last year yeah I'll start riding you could build I've just been on the road for a couple weeks talking to family offices and institutions and I would say two things one they are starting to exit the bear Market mentality so the mood is decidedly more engaged more excited more positive than it was even two months ago right uh even though the market has been

trading sideways for a while they've woken up to the fact that it's the best performing asset class in the world and so they're thinking about how to get uh allocations to it you know one one particular Point uh that I've been hearing a lot is uh sort of the family office and institution side thinking about just a very small allocation just putting their toe in the water hitting one percent allocation to bitcoin and eat uh specifically has been the story that's been emerging so I I feel pretty positive they're not gung-ho they're worried about regulation they're worried about all the things that keep the four of us up at night I'm sure uh but they are star starting to think about putting their toe in the water and I think you're you're going to start to see that in asset flows over the next few months

yeah I I had an interesting call with the family office uh yesterday and I found what I found like most interesting about that is they're really focusing on what the real use cases for crypto are so you know a lot of the meme coin media we've seen this past week has has I think brought some emotions of like okay we are you know a year into the spare Market you know we're we should be kind of like rotating into more use cases and kind of a different uh different kind of momentum behind the market than we had a year or two years ago and yet we're still kind of finding the same things pop up albeit it's a little bit different obviously we have you know brc20s instead of you know just the erc20s and we have l2s today which we didn't have really back then but yeah I

think it's I think we're starting to you know need to find a space where we're having real use cases and real traction Beyond you know speculation and it's good that they're focusing on that uh versus trying to learn you know what is bitcoin what is ethereum so I think that that moved the needle quite a bit in the past year or two but yeah definitely more focused on the you know real world use cases and Adoption of crypto yeah that's there's lots unpacked there and you know one of the things you mentioned Matt was they're actually considering that one percent allocation which is pretty exciting because I feel like in the the last bull market everybody saw those charts that were getting tossed around of like oh look at this traditional portfolio and here's how much better it performed but that one percent five percent allocation into

crypto uh so now that like the dust is kind of settled it's like okay now let's actually consider if that's a realistic possibility so that's super intriguing to hear um and then you know further to that like are are they still only looking at Bitcoin and ethereum as these realistic Investments or is are they like considering things maybe even just like one step further on the risk well I think for them eth is one step further on the risk curve so we should start there right uh if you back up it used to be Bitcoin only and now I would say there's actually more interest in geek uh than there is even in Bitcoin from many of the the institutions that we talk to um I don't think many of them are yet

ready to move beyond that a little bit further down say into D5 protocols or or into into layer twos um I think layer twos are probably just around the corner people are starting to talk about that but the big change has been from Bitcoin to bitcoin and eth I know we all live like a few years ahead of where the institutional Market is so that's a tired story for us but it's a brand new story for many of these folks and they're excited about those real world use cases so I really think that's uh that's the thing the other big ship that we've seen actually uh is institutions who used to allocate to venture capital within the crypto Market starting to think about either crypto hedge funds there's a rising interest in

crypto hedge funds um or direct exposure so that's a that's a similar movement down the risk or from VC to hedge fund or direct exposure um that's that's probably a really powerful theme right now you don't hear much about crypto BC and three years ago that was that was all the rage yeah yeah that is exciting to see too definitely a change in perspective about how they're kind of thinking about the market which is exciting to see uh but the other thing you mentioned was you know they're kind of getting out of that bear Market mentality I'll I'll I want to hear both of your opinions on this maybe I'll throw it to Ryan to you first like do you think that now is the time to truly be thinking like all right like is the light at the end of the uh at the

end of the tunnel is now the time that it's like time to start thinking about being risk on again yeah I think that investors definitely are looking at this as an opportunity to allocate right I mean they've missed the point at least so far in this bear Market to allocate to bitcoin under 20 you know East down in the low thousands and so uh it makes sense that this kind of like you know fomo effect plays out as we see a little bit of a surge in in the prices you know Bitcoin and crypto is the best performing asset class of q1 so undoubtedly they're getting a lot of questions from clients about you know the the outlook for the market in in general right how are equities performing right how are we allocated and so to not have an allocation to crypto I think is you know one once

again kind of becoming a business risk for them as financial advisors as institutional investors so I do think it's a good time you know for them to allocate you don't want to see it pop another 20 30 40 percent and still not have the the appropriate allocation but I also think there's a really big you know macro headwind uh out there for all risk assets and crypto definitely fits kind of the the bill of a risk asset that has some additional regulatory risk Beyond you know traditional equities so I do think it's a good time to allocate I think you know we could see you know some selling off if the macro uh picture you know turns for the worse but yeah I think it's coming out of the darkness a little bit to to see okay look all risk assets uh are subject to macro headwinds but what

what could benefit from you know the the Tailwinds the best and I think crypto really sits on top of that list and I I would just I would just build on that by saying you have to allocate when it Stakes you have to allocate when it hurts you have to allocate when it's ugly if you wait for us to get regulatory Clarity and for the uh the macro uncertainty to vanish and for the real world use cases to have a billion users you'll definitely have missed right the best times to allocate in crypto history have been 2018 at the end of 2014 uh and so you know one message that we're telling institutional investors is it's one percent of your portfolio like what's the Worst That

Could Happen you'll be down one percent you're down one percent on the S P 500 today uh you know so is one percent of your portfolio you have to buy when it's challenging and you can you can succeed by having a little bit more information about the market than what the most of the market sees you can see succeed by looking abroad and seeing regulatory progress even as we see regulatory challenges in the US you can succeed by realizing the sort of technological Revolution taking place with layer twos in the ethereum blockchain when the market isn't focused on that but it's always going to be painful when you're buying at the right time it's never easy and that's true right now definitely a fair point even tough for for us you know allocating in the space in our mpas

it's like damn this is a little bit scary here but doubling down on the point of you know institutions kind of going into eth I'm curious because a big event over the past couple of months was eth withdrawals of course with the Shanghai upgrade um so is that a legitimate narrative that you hear like are people feeling like oh wow I can actually get yield and I can exit the system if I like to like the loop is closed did that attract more institutional interest or is that kind of a nothing burger that people talk about I think it's a bit of a nothing Burger today uh one thing that I think a lot of institutional investors think about that us that are further down the rabbit hole don't really think about is the whole element of you know cussing assets like a lot of our investors want

to hold their assets in cold storage and and don't want to have exposure to Smart contract risk of you know the likes of staking and so uh while it removes the risk of your money your Capital being locked up indefinitely I don't think it removes all of the risks of not holding assets in cold storage and so until you know the regulated custodians the Anchorage and the coin bases of the world uh and even you know the fidelities and the in those like you know older named institutions start offering the capabilities of you know allowing for staking but but somehow doing that in a way where Cold Storage is still and security is still the number one priority I don't think we're gonna really see that that big leap in to you know staking yes they understand that there is some yield but they're

also aware that yields paid out in the native token so it still kind of carries the same price risk as you know just having additional allocation to Ethan and since we're still kind of working on you know bumping that allocation from one to two to five percent I think that the you know the additional four to six percent yield doesn't really carry all that much um weight and additional additional payoff uh you know as it yeah I would just toss out I think the bigger impact of Shanghai is fundamental which is that over it's time you're going to see more asset uh staked in the ethereum ecosystem and therefore Vanishing Supply so I think it's supportive of prices and also for crypto Savvy institutions and those are out there uh it removed a risk right where there was the cell wall

narrative out there and people weren't sure whether that would happen or not and so the fact that we got beyond that removes a risk but the average Institutional Investor that we're talking to they're still catching up with EIP 1599 right that the sort of they're still realizing that there's a burn mechanism and that you can think about revenues and that you can model it out that way that's where they are maybe a year plus behind where the market is uh but for sure you know ethereum continuing to execute on its technical roadmap is good news and institutions get that and every time they do that it builds confidence but we don't hear a huge amount of demand for you know four percent yields the institutions

investing into crypto are are trying to 10x their money um just like the rest of us and so those those those those yields are nice they're added it but they're not the Big Driver no I think that makes a ton of sense even talking to to people in this space that you know our analysts are just spend every day in uh thinking about crypto and they take the same approach it's like okay do I need the extra four or five percent if I think ethereum itself has you know that 5 to 10x upside over a few years so I I definitely I think that resonates with a lot of listeners as well and take can this to the to the more boring side of the conversation that I just think has to be hit is the regulation front right so coinbase kind of seems to be

spearheading this uh the battle honestly and fighting the good fight on on all of our behalves I'm curious like what is your take on coinbase being the ones to do this um you know just a couple days ago I think Bloomberg broke the story that jump in Jane Street are like kind of rolling back some of their crypto operations amidst this regulatory pressure and you know we've already seen the impacts of the loss of their liquidity has kind of had um so I'm curious like what's your picture on the regulation front yeah uh I'll start maybe Ryan you can jump in first of all it's great that it's coinbase that's fighting the fight there is no better positioned company in the U.S to fight that fight with the resources with the gravitas with the clean regulatory

record over tide uh they are our champion on the front lines and I think everyone in crypto is rooting for them probably even their competitors uh you know our view is that what's most like likely to occur from a regulatory perspective is sort of nothing for a period right a sort of standoff between of harsh regulatory climate crypto pushing back and probably winning in the courts and the legislature trying to make progress on some aspect or another it's a sort of a painful volatile they taunt is my base case for regulation they're right tails and left Tails right on the positive side crypto wins aggressively in court and uh the

legislature passes some version of crypto legislation any single crypto bill that gets through Congress this year would be positive for the crypto ecosystem so that's one Tale the other tail is uh crypto fails in court and Regulators get to put their thumbs down and really pressure the market uh or we see a continuation of this regime for multiple years but my base case is like a painful volatile detox and uh and and that's okay for crypto that's all we need to continue in a multi-year bull market we just need to clip the left tail of negative distributions uh and we'll be fought yeah and I would just add to that on the whole the whole Jane Street kind of jump crypto element of

things uh I think one thing that gets missed in that headline if you if you kind of read between the lines is that yes they might be stepping back from crypto it you know in in theory but I think what really it means is they're being more selective around who their crypto partners are and that I'm sure is a result of the Fallout of you know kind of uh working with any crypto partner out there you know from the ftx's to the uh to the Lesser known parties that could end up having some regulatory action taken against them and so you know as a way to hedge their regulatory exposure they're likely going to be far more selective about who they're working with but I don't think institutions like that will really fully step back from you know having exposure to crypto Market it's a big part of their business

that you know for for jump crypto obviously uh much larger than Jane Street but I do think that um you know we have a lot of people that come from Jane Street into crypto and I think that's indicative of of you know that organization as a whole kind of being very pro-crypto kind of understanding that technological innovations behind crypto and what it can do for trading what it can do for the movement of money what it can do for for Capital formation so uh yeah yes they're stepping back from who they're working with being more selective but net that might be a positive that might be that the you know the quality players and the quality actors out there um have you know a leg up on some of the you know worse actors or or uh detractors from the space yeah most definitely we also saw coinbase's

earnings come out last week uh I think the expectations were a 45 loss per share and I wound up being an 85 or 86 Cent game like that's a pretty big surprise not really sure how Wall Street missed that one so so by such a wide margin to be honest um but nonetheless that's beside the point um what do you guys think about coinbase what's the bull thesis they've got base launching they got coinbase wallet obviously more than 100 million users we've talked about it a bit in the past but I'm curious if that uh thesis has evolved all over the past six months since we last talked yeah there's so much to be excited about with coinbase and then of course there's this one giant exogenous negative risk but let's start on the fun part uh I thought it was the transformational

quarter for for coinbase I think it was one of the best quarters of a publicly trade company that I've ever seen if you look at what they did not only did they grow Revenue aggressively quarter over quarter but they did three or four things they really set them up I think to be a giant in the future the First with dramatic cost cutting they caught cut expenses by 24 and the most important thing in crypto as you know is just to stick around right to be there through every Bull and Bear Market coinbase has done that since 2012 and I think by sort of getting religion on expenses they sort of guaranteed with their five billion dollar balance sheet that they are going to be here for the next cycle as well so that was really

important but that was just one piece they also expanded internationally paved the way to launch an international derivatives Exchange open up multiple local markets they launched base which is incredible uh thing they launched coinbase Asset Management they laid out a road map I don't know if you've seen that slide of how they plan to sort of evolve over the next 10 years to really reframe how Finance has done one of the most ambitious roadmaps in the market I always struggle with looking at coinbase and it's a 16 billion dollar company or whatever it's a smallish mid-cap company and it could be one of the most important financial institutions you know in the world in the next 10 years

if crypto plays out the way we think uh it will and I think this quarter really set them up to sort of fill that role and so I'm very excited that the sword hanging over them of course is the negative regulatory Outlook right and so I think you have a very distributed uh range of outcomes for coinbase I think most of it is on the upside but if they get a very negative regulatory result massive fines big restrictions on their business that would be a negative but I think it's one of the most attractive public equities on the market today yeah I think Wall Street like largely misunderstands coinbase's business model to be totally honest it it gets a lot of coverage alongside the nutritional uh nutritional brokerages or uh you know

even some of these like Regional Banks you know sometimes kind of get get grouped in the same which obviously those have a lot of different risk profiles than what coinbase has but from everything from their exposure to you know the second largest stable coin which currently is getting more and more profitable as yields rise on treasuries right they I think they're uh they're out they have I was looking yesterday like 80 percent of the reserves or something like that are allocated uh in into T bills and and treasury repos and so I I think there's just a huge portion of the market that thinks hey this is just a trading firm all they do is kind of handle spot trading and if volumes are down then revenue is going to be down and yes that is obviously a big portion of their business but they also

you know this this derivatives opportunity which I believe you know a lot of people think as it's more of just a regulatory play but the reality is is that the fall of FTX left this huge hole in the market and there's a huge appetite for crypto derivatives uh outside the US and so I do believe that uh that's going to be extremely profitable business for them and it's more than just a regulatory plan that's just you know a couple examples of how Wall Street and and you know uh most institutional investors are kind of missing the mark on how they think about coinbase as business yeah I just had one thing it's so cheap it's so small you X Out the cash of coinbase and it has the same market cap as Dogecoin it's got a lower market cap than cardano it's half the mortgage cap of xrp once you've

exclude the cash those are ridiculous comparisons this is the most important company in crypto and it's trading on par with Dogecoin from a market cap perspective if you exclude out the cash it has an incredibly ambitious roadmap I think they're probably a lot of crypto native investors who own crypto assets I would say are short coinbase they have a a lack of exposure to one of the most attractive investment opportunities in the crypto space on a morphic cap weighted basis I would just encourage people to dwell on those facts for a minute when they think about where to put their next marginal dollar to work uh in the market that is a phenomenal

comparison and something I have not drawn those drawn those lines myself and so I'm that clipped that clip that action that's phenomenal um and another thing I find interesting is so I'm looking at their shareholder letter here from q1 and 240 million dollars came from interest income of the 740 million in net revenue and so that's some 30 some odd percent and that seems to be like a huge business model for when we're in a bear market and rates trended higher and they have this kind of like counterweight to keep their revenues flowing and that's what I think is exciting about base I don't know this for sure but you know if they have that Revenue share a circle where any on platform usdc they collect a portion of that revenue and so if they make base this like safe haven for usdc if you

would call it that and like just promote the use of usdc on base I'm very curious to see if that usdc counts towards their revenue share so something I definitely have in mind with uh kind of watching how a coinbase grows from here but I'm curious if you guys have any like super exciting takes on how uh bass will be used by coinbase yeah I I think what's interesting about there's a couple things about base one you know it's kind of the first instance we've seen a publicly traded company adopt l2s and really lean into l2s and and coinbase has continually leaned more and more into kind of this on-chain you know web3 App Store kind of approach to to exposure to crypto and traditional investors want an equity rapper they want you know either an ETF or a

traditional equities rapper and so this is the only L2 where you can have some kind of exposure in your portfolio for you know just traditional investors and they can't allocate to optimism or arbitrary directly and so what can they allocate to is is base and I think that has a trickle-down effect on you know the rest of the crypto ecosystem uh inherently because uh you know it just brings more and more attention to the power of layer twos it brings more developers uh into into layer twos you know coinbase has the resources to help onboard developers help establish Partnerships for face kind of like polygon is you know really well capitalized in a really strong marketing the engine I do foresee you know bass kind of having the same kind of clout across traditional companies as we see

polygon having today so I'm really excited about bass and the other thing about coinbase with with uh you know it's usdc exposures I was translating some usdc to coinbase the other day and it uh it kind of struck me as interesting that you they'll just take usdc it doesn't matter what chain you're sending it on like they just like hey send it from arbitrum to a theory whatever it is like we'll handle the bridging we'll do we'll kind of like abstract away the stress that you feel maybe when you're sending E from your metamask to your to your coinbase wallet and you're you know worried that you're sending it from arbitrums ethereum and you know you're gonna end up like it's gonna get lost in this black hole like they're removing that um that user experience risk that we see and I think just as as the proliferation

of bass continues it's going to help improve the user experience and so investors can get exposure to kind of so the crypto ecosystem on a variety of fronts with coinbase you have stable points you have layer twos you have spot trading uh and you know staking and so I just think it's like a really interesting business model but yeah bass is really exciting um loved loved that they rolled that out and I think it just shows that yes there's a big regulatory uh Cloud hanging over their head but they're doubling down they're still pushing forward and that's what the best companies do uh in dark times right and so um yeah I'm really excited about it and think it's going to be a big big piece of momentum for coinbase as a company so I guess that begs the question of you

see the the r bear job but token for arbitrum came out what a couple months ago by now yet you see optimism trading at you know two to three X lower valuation so do you think that that's kind of a mispricing in the market I know some of coinbase's sequence of Revenue will be allocated to the op Collective to distribute for public goods funding um not sure if you have any thoughts there I just find it interesting that we have a centralized team of developers you know all working together employed under the same company building on the same L2 like you gotta think that there's quite a competitive Advantage there versus a team of completely distributed developers trying to coordinate over a Discord so I guess what's your opinions on L2 valuations

yeah I'll I'll take this one I think I think there's a couple things one optimism you know token airdrop came out at this point so long ago and especially in the kind of the the timeline of crypto and so I do think that Arbor Trump benefited a bit from being the second mover which is kind of an interesting Paradigm but you know everyone was so excited about optimism when the token airdrop came in so naturally what was the next move was to go try to you know increase your activity levels on arbitrum so that you can you know you can qualify for a token airdrop and I think that by being the second to the market from that front they actually kind of Drew more users and Drew more activity on their platform which you know likely is helping them with this this higher uh market cap

valuation but um ultimately I do think that the market share from base to to op is really really interesting I I hope to see that model um you know expand across across more l2s and and uh you know kind of the op stack so I do think optimism is is likely a bit undervalued as it relates to arbitrum but um you know optimism also has this kind of like growing gaming ecosystem like the the treasury ecosystem has been really really interesting uh there is still a lot of D5 activity happening there so I do think there's a bit of a Mis price happening I think it's more due to the the timing of the token airdrops between the two uh and kind of where momentum went from optimism into arbitrum but that'll get leveled out

over time as more and more users and more and more investors come into the ecosystem yeah Sean are you there I uh I'm definitely bullish on optimism and both arbitrum honestly I love both of those LTS that's personally where I conduct a lot of my activity um so I guess towards you know we saw the usdc d-peg at one point on that scary weekend a couple months ago what was your guys's experience during that event how did that affect institutional flows over you know the the preceding weeks um do you feel fully confident in usdc do you think it's a bad thing that you know usdt's market cap is climb climbing in the face of um all the all the Fallout from the event like I just how has that changed

the institutional landscape and how you guys think about where to deploy Capital yeah I think you know we were monitoring that closely we were touched with a bunch of hedge funds which were on one side of the trade and then switched to the other side of the trades you could sort of see what was happening underneath the ecosystem we had no time had real fundamental worries about how it would shake out in the end my only concern was that it would damage the reputation people wouldn't realize that it was a Trad Phi failure and not a a crypto native failure and that that turned out not to be the case I think everyone has confidence in usdc more confidence even today than they did back then because they've improved their collateral

um but yeah I wish usdt wasn't gaining Marcus share uh you know we made 10 predictions at the the start of this year and we've been pretty good with most of that uh We've nailed probably six or seven if you were still up in the air but one we predicted was usdc would flip usdt and and that uh that has gone the other way I don't think it's good for the market when you reward opacity uh and um and that was that's what seems to be happening people are like tether is safer because we couldn't see that they couldn't access their money and that's a that's terrible reasoning um and so you know yeah it's just not perfect I wish it would go the other way I think it will

over time I still believe in that I believe you know institutions will be a larger part of the market we'll want more regulated entities um but so far I've been wrong I don't know Ryan if you have a different take yeah yeah I think that that's that's really true you know those were those were Dark Times Sam definitely that uh that Friday night will I think it'll take me a long time to forget about uh how I was feeling in the uh the aftermath of everything going on and so um I do think it caused some you know harm to the reputation of usdc I think some undue harm albeit like Matt said you know this wasn't a failure of usdc in a lot of ways it was kind of a ripple effect of you know the Silicon Valley banking's horrible uh you know or or you

know not so great uh risk management and so I do think there's an element of you know yes spreading your Capital across multiple Banks as a stable coin is sure probably makes a lot more sense that they probably were too concentrated in a single Bank especially a Regional Bank so uh the good news is they've learned from that you know now they bank with Reserve Banks now you know they have a huge portion of their capital in in treasuries and the reality is is both usdc and usct kind have a similar exposure to to the U.S system now like they both are kind of sitting at about 80 percent allocation uh of the reserves into treasuries and right and that that speaks to you know how profitable stable my businesses can be in a rising rate environment and and but it also speaks

to the fact that you know you're really getting a very similar you know risk profile from exposure to the traditional Financial system with either stablecoin and then it becomes well which one has a you know less of less of uh opacity which one has less regulatory risk and I think usdc wins that battle every single time so um yeah you know it was oversold when that happened but but nonetheless it wasn't it wasn't great yeah one sort of negative Cloud I agree with most of what Ryan said but one sort of negative Cloud piece to that is the regulatory environment we existed seems sometimes to punish U.S entities that try to adhere to regulations and allow International entities that do not to run wild and amok so generally speaking usdc is doing the best job of trying to

be a regulated audited clearly accessible entity that doesn't actually necessarily mean in today's climate that it has lower regulatory risk and I think that that cloud may be hanging over it you're not you're not necessarily rewarded for trying to do the right thing in today's crypto environment I wish that weren't the case but this is an imperfect Market that we all operate in that I think you have to acknowledge that that's a reality right right and just to give the uh the other side of the coin here I guess like UST usdt and tether did just release their first attestation report uh and I was actually from BDO the fifth largest accounting firm in the world it was their Italian arm I definitely can't speak to the the quality of that

specific branch of the firm but I did think that was pretty interesting and they had a phenomenal quarter which is interesting to say I think the final numbers were around a 2.4 billion dollar Surplus and a 1.4 billion dollar or so net gain over the quarter and that was nice to see that step towards transparency but as you mentioned I did think it was very interesting that during the usdc dpag you usdt was the the flock or the safe haven and that would imply that at the time tether had no exposure to the U.S banking system whether that's a good thing or a bad thing is definitely up in the air uh but you know you mentioned the your predictions and they've been quite spot on and one of them that's nailed was the the idea that uh we'd see like the great decoupling if you will or the separation

or decoration of U.S equities uh from crypto can you kind of speak to you know why you thought that would occur happy to take that one uh I think there's there's a few reasons like you know traditionally what drives the performance and the returns of crypto assets is a lot different than what what drives the returns of equities right so with crypto assets you have technological uh Innovation you have kind of this regulatory environment um and then you have you know this this element overall of kind of being a high growth early stage kind of Technology play and then you know traditional equities are largely driven by the the macro environment they you know they're driven by uh profit to shareholders right and uh kind of their their policy as a business and so you have these two

different means for measuring performance and and how how performance is driven and so up until 2020 I think we saw like low correlations maybe even uncorrelated you know at that point in time like anything kind of down in the 0.25 range or lower and even went negative at some points like is that definitely like an uncorrelated asset and so in 2020 you had this crazy monetary policy kicked in right with covid and all risk assets kind of converged onto this environment of being completely driven by the the fiscal policy by the macro environment and so we didn't really see correlations fall for the two years following covid uh in in you know given that you know math talk about earlier is like we talk

a lot with institutional investors about their allocation to to crypto being a one to five percent allocation but also that it's uncorrelated with traditional equities and so a lot of questions we got over the past two years were were circling around this it's supposed to be an uncorrelated asset it's you know relatively highly correlated you know what when is that going to change and why is that going to change and as we thought about it we thought you know yes there's a lot of macro headwinds out there obviously especially institutional investors are thinking a lot about the macro environment and about the interest rate environment but you know it's it's become a bit like normalized in the velocity of interest rate changes and monetary policy changes has really slowed and so as that velocity kind of slows down and people get more normalized to the yeah to The

New Normal uh it made sense that we would see uh decoupling of the correlation of equities in crypto and uh I think I've been pleasantly surprised that it's happened even faster than I had thought this year and it's partly been driven uh or accelerated by you know the banking crisis and uh kind of circling back to what we were talking about with the dpeg of usdc in that moment you know it's people people were wondering what where do we go to you can't really you can't uh flee to other stable coins because you don't know what kind of risk there is right and so where do you flee to you Fleet like assets like Bitcoin you Fleet assets like ethereum uh which you know have kind of less of a tether to the traditional Financial ecosystem to the traditional markets and so that that you know

accelerated our thesis I guess that we're going to continue to see correlations fall but yeah it's really just a difference of of what drives the performance of these assets and the macro piece becoming less of a story uh this year than it has in the past two years and so we expected correlations uh to fall dramatically and have been happy happy to see how that's happening it helps with the you know traditional portfolio allocation when you when you have that kind of decoupling of correlations well right let me tell you I'm All Aboard that thesis because the less I need to worry about things like CPI and labor reports the happier I am so uh I'm all in there uh but let's I want to take things a little more on chain now and you know uni swap has been performing incredibly well in terms of pure volume

uh pure volume even relative to something like coinbase and I'm curious do you think we've kind of hit this like inflection point where you know Dex has really start commanding more and more volume as we move forward yeah it's been really interesting the first quarter was really strong for dex's I you know part of that speaks to uh speaks to the fact that when everything was happening uh with the with the regional bacon crisis with uh the the Deep pegging of usdc right I think most crypto Traders kind of lost confidence or lost more confidence in some of that comfortability that maybe they've gained over the past couple years with traditional you know C5 exchanges and that you know obviously I eroded with the with the failure of

Celsius and you know Voyager and uh in Genesis and stuff last year but I think you know people had kind of stomached that risk and said okay you know well at least we'll be safe with coinbase at least we'll be safe uh you know with some of the the bigger name uh you know us-based companies and then you see something like this happen with Silicon Valley Bank and you see something um you know happening that has some kind of connection to coinbase right I think they froze usdc uh exchanges over that weekend and that just drove more and more users to using decentralized exchanges in that moment but also you know it was a trend we saw in January and February leading into that and so I do think we'll see more users use decentralized exchanges the reality is um you know some of that trading volume

that's happening on uniswap is actually flowing through from from coinbase like they you know a lot of often route trades through unisop if they have deeper liquidity and can get better pricing uh you know for their end users and so I do think that there's some of this you know uh you know Rising Tides kind of lifts all All Ships momentum that's happening but um yeah I don't I you know institutional investors you know the less crypto Savvy ones aren't using uh unit swap right they are using Sushi swap by any means and so there is an element uh where I I I'm not as confident that we'll see you know uh immediate adoption and continued adoption of of decentralized exchanges but I definitely won't be surprised if we get to the end of this year and in

this next bull market um we're seeing consistently you know more of a challenge from uniswap to coinbase's uh market share great perspective there and I guess like the follow-up on that would really be do you think there's an idea of like a brand mode in crypto you know if we we've seen uni swap just start early and just take the lead and really never look back at again looking purely at volumes here um but how do you think about brand modes in crypto uh yeah there's definitely a huge you know moat for first movers in crypto in a lot of instances right so um we saw uniswap's market share get challenged by Sushi swap temporarily when they forked it and when they you

know airdrop their token but the reality is is especially with trading and especially you know with lending like you're gonna go to where the deepest liquidity is and where the most liquid assets and where the best pricing is like financial markets are all about liquidity and pricing when it comes down to it at the end of the day and so and confidence right and so you do have this uh you do have this brand moat for first movers uh they also get more attention and more headlines in traditional media right which only helps to bolster uh that their reputation among traditional investors among Venture capitalists and that just kind of fuels the flywheel of of capital flowing into those ecosystems um but you know crypto is a very Innovative space and I do think that um there's something to be said about

newer protocols kind of testing the limits and you know it's it's hard to know what ultimately happen you know if a new decentralized exchange your new trading platform comes out and just really kind of um you know really comes and challenges uniswap's uh you know concentrated liquidity but still the amount of liquidity that sits there the amount of Integrations they end up having with different uh different protocols um in in the fact that you know if you build an aggregator most of the trades are probably still going to flow through unisop only helps to kind of you know increase their moat so yeah I do think that there's something to be said with with brand modes but it comes with a lot of risk I mean FTX had a huge brand mode obviously uh when when uh they they you know famously collapsed and so uh yeah

you know you get the good and the bad obviously so I know you mentioned the beginning of the call that you don't think there's you know it's kind of like picking up pennies in front of a steamroller for example like trying to get the East staking yield from the institutional lens but I'm curious if you guys have uh thought at all about lsts in like the relation of a basket to kind of spread across the the risk of slashing or downtime uh amongst the validators because I have seen some uh index providers uh create these LST backup baskets to kind of try and provide that yield with reduced risk to the institutional crowd is that something that you guys are thinking about at all I mean I know I definitely think about uh you know spreading out your risk

through liquid staking right and and especially when there's um there's becoming more of a competition among fees across these different liquid staking providers right so it was it was easy in the early days like okay well 25 of a fee for coinbase's staking platform versus 10 on Lido I'm gonna go to Lido but I think you know just like with trading venues like we saw with traditional trading venues you know for the past 30 four years like fees begin to converge as competition increases and so I think the fees become a little bit less of a story going forward and I do think that it's likely we uh we see people kind of taking advantage of similar feed liquid staking uh platforms and the ability to kind of spread out that yeah that slashing risk exactly that regulatory

risk that um you know that smart contract risk really as well across the different ecosystems so you're getting the same APR more or less on any of these platforms so it makes sense that you're going to want to spread that spread that risk out especially with some of them having no you know no minimum uh staking requirements right like you can just throw a little bit into coinbase you can throw a little bit into Lido um yeah that's kind of my take on it awesome and another thing that's kind of been a Hot Topic is is really just like the idea of returning protocol Revenue to token holders and there's like a lot to unpack in just that question but I'm really curious how you guys think about this because to some degree you know these are all like you could think about the uh a protocol or adapt as like a

startup and in very very few if any instances there are no startups throwing dividends to shareholders so I'm curious about how you think about uh like Revenue distribution from a protocol to a token holder yeah I love that that's a great analogy um one I haven't heard before I think it's a really spot on one the extension to that analogy is that the startups have to have a pathway to eventually make money so they can be uh pre-monetization but there must be a way toward monetization at least by the time they get to be you know a series C Series D venture-backed company once they're a little bit mature so I think you need to uh look at these tokens and decide if there is eventually a pathway

to monetization or burn function or something of that uh that nature and you're going to see two different levels of valuation there will be projects for which there is no Pathway to monetization there'll still be value in those tokens because there is value governance um and there is value in um yeah and be able to direct and influence the community and see where that Pro goes and there can be good reasons to do that but you're going to see a different valuation path for monotossible uh assets so all I would look for is is there a potential down the road early on like in an early stage company you want to build uh mind share audio kids and robustly incentivized developers to to be active in the space

but eventually there needs to be a pathway to do real token economics or else you're going to have marginally valuable protocols which is fine those are great public goods level um but from an investor perspective you have to know which path so you guys mentioned too earlier that Bitcoin you know is seeing increasing interest just in terms of being used as a DA layer when it comes to like BRC 20s or ordinals slash inscriptions so have you guys been hearing anything from institutions asking about this stuff I'm sure they see something about higher transaction fees and they're like what the hell is going on here and you've got to try and explain this to them um so yeah I guess on top of that too are is there more investor interest from the institutional crowd outside of like

you know other evm compatible chains outside of ethereum or like a Solana and there's more interest around like a Stax or some of the Bitcoin L2 landscape yeah Ryan you want to start I'll jump in sure yeah I mean I do think that we're getting a lot more questions about l2s in general and and a lot of focus on the fee landscape right because now you get you get these headlines especially you know this past week and over the weekend around uh fees jumping to you know unaffordable levels and so uh I I think what's interesting about the L2 space on bitcoin and particularly the growth now uh uh I mean a kind of explosion I guess of the vrc20 token environment is that we're going to see more and more l2s pop up as you know maybe hundreds of

thousands of brc20 tokens uh you know go live on bitcoin and that'll just help with accelerating innovation in the space it'll also um allow you know the early movers like Stacks to kind of have an advantage because they've already been working on this they're not you know trying to just capture on some kind of hype they've been building this now for a while and so uh I I do think that you know there's a lot of attention placed on fees because fees you know can hinder adoption they can hinder Innovation right entrepreneurs aren't going to go and develop uh on top of protocols and top of l1s or or you know l2s on uh Bitcoin if it's extremely expensive but I do think that we can point to adoption of like the lightning network via uh via uh striped and stuff and so

there there's some element uh of uh BLT of the like explosion of brc20 tokens of the explosion of uh these meme coins again that's going to have a lot of Tailwinds for layer twos and four adoption but I think we're in that we're kind of in that like part of the chasm where you have like this crazy congestion you have this really uh speculative use case and so you know that will bring in more innovators that will bring in kind of innovation but it definitely gets a lot of headlines right now but yeah we're we're getting a lot of you know questions about scaling and about uh you know when will when will blockchains become affordable so that they're you know true use case of kind of baking the unbathing creating cheaper faster Financial transactions really um

you know stay true in the long run and you know I do think we're getting closer to that point but um there's there's still some improvement to me even on ethereum l2s right there's some improvement to be made with with upcoming upgrades so uh this super divisive topic on crypto Twitter it's a super divisive topic among bitwise research as well with people on both sides of the spectrum here I'm of the view that high fees are just strictly good uh not for the long term but strictly good because think back to like the the huge spike in fees in ethereum in 2020 and 2021. what happened we saw massive innovation in the layer two space massive Innovation from the eth developer Community to work to bring now those fees so that things can scale you think we would have seen

those things that we hadn't had fees Spike to 20 50 200 transaction absolutely not why would anyone bottle if fees are going to be persistently low you don't need these layer 2 so Solutions I also think it's the case in Bitcoin specifically that at this point the high fees do nothing to interrupt the fundamental use case of Bitcoin as a store of value I'm going to hold Bitcoin for the next 50 years what do I care what the fee I don't care as long as the blockchain is secure the only risk would be if you start to see sort of more Innovation and change in the underlying protocol that puts at risk some of the security guarantees but that's far afield and I doubt we're going to get there so I think it's just strictly good uh I think we'll look back at this as

sort of catalyzing a flourishing of the Bitcoin ecosystem and interesting experimentation and new ways to scale um and uh but I'm not we don't have a United view on that wise we definitely have uh people who would laugh at me and tell me I'm an idiot yeah now that one always uh I always kind of struggle to Grapple with that one what I will say is you know we saw binance freeze uh freeze transactions on bitcoin you know twice over over the weekend and so I think that just speaks to you know they're going to evolve their business to be able to use layer twos and you know scale their their fee uh fee Network and um scale their business up as we see more activity and that just speaks to kind of that momentum that this congestion provides right like you need

congestions to build new rails and new Lanes to drive more Innovation so that you know you can kind of free up capacity and and grow your business and so it was it's a really good example of of how that'll happen and yeah I do agree with Matt you know we saw that happen on that ethereum ecosystem and look where we are you know two years forward from that point in time and we have so much adoption on Arboretum optimism polygon uh and other l2s we saw other l1s pop up right to kind of deal with this the higher throughput lower cost issue that we that we needed to solve and so um yeah I think it's yeah exactly highly controversial but I do see uh good points made on both sides and I would just add one more thing you asked from an Institutional perspective you know

they don't know what ordinals are they don't know what's going on in this space but one question they do ask almost at every meeting I have is what happens when we run out of Bitcoin and from that I know this is a like a narrow narrative piece but from that being able to point at the rise of transaction fees and be like look the market will solve this we'll have a way to maintain this this system not just until 2140 but indefinitely because the market will solve it as there is more use look at is what is happening today and so it to me it's a really beautiful proof point of the Elegance of the sort of fee and base reward switch that sort of thought of over a hundred year time frame but we're seeing it work out sort of today and I

think it's helpful for that perspective yeah I feel like that's an interesting spin to put on it honestly because even just five months ago the idea was oh yeah like something will happen and fees will go up but now it's like okay well you know Meme coin speculation is not the long-term answer but at least there's like a model that might be able to scale and you can like say hey here's a template for what could potentially work as like not just pointing to the air and being like over there if there's something there but I do think it's interesting that these things are still happening um on base layers we do have like high throughput chains today Solana could handle this without much of a blip I would imagine um and even arbitrary and optimism sure there fees would still go higher but not

to the point of you know 70 80 100 uni swap transactions do you think that if you fast forward out even just 12 months like if there's if this type of media and speculation is going going on again do you think that pushes to the l2s and if so why yeah I definitely think it does you know I was surprised a little bit to see uh to see all this activity like migrate and kind of consolidate onto their email one I think the main reason that's happening is because that's just where a lot of liquidity ends up sit like when they launched these tokens on L1 liquidity goes there and again like Traders are going to go where they get the best pricing but as more and more activity gets pushed onto l2s through events like this I think it's only natural that we're going to

start seeing a lot more of this speculation taking place on different layer twos uh you know as it gets safer to bridge you know over time as people become more comfortable with that and you have more on-ramps directly Intel 2s like coinbase and bass I do think that we'll get to a point where uh where we see you know a lot of that the speculation most of the new ideas happening on l2s but l2s are still relatively young I think a lot of people um you know forget that that arbitrum and Ops only really went live within the past you know year or two and so uh it's they're still really really young especially you know relative to ethereum mainnet uh and so there's a whole level of kind of like you know education for developers and entrepreneurs to to explore not not necessarily like the the

launchers of you know Pepe are you know of that by entrepreneurs we need for the future of innovation but I just think there's you know it's easier to to do things on L1 today um and then that's where the liquidity goes and that's where Traders go but I do think that we'll see the explosion of l2s especially after eip4844 where we see the fees on L1 remain you know relatively the same but we see the fees on layer twos get significantly cheaper that unlocks new use cases like micro payments other types of uh you know much cheaper kind of innovation so yeah and I would just add like the first things that will migrate totally to l2s are things that are commodity priced where fee is is the only defining Factor right or are non-financial activities where the fees being de minimis is critical to

existing when you're speculating on something that you know I forget how many percent it went up but a whole lot uh the fee becomes less important right the fee is most important when you're dealing with commodity assets more pricing is the key non-financial applications so that's where the growth will be and then over time as the users get there to Ryan's point then we'll see these sort of speculative uh ideas migrate into those users but if you're coming up with the speculative you know entity you gotta go where the users are and the fee will be less important uh you know because either the project will fail we'll never hear about it or it'll be massively successful in the field be de minimis versus the returns and so I think that's the dynamic that's playing out and I'd expect that to happen for

another another couple years until uh uh l2s are just how people access yeah strongly agree there we are coming up on an hour here and I want to be generally or cognizant of your guys's time so we really appreciate you coming on I can do a little show for you guys if you have relatives who aren't exactly comfortable self-custing like crypto themselves like bitwise really is putting in the work to make that a lot easier and more accessible to the masses in a brokerage account so highly recommend going to bitwise uh their website just type it in on Google and it'll be the first thing that pops up but Ryan Matt do you want to share a little bit about yourselves where to find you and uh we can call it until next time yeah love it come over to bitwise investments.com you can sign

up for our newsletter or find me on Twitter Matt underscore Hogan uh Hogan has a u in it h o u g a n so uh you'll have to misspell it that way it's fine me that's it yeah you know I would just say all of our research is free as well like we we definitely do a lot of uh research trying to help financial advisors institutional investors make that that jump in their education but we make all of research free uh we hope it's approachable yeah go go check it out on our insights page and our website uh I'm on Twitter at rasterlyrock it's r-a-s-t-e-r-l-y uh Rock it's a it's a uh probably thought out Game of Thrones reference but uh yeah really appreciate being here guys yeah it was a pleasure having you both on and see you again another six months let's do it we'll do it thanks for

having this