ETH's Modular Bet Will Work | Alex Botte & Alexander Pack

The main thing like ETH did wrong and is just continuing to do wrong, at least from the foundation, like the foundation side, the core team, is just their actual technical roadmap, right? Why are they focused so much on decentralization? Like, why is there so much navel gazing? Why haven't they scaled the L1? I guess you can make this counterfactual that maybe they would have worked harder or tried better to scale the L1 if there was no rollup-centric roadmap. But I don't know, man. So I just, I just like, L2 saved us. They saved Ethereum, you know, like No one would want to use mainnet otherwise.

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Thank you. Yeah, this is our first time, I think. So it's good to be here.

Alex, why are you— why are you— I'm gonna refer to Alex Bode as Bode. And Alex, I'm gonna refer to you as Alex. Alex, why are you doing— you're usually more like behind the scenes, I feel like. Why are you doing more podcasts?

I don't know if I'm doing that many. I think you're—

why are you doing this podcast? I've tried to get you on the show for years. Why are you doing it?

First one in a few months. Well, we, we wrote this research piece a couple weeks ago. And Alex Boddy, our head of research, did a lot of the data on it about Ethereum and modularity, which is like, you know, the number one thing that I think outside of meme coins that, that crypto Twitter rags on, like, why is ETH underperforming this cycle? What's happening to my ETH bags? Am I getting poorer? Is Solana taking over? And everyone's been blaming this whole like modularity thing. For why ETH is going down and sucking so hard. As a fund, we invest in a lot of this stuff. Like, we're tech investors and it's all like really wonky deep tech. So we thought it'd be interesting to like actually do some data analysis and like some data-driven arguments instead of the tribal stuff that happens on Twitter all the time to see if some of the claims were true. And so thought we would chat about that. Like, if ETH doomed, is Solana the next King of all crypto, that kind of stuff. Uh, we can talk about other stuff too.

Nice. No, that's what I want to talk about because it seems like— so ETH has obviously underperformed Bitcoin and SOL by a lot this cycle. And I would say if you asked people why that's happened, it's like in one sentence, it's probably ETH's decision to go modular was a mistake and the way that they chose to scale and maybe— I'm putting quotes around this— like fragment their ecosystem. Was potentially a good decision for some reasons, but for the price of ETH, it was a bad decision. Um, and so I'd love to, yeah, maybe we can explore that, but Alex, can I actually ask you, I'm sure most people are familiar with this at this point, but I, even just from my own memory, like, just cause you've been in the industry for a while, can you take us back? You've been in the industry for what, 10, 11 years? Like what was the historical context behind Ethereum's move towards this more modular architecture? Architecture?

Yeah, I started as a VC in the space in 2014, and back then, you would be amazed. And I loved— like, I thought Ethereum was the coolest thing. That's what got me excited about crypto. And you would be amazed at the number of people that, like, now everyone thinks of them as just like ETH maxis that were hardcore Bitcoin maxis at the time. So even being, like, really bullish on ETH was at one point, like, a contrarian trend amongst, like, Silicon Valley VCs and things like that. And once it started taking off, you basically— and Ethereum was like as monolithic as it gets, right? Especially back then. Like, we're like, okay, we're going to make this Turing-complete blockchain. Anyone can write any application on top of it. And the concept of an L1 is monolithic. Like, you just have to go here and we'll help you build, like, you launch a token on top of us, whatever. But then the L1 war started. And we VCs started just like fundraising, investing in every L1, right? Because that's the— and retail individuals were investing in every L1, right? Because they wanted to catch the next ETH. And I remember at the time, Ethereum just had an incredibly difficult time retaining talent and even money because they did a small crowd sale in the beginning. And they almost went bankrupt. So then now, if you're an ex-Ethereum person, Gavin Wood is one of the co-founders of Ethereum. He started Polkadot. You can just raise hundreds of millions of dollars in an ICO or from VCs, and then you get to keep a bunch of your tokens afterwards too, right? So the economic incentive for retaining really good developers was just terrible. I think the last straw probably for Vitalik— I don't know about him specifically, but the Ethereum Foundation was Near because they had just announced that, you know, the way to scale Ethereum was going to be sharding. And then you got these like really great engineers, the founders of Near Protocol, who were from Web2 and were like the sharding experts in the world. And I think they got a grant or something from Ethereum in the early days. They were trying to attract them to just like do sharding for Ethereum. And they're like, no, we'd rather just raise a bunch of money and launch Near Protocol or something. Right. But there are a bunch of them like Polkadot, all these other things. So they kind of had to figure out some way to bring talent back and get people to invest in ETH infrastructure. So I think the role that— I think that was the real genesis, like back against the wall. You have to figure out a way to compete with these other L1s. And letting people run an L2 is like the way to do it, right?

Yeah. And then in late October, there was this kind of infamous post, which was Vitalik saying a rollup-centric Ethereum roadmap, right? Really, I feel like this is the post that kind of—

was it infamous? Maybe today it's infamous. I thought it was pretty cool at the time.

Infamous is actually the wrong, definitely the wrong choice of word. That probably is telling of like the timeline these days to use that word. This was the most, one of the most impactful posts I would say on the Ethereum forums was like this rollup-centric Ethereum roadmap. It was Vitalik kind of laying out what would this rollup-centric roadmap look like. And this was in my mind the start of when you started to see Ethereum move from monolithic to modular. I'm sure it had been happening in the, you know, quote, inner circles before that. But this is the first time it like came, at least like came on my roadmap.

Yeah. I mean, we like everyone, it was very influential in the sense that there were some L2s that were like, they weren't called L2s, but there were some L2s that had launched before like October 2020. And were building, but they were not like, like the early rounds of Optimism and Starkware and zkSync happened, uh, like in the 2018-17 period. Um, but, uh, it was like incredibly unclear how they would monetize, if they would ever be able to launch a token. And so they didn't raise that much money, like investors weren't that interested. So after this, uh, this blog post came out, way more people started building in Ethereum and invest. Like, we changed our tune. Like, we had already been doing some of these investments, but we doubled down. Like, how could you not after you read a post like this? You're like, okay, great. Like, Ethereum is going to open up and let, like, encourage, uh, infrastructure startups to, uh, to like handle the execution layer, take MEV, like, uh, MEV-related profits, things like that, uh, uh, as like a startup, right? So it's like a compelling economic opportunity, you know? And that's probably— yeah, that's when this whole thing started.

So you guys wrote this article, right? Which was— or I don't know if it's an article or a research piece or whatever we're calling it— was modular a mistake? A data-driven take on Ethereum's grand vision. So maybe let's, um, I think let's start and not really bury the lead here. I'd just be curious to get— I don't know if this is a question for Bodhi or for Alex— like, would you say that the modular strategy has hurt ETH's price? Like, everyone says that.

Uh, yeah, uh, we did look at this and the short answer is, is it has. Um, Jason, you mentioned this, like, the price action of ETH is pretty ugly. Like, if you look at ETH/BTC, uh, it's down like 60% this cycle, that ratio. You look at SOL/ETH, uh, tells a similar story but obviously inverse since ETH is the denominator. That ratio bottomed at the end of 2022 right after FTX and it's up like I don't know, over like 700% since then. So yeah, this is something that we looked at in the paper. We looked at the relationship between fees and ETH price. And oh yeah, what's this?

Is this— This is ETH BTC.

ETH BTC.

It's a tremendously down only chart right now.

Yeah.

Yeah. Brutal. But up for a while anyway.

Yeah. Yeah. When was the top? Like, it was like 0.08 or something in November of '21, maybe.

Yeah. The top, the top was basically the top of the last cycle.

Yeah.

And it's down like one month after the top of the last cycle.

Yeah.

Yeah.

So yeah, what we looked at in our paper, we, we found that over the past 3 years, the relationship— and this is like even before EIP-1559, but like over the past 3 years, the relationship between ETH fees, if you measure them in ETH and ETH token price, is statistically significant, had like a, I don't know, 48%, 50% correlation over that period. And then if you look at the coefficient of that regression, how you would interpret that is if Ethereum fees fell by 1,000 ETH in a week, ETH price depreciated by $17 on average. So by like this whole modular decision of moving execution to Layer 2s, Ethereum, the Ethereum L1 collects lower fees. Lower fees means less ETH is being burned. So you kind of reduce that deflationary pressure that previously supported ETH price. So yeah, and then a whole other issue that we can get into too with short-term ETH price is now you have like all of these modular tokens that have hit the market and they're competing with ETH. Both in terms of capital as well as mindshare. So yeah, we can definitely get into that more, but the short answer, Jason Yanowitz, is yeah, it has impacted ETH price in the short term, but we think like the long-term gain is like— ETH's decision was focused more on long-term adaptability and ecosystem health rather than like immediately pumping the ETH token.

Got it.

So your argument, it sounds like, is short term, definitely modularizing Ethereum has hurt the price. Long term, you actually think that Ethereum will end up doing doing much better than it's done over the last 2 years.

Yeah, the Ethereum ecosystem. Yeah, for sure.

Like, yeah, it's like decoupling of the ETH price and the ecosystem is definitely a big trend in our, in our paper. It's like hard to avoid that.

Well, isn't that the kicker of the issue though, is like ETH is doing well. It almost be interesting to unpack how you define doing well. Is it the price of ETH doing well or is it that there's a bunch of TVL because all the TVL is still on Ethereum? Basically? Um, is it the fees generated? Is it how many users are there? Right? So how do you guys think about, like, how do you define what this— what success— what is the success metric for, like, was modularizing Ethereum a good idea or not?

Yeah, we, we looked at, like, um, a concept of market share, basically, like TVL market share. Fees, a bunch of other stuff. And the counterfactual, it's hard to like ever estimate exactly how poorly Ethereum would have done otherwise if they didn't modularize, right? But we like, we did this, we looked at like some, we tried to look at like some Web2 comps, for instance. Uh, like has there ever been a tech infrastructure company with network effects and so forth? It's a platform that just modularizes and completely opens itself up and opens its APIs. We actually couldn't find any that have done this over a consistent period of time. Facebook had a platform for a while. Twitter had open APIs. They all shut it down eventually. But we looked at what Ethereum's market share had done over time versus some of these guys. And we were like, AWS, for instance, is very similar to Ethereum. It's like the centralized world computer, whereas, uh, uh, AWS is like Amazon Web Services, right? And it was the first mover, whereas Ethereum is a decentralized cloud computer and it's first mover. And what you saw was, uh, like AWS's market share went down over 10 years from like basically 100% when it launched to like 33, 35%, something like that. And, uh, we're still pretty great. I mean, they're making hundreds, $100 billion or so. Uh, but, uh, Ethereum's market share has by most metrics gone down from like 100% to something like 75%, right, Alex? Uh, yeah. So it's like, could be way worse. Could be AWS levels, could be 35% market share. And then if you think about all the other, like, there were like, there were many other, there were EOS, there was Polkadot, there were like Cardano. I don't even know if Cardano really launched much, but there are all these other things that obviously went like very, very low market share. Um, so you have to imagine that from that sense, it's pretty good, even if it's like taking a dent out of the Ethereum price, like this whole modularity approach.

Yeah, I mean, I like the— you guys pose an interesting question here, which is what if AWS took a similar approach to, to Ethereum, right? Which is, um, you know, I think I'll just read it. It says, what if it acknowledged— what if AWS acknowledged that other teams might build some services better And instead of doing what AWS did, which is you guys had this nice chart, I don't know, this thing, like these are all the services and products that AWS has built. And the reason you build so many things is to lock you in, right? Like we use AWS and we get pitched all the time for other things. It's like, ah, but it's just like, they have everything we need. It's in AWS. So you guys pose this premise. It's like, what if you just let them build this open ecosystem? What if, what if Amazon instead of built an open ecosystem? It's a really interesting idea. And they had prioritized composability and encouraged operability and all that stuff. And that's what Ethereum has done. The thing I'd throw back at you guys is like, Amazon is publicly— Amazon has done better than ETH, I would say. Like, I mean, maybe it depends how you define better, but like Amazon's a publicly traded company. They're one of the best performing stocks of the last decade. They spit off a stupid amount of cash flows. Like maybe their strategy was the better. Is the better strategy and maybe ETH should think about AWS's strategy instead of AWS thinking about ETH's strategy. How do— I mean, either of you guys, I don't know who to throw this question to, but how do you guys think about that?

Yeah, I feel like if Amazon had done what we're saying, right, they would have lost out on like this massive revenue-generating opportunity. But maybe if they had done— if they had gone to like a more modular approach, their market share wouldn't be 35%. So I think like what you're saying is like, how do we measure success? But I think the other point too is like Amazon is a publicly traded company. They're not optimizing for the most vibrant ecosystem, you know, they're optimizing for shareholder value. Whereas Ethereum is like, it's a decentralized protocol and it's optimized like network effects are driving, you know, is driving ETH as well. And so like market share might be a better way for like a decentralized protocol, like a way to look at it for a decentralized protocol. Um, so yeah, I do think like the publicly traded versus decentralized is, is like a pretty important point.

Yeah. Yeah.

I mean, it gets to this question too of how should these protocols be valued. Um, so you can look at price today and say like, yeah, it's a function of supply and demand. And, uh, you stop burning all these tokens. Uh, and so the supply is like higher, it's less constricted. And that's bad. And that is, that is like objectively true. Um, but then you think about like, clearly assets in crypto are not valued based on revenues and profit, uh, multiples, uh, at least to the extent that they are in public stock land, right? Yeah.

The comparison breaks down when you realize you're comparing a network versus a company.

Yeah.

Like, did you guys ever read the, uh, DBA post that John Charbonneau wrote? About this? I don't know if you did, but it's like L1 and L2 token value capture. It's a good— we'll link it in the show notes. It's a good, it's a good piece, but it talks about like, you know, there's this kind of like silly way that people talk about valuation today in crypto, which is like profit equals like fees minus issuance or like, you know, TVL, these kind of like pithy metrics or whatever. And there's, there's probably other metrics like we, you know, at Blockworks, we've been trying to kind of push like network TEV or network REV, like total economic value or real economic value. So there's like other— we definitely don't have the metrics that TradFi uses, these standardized metrics. We— that is like, that is definitely a thing that the industry needs to start to grow up.

Yeah, I'll just say, um, as an investor in the space that tries to back these early-stage protocols, I think the easiest, the easiest like shorthand I use for how valuable they will be is it's, it's, uh, for the most part, these projects are valued based on their TAM, which is like their total applicable market size. It's like VC jargon term, which is, I guess, like, yeah, what the future expectations of it, right? Like, how big is the market opportunity for being the next digital gold?

Alex loves a good slide with some bubbles showing bigger bubbles and bigger bubbles.

Yeah, yeah. $5 trillion, $50 trillion, like 300%, whatever, 300 bps of total, total wealth. Like, that's the market size. But a great, like, one of the, one of like the most famous VCs of the '90s is an investor in us. And he said that's exactly how it was, how it worked in the late '90s internet. Like everything, Webvan, Bandwidth.com, the good stuff and the bad, Amazon, they were all basically valued on like how big the market opportunity could be. Right. Things changed.

But at some point you've got to flip that into, I mean, the later you go in venture, right? Even like Series D or E or growth equity or whatever it is, like you start to flip into other metrics, right? Or are you, I think you should, or maybe, or I'm wrong.

Maybe TEV. Yeah. These metrics you guys are inventing. Um, maybe, but those are kind of the same thing, right? Or I guess TEV is a measure of. Current, like how much— yeah, current size of the ecosystem or something, right?

Yeah, that's the problem is it doesn't bake in future stuff, right?

Yeah, I mean, like, I think the idea probably over time there'll be more based on revenues and whatever that, whatever that is exactly. But, uh, even so, clearly, like, you have to believe the market is just unbelievably inefficient for you to think that that's the only thing that should be pricing these cryptocurrencies. I mean, it's— how do I say this? So anyway, because we think that at least today it's based on TAM, valuing these things based on success being based on the market share is to some extent useful. I think that's probably what a lot of people are looking at when they're trying to figure out how to price these things. Our way.

Got it.

Yeah.

And Jason, I also think like the token terminals of the world have made it like super— like the— it's like almost like a copy and paste from TradFi. Like you see the balance sheet and like things just make more sense that way. But I think, yeah, like as the industry matures, we kind of need our own, our own metrics. So it's great that Blockworks is doing that. Another thing we looked at in this, this paper too was like network effects are real. I don't know what you guys think about like Metcalfe's Law. But, uh, it's kind of one way to quantify, uh, network effects. And even in Web2 companies, like Facebook's price is like impressively related to the number of users on Facebook's platform, like over time. The core— the, the R-squared on that is like over 90%. It's not in the paper, but I've looked at that in the past. But then in Web2, yeah, here's some, here's some stats on this. So Metcalfe's value is basically like the, the value of a network grows proportional to the number of squared number of users connected to that network. So you could like fill it in with number of addresses, which is what we did to calculate Metcalfe's value. And the relationship is super strong for all the majors— Bitcoin, ETH, Solana. R-squareds are like 50 to 90%. And they've— these relationships have persisted for years. And for Bitcoin, it's been like over a decade. So yeah, like this idea of like ecosystem, like the number of people, whether it's developers or users using a network, like is tied to valuation as well. Um, so, and I don't know if like that's something that Web2 stock analysts use when looking at— what, maybe they do. Um, because it is incredibly powerful even for those.

Like, I thought it was crazy. I mean, Metcalfe's Law is like a 30-year-old thing. Why should it have any alpha anymore? Uh, yeah, but it actually does.

Just so I understand, what you're saying is you did this regression of SOL's price and Bitcoin's price and ETH's price as it relates to Metcalfe's value, and the R-squared was high, which means— I think I might botch this— but it means that you're— it's a good predict— Metcalfe's law is a good predictor of price, which means in really simple terms that the more users come onto the network, the higher the price goes.

Yeah, that's a great summary. Like, what is it for Bitcoin? It's like 90% R-squared. So you can interpret that as like 90% of the variation in BTC's price can be explained by the number of users on Bitcoin, on like the Bitcoin blockchain.

Oh, hmm.

Does this apply to both? This is just the networks, right? This would just be L1s and L2s. Like this wouldn't be like Aave or Uniswap, right?

I haven't run it on apps, but that is like a good question. I mean, there's no reason it shouldn't work on applications as well, right?

The first principles theory is that, uh, it should apply to businesses or like that have very strong network effects, right? So if there's something that has no network effects, I'm guessing it would be a lot less relevant. I don't know.

But yeah, it's like the more of the, the more businesses' success is reliant on network effects, the higher that correlation will be, or the R squared at Yeah, probably. Okay. All right. Let's, let's get onto the next part. So you guys, you guys laid out these like 4, you said the Ethereum modular ecosystem and its impact on ETH. We look at how modularization has impacted Ethereum in 4 different ways, right? So you had 4 ways that modularization impacted ETH. And some of these, you said this was a good thing. Some of these, you said this was a bad thing. Can you guys walk us through these 4 buckets.

Yeah, Alex, you want to do the first 2?

Yeah, the first one, the bad is like fees and price. So that's kind of what we talked about earlier. We're like, okay, ETH has, has really underperformed. Is it at all related to the fact that Ethereum has basically given away some of its fees to L2s? And yeah, we found as you, as you like continue to scroll down that, uh, that absolutely is explaining some of the underperformance for ETH. So, oh yeah, sorry, even more, a little bit more. Yeah, these are just fees going down a lot. Oh yeah, this chart here, like looking at the relationship between fees and ETH price. So these are like, you know, strongly correlated. So this is definitely impacting ETH price in the short term. And then kind of the next thing we think about was like, now you have all these modular tokens. That are coming to market, like obviously Optimism has a token, Arbitrum, like even some of the data availability, like Celestia has a token now. So does that create competition for ETH, both in terms of dollars invested as well as just like mindshare too? So Alex, yeah, I'll let you talk a little bit about this as well, like this, this concept of spreading value across multiple tokens.

Yeah, totally. I mean, it's an issue for who you are. So if you're a founder of a modular coin, uh, or an early investor, you're pretty pumped, you know? Like, yes, your ETH bag isn't doing so hot, but, uh, Ethereum with its blog post, like, just produced $80 billion of value, uh, that probably would have at least to some extent accrued to Ethereum instead, or Like, yeah, I don't know, it just wouldn't accrue to an Ethereum. Like, like, just like, and then the, and then the one-click, like, hey, I want to buy ETH because this just gets me exposure to all the cool stuff happening on top of Ethereum, that goes away. Like, you now have to buy a basket of these, like, modular coins if you want to get that exposure. And that's a big problem with an asset because you look at, like, Nvidia. Nvidia is riding way above its PE multiples and revenue. Probably to some extent because it's just like this bat— like it's, it's a one stock like index of everything in AI. So if you're just like long AI, you can just buy Nvidia, um, or you could buy— I'm sure there's like Fidelity, uh, Vanguard mutual funds and stuff that are AI, and it's mostly market weighted towards Nvidia, right? So you lose that.

Um, yeah, you're saying investors aren't asking, oh, does the value accrue to Facebook here? Does it accrue to Snowflake? Or it's just like like if AI gets big, Nvidia gets big.

Yeah, yeah. And but again, like, great for us or like great for investors in these early modular projects. Not great if you're just like sort of passively holding Ethereum and hoping to get all the exposure to—

I mean, I think that's the kick. I think that's it, right? Like, that is, that is my analysis of why people are so angry on the timeline is, yeah, the, you know, ETH like modularization has actually produced a ton of value for the ecosystem in that there's a boatload of money that got created. Like, it's increased the GDP, I guess you could say, of Ethereum ecosystem. It's also, I mean, it's a really nice experience to like trade on Hyperliquid, which is on Arbitrum. Like, it's like very— or, you know, use Optimism, like use Base. Like, it's a much better experience than using Ethereum a couple of years ago. The downside is that Ethereum used to be, quote, owned by retail. Now it's own— feels owned by VC because Celestia and Arbitrum and Optimism had to raise these monster venture rounds. So people are benefiting. It's just the VCs, not retail.

Yeah, I mean, which is kind of the point because, yeah, again, flip back to pre-2020 and there was this massive— like, there weren't many investment dollars going into Ethereum and there weren't many— like, the quality of, like, really great infrastructure developers and engineers was really low. Like, people were going to, to build other L1s and things like that. Um, so in that sense, it worked. Like, it was a gigantic bribe. I mean, it's not a bribe, it's an incentive system, you know. Incentives are good. It was like an incentive system or bribe to get, uh, people to invest in and build in the Ethereum ecosystem. Uh, but it cost something. Like, it cost a lot. I mean, I don't know, it's like it costs like, to some extent, 10 or 20% of the market cap of Ethereum had to go towards creating like economics for these people. But I do think to some extent it was a smashing success in the sense that like Ethereum has not scaled its layer 1, and there is no like sub-scale layer 1 today that has any usage whatsoever. Like if the choice for Uniswap or any new dApp, um, of launch was like to launch on Ethereum like the mainnet with like 40 to 50x max TPS, or Solana or Aptos or Sui at like 5,000+ TPS, it's no— it's like no contest, right? Like, obviously, even though there's a lot of lock-in and network effects and you like holding your ETH and your branding, whatever, right, you would still go to these other chains. And the existence of like Layer 2 blockchains where the costs are really cheap and there are high TPS means that ETH is, is still in the game and still the number one, which, yeah, maybe it wouldn't have happened, you know, because like it was a failure. Like the Ethereum Foundation, they really messed up the execution of the layer one, right? I think that's like kind of objectively true at this point, uh, and so the counterfactual will be really, really bad, right?

Yeah, I mean, do you think that they should have just Actually, let's go to points 3 and 4, and then I want to ask hypotheticals. Maybe let's, uh, I don't know who wants to take 3 and 4, but I can go back to—

oh yeah, what if 3 and 4? I lost track.

3 and 4. 3 is— it's market. So, okay, so we covered short-term price, which is bad.

Yeah, yeah, yeah. And then 4, I would say 4, I'll cover 4. 4 is what I just argued basically, which is like at least it's still in the game, at least it's future-proofed. And what we mean by future-proof is like, in general, it's really hard for incumbents to lose in a high network effect business. Like, there are banks and energy companies that are hundreds of years old and they're still kicking. And I'm sure the people running those things are not the brightest people in the world, and it doesn't matter, you know, like, uh, they just have such powerful like incumbency effects and first mover advantage and so forth. But really, the only way that an incumbent reliably gets killed is when you have a big tech paradigm shift and you have this generational leap. When you went from desktop to mobile, it basically killed Yahoo. And even Microsoft, to some extent, fell a lot in consumer. When you went from— Yeah, I don't know. There was lots of big shifts. AOL got killed. Yahoo got killed. There are these ton of tech giants that had $100 billion plus valuations that just went to basically zero within a few years because there was a big tech paradigm shift.

Right.

And yeah, there's these extinction events happening in crypto too, all the time. The first big one was TPS, right? And so Ethereum did not land, did not stick the landing with TPS and scalability, but its L2s did. And so it was able to survive. And Alex, you want to do the market share one? I thought that was kind of cool.

Oh yeah, this kind of, uh, oh, the market share one.

This is kind of contentious because there's— everyone has a different way of showing market share depending on who they want their team, which team they're supporting, you know.

But well, how do you guys do it? TVL?

Yeah, for here we were looking at, we were looking at TVL, and Jason, I think you mentioned this earlier, like if you look at market share by TVL, it's not even— it's like not even close. Like most the, the TVL is all on, you know, Ethereum and, and its L2s. So I think like Ethereum plus all of its L2s is like 10x that of Solana, the TVL. And then even if you just look at TVL on the L2s and you don't even consider ETH L1, it's, it's higher than any other layer 1 blockchain, Solana, Near, Bitcoin, Tron, whatever. So from that perspective, that's kind of where we're getting that 70 to 75% market share number. So ETH going from like 100% dominance to 70, 75% over 9 years. Yeah. So that's like a little bit of the market share, market share argument.

Could you say fees? It was pretty close, although fees have been kind of crazy in the last month or two for Solana.

Could you say if I tried to argue the other side, could you say that is a symptom of an inefficient system and you actually want to see a system with high velocity of money that's moving around in the system a bunch? Instead in Ethereum you have a bunch of idle capital that kind of just sits there in these big pools.

Hmm.

Like, let's look at DeFi Llama. Let's see.

There's like, who's got— there's 10 counterarguments to it too.

But yeah, but I also think like, I don't know, when I think of TVL, even if it's like large pools of capital sitting there, it's like, where do you trust large sums of money, you know. And, uh, so I feel like Ethereum is the home for that because of like high security and hasn't suffered as much in terms of like outages and things like that.

Um, yeah, I would say, uh, TVL and fees are the least boughtable, uh, and like gameable metrics.

Yeah, whereas addresses are completely boughtable.

Yeah. And, and DEX volumes are incredibly boughtable.

Yeah.

Like, yeah. As you look at like CoinMarketCap or CoinGecko for centralized, like centralized exchanges, especially on these extremely low, low fee chains. Yeah. So there's signs of something, but you have to be really careful when you look at it.

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Okay.

So going— okay. So there was this moment in time, right? You guys wrote about this where there was EIP. This was 2021. There was EIP. I'm bouncing around a ton right now, but just ideas are kind of coming into my head. EIP-1559, where you had these excess fees paid to the network resulted in ETH being burned and everyone's like, boom, number go up. Like, ETH is going to get burned. Like, ETH to the moon. But then what happens is like L2s for execution and you guys wrote about this, L2s for execution. Then you had like the DA layers like Celestia and Eigen and stuff like that launched and they've grown. So then ETH fees went, went back down. And so it's— I think these are your words— by giving up core revenue generating services, ETH has now seen lower fees and lower revenues. Which has impacted the price of ETH. So in 2021, we all thought, boom, ETH is going to get burned, number go up. But actually modularizing the stack like Celestia and the L2s and all that kind of stuff has obviously pulled the fees way, way, way down. So was there a moment in time where you, you know, if you're, if you're looking back in hindsight, like, oh man, they really could have done this differently or this differently and still kept with this modular path, but, but like fixed one or two things and that would have fixed ETH.

I know we're totally like Monday morning quarterbacking here, but I think there's a question of whether you should have done EIP-1559 at all, like whether you should have even— I mean, but there were benefits beyond just the fee burn for it. There were like composability benefits and usability benefits for the mempool. I just think that The main thing like ETH did wrong and is just continuing to do wrong, at least from the foundation, like the foundation side, the core team, is just like their actual approach, like their actual technical roadmap, right? Like, I don't know why they focus so much on decentralization. Like, why is there so much navel gazing? Why haven't they scaled the L1? But again, like hundreds of other L1s have made the same mistake. And so in some sense, I think the modular approach as a way to future-proof against if your own team or if you're just like, if you're very self-aware, you're very humble, you think, I don't know if we'll be able to pull it off and execute as well as this other team. This is the right thing to do. It de-risks lack of execution, which there has been. I guess you can make this counterfactual that maybe they would have worked harder or tried better to scale the L1 if there was no rollup-centric roadmap. but I don't know, man. So I just, I just like, L2s saved us. They saved Ethereum, you know, like no one would want to use mainnet otherwise. I mean, don't you think?

Yeah, but they could have spent the time. Look, I, I've, I'm talking out of my depth at this point, but they could have maybe spent the time trying to make the best L1 instead of pushing higher up the, into L2s and stuff like that. That, that's, that's probably the counterargument, but you have no idea if that could have, I guess. I don't think they could have executed that because of the— I mean, you go talk to the teams, you go talk to the EF versus going to talk to someone like Solana. There's like two— there's like, it's like talking to two different industries basically. Like they're, they're just two wildly different teams. So I don't think the EF was really set up to do that.

Yeah. I mean, they could, they could probably learn a lot from, from the Solana core team. You know, they executed great over it.

I guess you did have that though. ConsenSys was just Like ConsenSys was the dev shop of Ethereum for a while, essentially.

They were like maybe the Jump Trading of Ethereum.

Yeah.

Or FTX, or we don't have to go there, but you know, the centralized entity that was contributing developer resources kind of out of the kindness of their heart, kind of because they monetized some parts of it. Yeah. Um, yeah, yeah. But I mean, look, ConsenSys, they produced a lot of really great stuff, but I don't know, it's hard to imagine a fire dancer coming out of them the way that it did out of Jump, right? So yeah, I don't know, it's just like, yeah, maybe it's just not how they're built, right? Or what they're focused on.

Bodhi, what do you think? Are there moments in time when you look back at Ethereum and you're like, oh man, if they only did this, they'd be in a much better place today?

Yeah, I feel like, uh, the combination of, of like L2s but also scaling and investing in the layer 1 itself, like maybe could have done those in parallel. I mean, the team was focused on, like, right, there was a lot of other stuff happening with the merge and things like that. So that was impressive that they pulled, pulled that off as well. But I think like this whole L2 thing, like now you have all of these other developers, right, that are contributing to the success of Ethereum and like even bringing in the best parts of other blockchains, which I don't know would have been possible. Like now you have all these alt virtual machines coming and building on Ethereum. We saw it with Movement, the Move programming language, and like Eclipse with the SVM. So I don't know if that type of innovation and development would have been possible if they just would have focused internally on improving the layer 1 itself.

Yeah. What do you guys think of ETH as money?

I hope so. Great, great story. You know, I got to think there's two stories. There's ETH is money. Yeah, go on.

There's, there's, there's ETH is money. Like, actually, I'm here. I'm just going to share this piece that this is a tweet from Constantine and Ryan Sean Adams. So it was Ryan goes, I'm dead serious when I say ETH is money or the whole thing is pointless, etc., etc. And Constantine says the ETH is money narrative is stupid. Basically said ETH should focus on being the world computer. Do you guys have a thought on this?

I think when you say ETH is money, you mean it's like it's a store of value, right? It's one of these— not necessarily that's a currency, right? That it has these like, um, benefits that people really want to hold it for things outside of its like utility or whatever, right? Um, and it could be a speculative store of value. You're holding it because you want, you want it to go up, uh, or it could be like more fundamental stores of value like gold, or you, you know, you need it to— you're like fleeing your country and it's war-torn, all that stuff, right? Um, and, uh, and I think it's totally ridiculous to think that Bitcoin is the only store of value or has like the only store of value meme. Like every single crypto coin is trying to become a store of value or is trying to become money and has some moneyness property. Like, that's, that's sort of like, from a very reductive perspective, why these things don't and will never just trade on revenues or PE multiples or stuff like that, right? Because they all have these like money-like properties. Like, even meme coins, I don't know, they're like these like speculative games, right, that people hold sometimes. Like, you hold your Doge for years and years. Um, And so, like, obviously everything in this space is money or else the current valuations and demand for these coins don't make any sense. I just, I wonder, like, does it actually matter whether the core— like, I just find these things to be sort of like from the yapping class, like the Twitter audience, which we all are part of. So as opposed to anything that actually matters from a— like, like, does that affect the tech roadmap? I don't know, maybe, maybe to the extent that people are like, we just want to optimize ETH to be money. And so we're going to like not scale or something. That's bad. I just don't know if it actually does, you know.

Alex, didn't we try to take a look at ETH moneyness in the, in the article?

Yeah.

Yeah. I don't know. It's hard to, it's hard to quantify, but I guess like one way is like if you look at the Layer 2s, what are they using for ETH or sorry, what are they using for gas? Most of them are using ETH. On the DeFi protocols built on top of the Layer 2s, how much ETH is in those protocols versus stablecoins or other tokens, even their own tokens, right? And it's still mostly ETH. So that's like one way, like, that's like a question of, is ETH extending itself on the Layer 2s? And I don't know, it was difficult to measure, but we found mostly, yes, like greater than 50% of the DeFi apps built on Layer 2s have ETH, you know. ETH in them or made up of ETH.

Yeah, some of that's like maybe changing on the edges. I think Base recently, like, you don't have to use ETH as gas anymore. You can use USDC instead or in addition. But yeah, like the fact that most of these layer 2s let like the whole economies of these layer 2s are run on ETH. And it was some stat that like on the majority, on the vast majority of L2s, ETH is the number one TVL asset, TVL asset by like 10x greater than the number two TVL asset. It's like, that is actually pretty compelling evidence that ETH is being used as money, right?

Yeah. All right. Now we're kind of like just pontificating on things here. So start to get in, walk me through how you guys view like '25, '26, '27, like What is the future for, I guess, what is the bull case for Ethereum as you guys see it right now?

Yeah, the bull case for ETH, I mean, well, I think they're definitely doing something right. I mean, we talked a lot about this whole market share thing going from 100 to 75, better than some of the Web2 competitors that we looked at. I think they have like this first mover advantage, which is good. The network effect, like we talked about network effects and Metcalfe's Law and kind of like TVL dominance. I think they also have like EVM and developer-friendly, like the most like developer-friendly place to start building in crypto. I'm, I am definitely not a technical expert, but Solidity, it sounds like, might not be the best, the best language, but many devs use it. It has a lot of adoption and there's a lot of tools and educational resources. So it's made ETH or, you know, its Layer 2s in the modular ecosystem a go-to place for new projects. And that's why you see like a lot of those alt layer ones maintaining EVM compatibility like Monad and Barachain and Avalanche and some of the older ones too.

Yeah, I think you have to just look at the cool tech being built in the ecosystem. And for us, we don't really even think about exactly what the Ethereum Foundation is doing. It's more the stuff on the edges, like a lot of the most interesting technology is like, you know, look, you look at things like EigenLayer and restaking. They started and are primarily for Ethereum. You look at all these alt VMs, things like Movement Labs, which is sort of bringing the Move language to ETH. I mean, there's even projects that bring SVM to ETH. It's like the stuff that's happening in ZK and privacy. Yes, ETH doesn't have a monopoly on the concept of zero-knowledge proofs or FHE, like fully homomorphic encryption. But the vast majority, by like 90% plus, of all the interesting cutting-edge ZK research is all being applied to either mainnet or to whatever the broader ETH modular ecosystem. And that's the future of, of this tech, right? Like, that's like core cryptography that brings us forward another 1000x, um, on like many dimensions. So you have to look at that, right? Otherwise Otherwise, what? Yeah, that's, that's the main story.

Do you think most developers will pick the existing L2s, of which I'd call them, you know, zkSync and Optimism and Arbitrum, or are they going to pick some of the newer— I don't even know what to call these things anymore, but BearChain and Movement and Monad and EVM equivalent and whatever, whatever we're calling this whole bucket of new L1s coming out in '25.

I guess it's a similar trade-off to, uh, to ETH for Solana too at this point. Um, like there's always— here's what I'll say— there's always more excitement from investors and there's more price action in picking the, uh, like the underdog, like the smaller cap coin or the new entrant that could become the old one. 'cause it's like a fun game to play to try to pick it and there's more upside, right? And picking the new guy that's like a 10th the size. There's a lot more of that like than there is from developers. We find like developer, you're actually like working 100-hour weeks for like months straight to ship something. You don't wanna like excitement and the emotional aspect you want like are not as important, right? You want stability. So I think there's always these lot— this lock-in effect. But if there's like a significant amount of— like they all have interesting stories for developers, right? Like TUN is actually one of the most interesting, uh, because it provides you a bunch of like this massive amount of distribution, you know? Um, whatever, right? Like Hype too, and to some extent, uh, so if you have this like really compelling thing you can offer developers, or the users through developers. Like, you need that. It's not just about the next hot new exciting chain, I think. Yeah. Yeah.

So yeah, go ahead, Alex.

No, I think, I think the other thing, there's always this question of like, um, like, yeah, will the number 1, number 2, whatever, uh, L2s remain that way? Will there just be like 1 or 2 L2s? Will there be like a thousand, thousands of L2s? I think Vitalik had this quote a few years ago, like, yeah, there's either going to be 2 or 3, but there's going to be like way more than a thousand.

Yeah. Yeah. You see, so, so Deutsche Bank launched, or I don't know, Bloomberg headline, right? Deutsche Bank is building an L2 on zkSync. What are your thoughts on this? Like, it feels like you could see the days of kind of general purpose L2s like Arbitrum and Optimism slowing down. I mean, actually, Arbitrum and Optimism maybe would agree with that too, because they're building like chains to build other chains, right? Like the Superchain and stuff like that. But it feels like long term here. I mean, like every company could get their own L2 or own chain. What do you guys think of that thesis?

Yeah, I saw that. I saw that headline too. I actually sent it to Alex before this podcast. Well, I think, uh, okay, so like don't Arbitrum, Optimism, Polygon, they all have kind of their like out of the box solution for you to copy paste, kind of create your own. Yeah.

ZK-Sync, Optimism, Arbitrum, Polygon. They all do.

Yeah.

It used to be other parties and then providers too.

Like if it's not them, it's Gelato, Caldera. Yeah.

Crafting with Ink, right? Like, uh, I forget which one.

Ink is using Optimism Superchain.

Yeah.

Yeah, I don't know what I took away from that Deutsche Bank headline in particular is just like, it's interesting that they chose an L2 on Ethereum, you know, like they could have built somewhere else like they and they chose, they chose Ethereum. And I feel like all these like tradfi, like even coming from the tradfi world, they want to, they want something that's going to be like highly secure and where there already is like a big network. And so I do think like Ethereum is going to be the place that they go when they're starting to experiment with like permissionless, truly like decentralized Web3. And we saw it with Coinbase, with BASE. They chose Optimism, obviously. BlackRock, when they tokenized the money market fund Biddle, they chose Ethereum. Even like Franklin Templeton, right? They had a tokenized money market fund before Biddle. Benji, and that, that I think was on Stellar. But then when they realized like not a lot was going on Stellar, they, they went to Polygon. And then I think Deutsche Bank is another interesting example of that. So I do think more chains, and they'll be like, yeah, Ethereum will be like kind of the first stepping stone for, for a lot of like tradfi and corporates via L2s.

Yeah, yeah, I think that's a— I mean, Alex, you were at Two Sigma and AQR before this, it, it does feel like ETH is becoming— is like pretty firmly planted, I would say, as like the chain of the institutions, like the thing that they feel comfortable with. I'm curious how you—

I don't know if you still keep in touch with your old TradFi folks, but yeah, I don't, I don't, uh, I would be shocked if they were like building something on Ethereum. No, yeah, no, no, I know, um, like let's say AQR went and—

I don't know if they do any crypto stuff, but if they went and opened up a pool or like deployed on crypto in, on some, in crypto. Like, would they do it in Solana? Would they do it in— I doubt they're doing it in like Movement Labs. Like, I bet they're, you know, I would assume they're just doing it on, in like on Ethereum.

Yeah, I feel like there's going to be exceptions, right? Like, you know, didn't PayPal like they chose, they chose Solana, right? Like, yeah, that whole—

well, Andy, ETH and Solana. Those are the two. Yeah, yeah, yeah.

So I think there's going to be exceptions, but I think it gets back to that same TVL argument we were talking about before. You have all this economic security locked on Ethereum and maybe it's not moving around a ton. There's not a ton of velocity, but it's like we're choosing it because it feels like the safer, more secure option. So I think that, yeah, I feel like that is part of it, like ETH being the tradfi chain.

The other thing at play here is, is like, uh, just the decision to roll your own chain versus launch your token on someone else's blockchain. Um, it— there's a real adverse selection problem when you don't let someone roll your own chain. Like, adverse selection in the sense that, uh, usually the best or the most ambitious founders, uh, or like the organizations that have very specific requirements and have to actually get those requirements done are going to choose to roll their own chain because you get to control the economics, you get to control all sorts of who gets to use the chain to some extent, right? And yeah, you get sequencer fees and it's like no joke, right? So especially if you're like a corporate that can't launch a token like Base, there's no way they Yeah, I mean, they like, yeah, they wouldn't just launch a Solana, like they get to, they get to get sequencer fees, you know, and that's the way that their, uh, that's the way that their stock is valued, right? So there's no concept of like launching your own chain on Solana that you get to keep the fee, whatever, right? Um, so over time that becomes more pronounced, right? Like Solana is going to lose these kinds of organizations that have to, that really want to maximize on revenue and on fees to layer 2s or something like that. And, uh, or to like founders that want to like control their own ecosystem, right?

Yeah. Yeah. What do you, um, what do you think ends up happening to Solana? Because I think there's a good argument to be made that everything ETH is going through now, Solana is going to have to end up going through, and it's probably the next, the next cycle Solana will be in the place that ETH is in today. Curious to get your guys' predictions on that.

I'll just say, I think like Solana is objectively crushing it. They're far and away the number 2 today. I don't, I don't mean that demeaning. The fact that that could even be taken as like an insult, uh, is good. Like, um, and it sometimes flips ETH like on fees and DEX volume and things like that. Um, and we, we have like this very, uh, like subjective piece of data, which is where are all the best founders building, uh, that non-VCs typically don't really get to see. I mean, you get to see it too, of course, but it's clearly like either Ethereum or Solana. And the number 3 is very, very far behind. I do think like, yeah, some of the value, some of the rapid appreciation of SOL in 2023 was obviously because like people love buying a low-val chain that can run further and run faster, right, than a really high-value chain. Um, but yeah, they've like out-executed the EF by a mile. Um, I guess in terms of the problems, like, yeah, Solana also has to think about how do you recruit the best infrastructure developers, right? And I think you're seeing this a little bit, like a lot of like longtime Solana people are sort of quietly leaving or quitting to start their own projects. DoubleZero is, is kind of an example of this. It's like a very cool project to create the new internet and it's a lot of people who used to be working on Solana. I get it. Like, yeah, you want to like be a founder. A lot of economics to that. You can launch your own token.

Yeah.

How do you pay for developers? Like, eventually Jump and before that FTX, like, can't like subsidize this forever, right? I actually think my, like, my prediction is that Solana will modularize pretty significant, like whether, whether it wants to or not, it will modularize. Pretty significantly in 2025. Probably not to the same extent that ETH has, right? Or as intentionally. But how else can it get like— how else can attract the best infrastructure developers? How else can it like experiment with like alt VMs and other approaches that, you know, the core team doesn't want to experiment with, right?

Will this be top-down? Like, will this be totally saying we need to modularize, or will this be founders like, like Zeta Markets launch their own L2? Like, will this be just founders saying, hey, look, I'm launching an L2?

I mean, I think that the— probably the thing that is the best about the Solana Foundation is how receptive they are to user feedback.

Right.

So probably both, you know, like they don't have their heads in the sand. They're not— they get it. They see that. They see the writing on the wall when it comes. But yeah, it's obviously, it's obviously bottoms up to start. Like, um, yeah, you have these like really great projects and DEXs that want to roll their own chain. You have a corporate come in and say like, we need a sequencer or else, and then they're like, okay, well, we'll figure some way to work with you, right? Um, there's some projects like doing this already. There's like projects to decentralize, like to build, like to build like a sequencer style rollup on top of, uh, Solana, like Roam Protocol is something that does this, and they work pretty closely with the Solana dev team. So, you know, it's a bit of both, right? Um, obviously it breaks down the monolithic or composable integrated, whatever the word is, uh, narrative. But, you know, it's better than the alternative, right?

Yeah. But Bodhi, do you have any thoughts on Solana next year?

Yeah, well, I thought it was interesting what you said, like, in next cycle, if Solana has the same issues that Ethereum does, like what we're talking about, like, yeah, then they're gonna have— they, if they go modular something that we didn't discuss in this whole conversation is like the shitty user experience right now with modular.

Yeah, I saw you guys mentioned composability, Kyle, in the piece.

Yeah, well, Kyle, I mean, Alex talked about he reviewed the piece before.

I saw that.

Yeah. But yeah, so if Ethereum kind of figures out all these UX issues, like, yeah, it's a pain bridging from multiple chains and managing different tokens and stuff. Maybe Solana is going to go through those same growing pains and they can take advantage of some of, like, I don't know, the tech or the cross-chain communication or like the abstraction layers that are built for Ethereum. So yeah, maybe they'll go through the same. I don't really have a prediction for kind of whether they go modular or not, but if they go modular, like them going through the same growing pains that Ethereum is going through right now could be repeated too.

Hmm.

What do you think performs better in '25, Ether or SOL? Hmm.

I mean, SOL's looking pretty good. I think it's hard to say between the two. You know, both of them have underperformed Bitcoin in 2024, actually. I would guess the biggest winner like, whatever, whoever it is, the biggest winner, like, from a, from a ROI perspective, will be a new L1, uh, that's trying to be a better SOL or a better ETH. We're probably gonna start seeing, like, some better ETH too this cycle. Um, and I would guess, like, yeah, unquestionably a major L2 will also outperform ETH in, uh, in 2025 as well, right? I don't know, what do you think?

Well, for me, like, uh, I don't know, like, uh, a basket of Ethereum modular, uh, will outperform Solana. Uh, I don't know if it's for 2025.

Really? Like, you think like some combo of like Arbitrum, Optimism, Celestia, whatever, insert your bags, whatever they are, like, that will— yeah, really interesting.

Well, I think like, yeah, that's obviously like a little bit more complicated because how do you, how do you weight it, you know, and like how often do you rebalance it?

But I think some sort of like, yeah, combination of those things, or at least like a major, not like a really subscale coin, like a major L2, I'm sure will outperform Solana, probably a couple of them, right?

I mean, there aren't that many major L2s. It's like I don't want to name names because I'll inevitably forget them, but like there's what, 5 major L2s?

Yeah. I mean, more, more coming, but yeah. Huh.

I take the other side of that. That's interesting.

All right.

I mean, the consensus trade in crypto is that Solana will outperform those, I guess, just because they've been performing so poorly. But I think that's an interesting counter, counter take. Is there something that's driving that, or is it just like, look, SOL's up 25x and most of the modular coins are like down or flat?

I feel like there is some mean reversion to it. I feel like things do mean revert, but, uh, I guess it's also a question, question of like, uh, market cap versus token like appreciation. Like you have all of these like new layer 2s coming to market, like a movement that just you know, launched at $6, $7, $8 billion, like, right from zero. Yeah. So it's like, uh, I think there's going to be like more of those, uh, coming to market, uh, like exciting kind of token launches on L2s. Yeah. So like kind of a $0 to $8 billion, uh, is a— yeah, pretty hard, hard to beat.

Yeah.

I mean, you also have like Mega and Monad and, uh, Bera and like, I mean, just a whole bunch of folks. So Yeah, totally.

I mean, you even have like Layer 2s that are SVM on, uh, on Ethereum, right? So I think it's just like a bet on, uh, cool infrastructure and like Solana and the Solana core team not having a monopoly on that, right? Like, yeah, like something very interesting will emerge from this really cool technology and the developers will really want to flock to it. And people want to buy it. And eventually, probably having like dozens or hundreds of teams working on this and in their startup mode, like working nonstop, whatever, right? Or founder mode, whatever it is, uh, something like that. And also the fact that Solana is also really, really high already. Something between the combination of those two things should lead to some like pretty surprising results, I think. Yeah, cool. Um, it would be really weird if like it all stopped here. Like, I don't, you know, like, or just hope this L1 roadmap was the best thing possible, you know?

Yeah, I don't think that'll be the case. I mean, I think we'll be funding L1s and L2s into eternity, basically. Like, I don't think we're— I mean, I saw a cloud provider just raised $200 million the other day. Like, there's— it's not like, you know, we have AWS and Azure and GCP, so we're done funding cloud.

Like, yeah. Well, the issue is, I mean, actually we were done funding cloud until AI happened.

Well, now we're back. Yeah. Now, now, now we're getting a whole new cycle of cloud, like AI optimized cloud.

Right. Yeah. And there's just like, there's a lot more of those. Like when we say AI happened, there was some like crazy tech paradigm shift that changes things that, you know, and you have to like reorient your technical architecture to make it work and it. If you don't do it, it's like a 10 or 100x.

So maybe we fund L1s and L2s for another 5 years and then we stop and then quantum happens and then we have to fund L2s again.

But there's a lot of good stuff. Privacy would be cool.

I'm kidding. I'm kidding.

Another 100x improvement. Let's get 500,000 TPU. If we get an L2 that does that or an L1 or whatever, I'm sure that would— Solana is going to have to compete or whatever, right? I guess it'll like, we're just so— I say this like the internet's like 40 years old, right? Maybe 50. And it's kind of, and I guess AI is part of it, but like before AI, things were getting pretty slow. Like all the value on cool infra was getting built by like 4 big companies. Now that's starting to change. So I'm sure that'll happen eventually. Like, but you know, probably 20 years from now. Right.

Yeah, yeah. As we think about wrapping, any other contentious predictions for '25?

I think, I think it's the optimism is probably pretty warranted around the US, you know, I think there's like a ton of random positive convexity, like positive, insanely sort of surprising. But if you look at it in the grand scheme of things, not surprising things that can happen. when the US is so incredibly bullish on crypto. Yeah, the Bitcoin Reserve is like one of those. There's probably like 4 or 5 others on the horizon that could be like really, really good news. I feel like in crypto we're always predisposed— I mean, at least I'm predisposed to find— to think that the good news is never going to happen. Like, I thought like when Facebook was going to launch a blockchain in 20— what was that, 2018, 2019? That was going to change the world, but then it, you know, got shut down, right? But it feels like the things happening in the US at least are of that level or more. Yeah.

Yeah.

The only— this is kind of just an interesting kind of more like VC market thing, but the VC market is still very, very, very much below its highs in Q1 of '22 in terms of capital deployed. So I think that's going to increase a lot and maybe reach prior peaks in 2025.

Yeah, it feels like that could actually be a cycle extender in my opinion. Like if you look at the charts, yeah, we're way down from, from 2021, right? And way, way, way down from like Q3, Q4 '21.

Yeah.

And it feels like there's starting to be consensus that like, I don't know, prices will top in like somewhere between May to October of 2025. But the thing that I would argue could extend it is the venture money has been a little delayed this cycle, um, for, for many different reasons— regulatory, FTX, like a whole bunch of different stuff. Funds, just fund life cycles and raising. I think most funds are raising right now and starting to close their new funds right around this time, I would say. Um, and so all of that deploying happens in— you don't deploy in 3 months, right? You got to call the capital, you got to deploy. So I think the deploying will actually drive cycle a little farther than people are expecting.

So you think maybe the, the highs will be pushed more like Q4, maybe even Q1 '26?

I have— I am— God, you know, the word— I'm a horrible trader, so I would not listen to me. I mean, I originally was basically just— I was— I, I used to think it was probably fall of '25, like September, October time frame, and then I started thinking like maybe it'll actually be earlier. And actually, Roe started to convince me it'd be a little bit earlier, like May. And then if it's gonna be May, you might want to front run the people selling, so then it's like April or March.

And then—

but honestly, it's just not fun to think that way. You get, you get too bearish, um, and you— it's like, we only have 3 more months of this cycle, that sucks. So I'm now reframing how I talk about this publicly to say this cycle is going to be extended. That's fine.

The thing is, some of that is baked in already, in the sense that historically most institutional capital comes in via venture and private markets. And that has like some effect, but not really that much on liquid markets. I mean, it does eventually, but it takes a while to trickle through. It might take multiple years. Um, and, uh, and so you see this, like, if you actually look at like, uh, when the very biggest, uh, both venture fundraisers and just like the big, the big multi-hundred million, like the DFINITY round and the Telegram round.

Yeah. Yeah.

This was, this was two cycles ago. They all happened like mid-2018.

Like EOS, EOS was $4 billion in May of 2018. Like that's 6 months after the highs.

Totally, totally. Yeah. And the biggest rounds by far were the ones that were like a week before Terra blew up. You know, that was the easiest time. Then Terra was a bit of a, you know, that caused a lot of stuff to happen to me. Like that was a bit of a shock. But, but yeah, but at that point, like Bitcoin was already down like 30% or something, right? So yeah, institutions are very slow moving, you know, like even today you look at the— I'm sure you have like people on who talk about this, but the ETFs, they, uh, have very little institutional capital coming into them. It's mostly retail, it's retirement accounts, maybe some like registered investment advisors. The stuff like the pensions, the sovereigns, the really huge pools of capital have not really come into crypto yet at all. And it'll take a while for them to do it, you know, like many, many months. So if they choose to— yeah.

Um, Alex and Alex, we can go forever, um, but I have to jump, and I know you guys do, uh, too. So this is great. Thank you guys for coming on. Um, we will link the piece that you guys wrote about modularizing ETH and was it a good idea or a bad idea and the impact of it and what the future could look like. We'll link it in the show notes. Um, yeah, thank you guys for the time.

Thank you, Jason Yanowitz.

Hey everyone, thanks for watching today's episode. Just wanted to quickly thank today's title sponsor, SKALE. SKALE really is one of the best chain experiences out there today, and I've used so many different chains. There's a reason they are gaining so much adoption in both gaming and AI use cases. Hit the link in the show notes to explore the SKALE ecosystem.

Jason Yanowitz.